January 2026 Client Letter
Dear Clients and Friends,
I'm happy to report on another very successful year in our plan for the pursuit of your most cherished financial goals. Our plan, and therefore your portfolio, continue to be driven by these goals, rather than by any prognostication around the economy or the markets. That will always be the case, throughout the coming year, and beyond.
I'll start by restating some of the core beliefs that guide our planning and investment approach, and then offer a few comments about the economic/financial backdrop.
General Principles:
• We are long-term, goal-focused, plan-driven investors. Our core investment policy is to pursue your goals by investing in broadly diversified portfolios of quality equities.
• We believe that the economy cannot be consistently forecast, nor the markets consistently timed. Moreover, we find no predictable pattern in the way markets react to—or choose to ignore—economic developments.
• We conclude from these beliefs that the only way to be reasonably confident of capturing the full premium return of equities is to ride out their frequent, sometimes significant, but historically always temporary declines.
• We do not react to, much less try to anticipate, economic and/or market events. As long as your long-term goals remain unchanged, so will our plan for their achievement. And as long as our plan remains constant, so (except for annual rebalancing) will your portfolio.
• We believe that long-term compounding of quality equities is the most important force guiding us toward the achievement of your goals. And we're obedient to the late Charlie Munger's dictum, “The first law of compounding is to never interrupt it unnecessarily.”
Current Commentary:
• In 2025, the broad equity market completed its third straight year of double-digit returns, driven by a strong economy and significantly increased corporate earnings. The S&P 500 ended the year up 16.4%.
• The consensus of analysts' forecasts is for even stronger earnings gains approaching 15% in each of 2026 and 2027 (source: Yardeni Research).
• Somewhat remarkably, profit margins have continued to expand—to 13.1% in the third quarter of 2025, the highest in 15 years (source FactSet). One would have thought that inflation in companies' costs colliding with a straitened consumer's resistance to price increases would have been a significant headwind here. So far, at least, one would have been quite wrong.
• The single important weak spot has been the employment picture, which has continued to soften. But even this has its significant bright side: strong economic growth and a flattish employment situation mean that per capita productivity has been rising strongly. Unemployment may have recently ticked up to 4.7%, but the other 95%-plus of the workforce is putting out significantly increased products/services per hour; that allows companies to raise wages without triggering inflation.
• After six straight rate cuts, Federal Reserve monetary policy is 175 basis points looser than it was a year ago, even with sticky CPI inflation still pushing three percent. It seems more than reasonable to expect the lagged effects of all this easing to begin showing up in 2026.
• The middle class in particular is set to enjoy tax refunds this filing season which have been variously estimated around $150 billion, or half a percentage point bump in GDP. The main engines of this are a higher standard deduction and (especially) a temporary restoration of the SALT tax deduction cap to $40,000 from $10,000. This would seem to be a potentially meaningful near-term economic tailwind.
• It would not surprise us in the least if much or most of the above salutary data come as news to you—except, of course, the part about the softening labor market, which journalism has trumpeted to the skies. In our opinion, there's good information in this for us. To wit, the economic/financial “news” we get tends to skew overwhelmingly negative by conscious design.
• The fact remains that a very strongly rising equity market may (and indeed should) have taken these data into account—and maybe then some. Thus, the burning question all year long was “Are we in an AI bubble?” This replaced the previous year's burning question “When and by how much will the Fed cut rates?” Which in turn replaced 2023's “Will there be a recession?”
• There was no recession, but that's beside the point. Which is that the universal burning question is usually if not always the wrong question, and a distraction to the well diversified long-term investor—like us.
• All of this suggests to us that the next significant market shock—and there always is one; they come along with almost the frequency of the crosstown bus—will probably come out of deep left field. And like all the shocks past, and all those yet to come, it will have very little to do with us, other than as a potential bargain-hunting exercise.
• We are following a plan that has always “worked” in the very long run, in that it has ultimately achieved the goals of investors like us. We do not accept that “this time is different” regardless of what “this” may be at any given moment. And thus, we don't adjust our strategy to accommodate the fads or fears of that moment. We don't go to cash during market panics, and we don't bet the ranch on “new era” miracles…like AI.
We wish all our friends and clients—because to us they're the same thing—a healthy, happy and prosperous 2026. We're always here to address your questions and concerns. Thank you for being our clients. It is a privilege to serve you.
Warm Regards,
David Henderson and the DCH Team
This is being provided for informational purposes only and should not be construed as a recommendation to buy or sell any specific securities. Past performance is no guarantee of future results, and all investing involves risk. Index returns shown are not reflective of actual performance nor reflect fees and expenses applicable to investing. One cannot invest directly in an index. The views expressed are those of David Henderson and do not necessarily reflect the views of Mutual Advisors, LLC, or any of its affiliates. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. DCH Wealth Management, nor any of its members, are tax accountants or legal attorneys, and do not provide tax or legal advice. For tax or legal advice, you should consult your tax or legal professional. Investment advisory services offered through Mutual Advisors, LLC, DBA DCH Wealth Management, an SEC registered investment adviser. Securities offered through Mutual Securities, Inc., member FINRA/SIPC. Mutual Securities, Inc. and Mutual Advisors, LLC are affiliated companies.