Peter Lynch is one of the great modern investors. I believe those readers familiar with him remember his many years of positive returns. After all, during his 13 years managing the Magellan Fund, Lynch averaged a 29% return per year. With that kind of track record, it is hard to imagine that there were Magellan Fund investors who lost money. Yes, they lost money. In fact, one of my current clients lost money with Lynch. What most people who do remember Lynch and his track record do not recall is that he had two drawdowns – and at least one approached 40%. Investors in the Magellan Fund who bailed out when it was down 30% or 40% did lose money because they missed the upswing.

I bring this up since the clients at AFC have, between November 4, 2021 and March 14, 2022, seen their accounts drop, on the average, just under 40% – which is more than the S&P 500 TR drop of 16%. Within 10 days, from March 14, the accounts were recovering and had recovered about 17% compared to 5.8% for the S&P 500. The drop was more dramatic, but at this point the recovery seems to be happening more rapidly too. We have seen this trend before, at AFC, particularly during the ’08 financial crisis.

Drawdowns of 40% are not common and are disappointing. But as Warren Buffett’s partner Charlie Munger said: “If you’re not willing to react with equanimity to a market price decline of 50 percent two or three times a century, you’re not fit to be a common shareholder and you deserve the mediocre result you’re going to get compared to the people who do have the temperament, who can be more philosophical about these market fluctuations.”1

During AFC’s 17-year posted track-record, there have been 6 years of the composite of AFC’s accounts doing worse than the S&P 500 and 11 years beating that benchmark. The net result has been that the composite of AFC accounts has done better than the S&P 500TR, a feat fewer than one or two percent of money managers and very few, if any, financial advisors can claim.

I am right now more excited about the prospects for client portfolios than I have been in the 36 years that I have been a financial advisor. Yes, the market is dealing with adjustments returning to normal after the COVID-19 pandemic. Those include the  supply chain shortages which contribute to inflation. There is the war in the Ukraine and the resulting disruption of fossil fuels worldwide. There is the Fed, which is raising short-term rates and putting upward pressure on longer-term rates.

Despite those factors, companies had record profits last year and probably will again in 2022. The stocks in our portfolios, which have in some cases fared worse than the S&P 500, have shown profits not only at record levels but at higher increases than average. As Warren Buffett has said: “If you’re an investor, you’re looking on what the asset is going to do; if you’re a speculator, you’re commonly focusing on what the price of the object is going to do, and that’s not our game.”

At AFC, we are looking at what the companies in which we own the stocks are doing. It is not about the stock price but how well the company is doing and where that will take the stock price in the future. These are the factors that are causing my excitement for the remainder of this year and on to 2023 and 2024.

I have no doubt there will be winners and losers in the stock market. I have no doubt that changes will accelerate in technology, lifestyles, and demographics.

In his book Thinking Fast and Slow, Daniel Kahneman points out that most people when confronted with new information that contradicts their beliefs have two options. Either they will make a massive shift in their opinion, or they will ignore and discredit the new information.2 At AFC, we make every effort to thoroughly investigate new information and then embrace it. That is why I am so excited about the opportunities for clients. At AFC we have a passion for creating and maintaining wealth for our clients.

There are two types of people in this world. There are those people who sit and watch the world pass them by and there are those who recognize that this may be one of the best opportunities in years and will take advantage of it now. In all the years of writing this newsletter I have never made that statement before. I am making it now because I am so excited about this year.


A. Michael Adams
President & Principal

1. Charlie Munger Reveals Secrets to Getting Rich. YouTube. BBC, 2012.

2. Kahneman, Daniel. Thinking, Fast and Slow. New York: Farrar, Straus and Giroux, 2011.