FIRST SHELBOURNE LLC
COMMACK, NEW YORK 11725

MEMORANDUM FOR FIRST SHELBOURNE CLIENTS

DATE:             JANUARY 27, 2026

FROM:           CHRISTOPHER WARGAS - PRESIDENT

SUBJECT:      2025 PRESIDENTS' LETTER

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To my fellow clients,

     
     This year’s annual letter is built around the timeless wisdom of the ancient Stoics, their stories, teachings, and sharp one‑liners. Their ideas may be old, but their insights into risk, discipline, and emotion still carry serious weight in today’s financial markets. Investing often presents a strange paradox: the surest path to wealth is usually the most boring one. Whether I’m managing a portfolio of stocks, bonds, or a strategic blend of both for you, you’ve made a choice to invest with discipline rather than emotion. As we put 2025 behind us, let me discuss a few topics. 

On Stocks and the Nature of Ownership

     Current equity valuations are, by historical measures, elevated. Future stock returns will likely be more modest than what we've enjoyed in recent years. And yet, I remain convinced that owning productive businesses while not overpaying is the single most reliable hedge against the erosion of purchasing power caused by a declining currency. As Warren Buffett has said, "The best time to plant a tree was 20 years ago. The second best time is now."  This doesn’t mean that we jump into highly overvalued indexes. For instance, international stocks and emerging markets are trading at much lower valuations than the S&P 500. In my opinion, this makes a solid case for a total world stock index providing more value going forward. 

     As for U.S. indexes, there are also many that trade at decent valuations compared to the tech-heavy Nasdaq. The Dow Jones U.S. Dividend 100 Index is one that comes to mind. This index trades at 17x earnings, boasts a massive 28% return on equity, and pays almost a fat 4% dividend yield. Why own the S&P 500 when it trades at almost 25x earnings and pays a paltry 1% dividend? Sadly, most 401k plans across America don't have access to indexes that trade at lower valuations than that of the general market.

     To own a stake in a well‑managed business is to participate in human ingenuity, capital formation, and the creation of real value. It's an antidote to the passive despair of watching inflation erode your savings. Yet, and this is critical, ownership must be patient, and one can’t overpay. Epictetus, the Stoic philosopher who began life as a slave, understood something important: "Wealth consists not in having great possessions, but in having few wants and steady discipline." The investor who buys and holds quality businesses at fair prices, immune to market noise, embodies that principle.

On Bonds and the Virtue of Peace

     Here's what I want to say directly to those of you who have chosen a bond-heavy or all-bond portfolio: you are not missing out. You are, in fact, making one of the most sophisticated investment decisions available.

     Too often, bonds are viewed as the "boring" choice, the refuge of the timid. Nothing could be further from the truth. A well-constructed bond portfolio is an exercise in stoic wisdom. Marcus Aurelius, one of history's most powerful men, wrote: "You have power over your mind, not outside events. Realize this, and you will find strength." A bond portfolio, by design, removes the need to constantly evaluate and second-guess yourself in response to equity market gyrations. It provides what I would argue is more valuable than growth. It provides certainty of sleep.

     Consider the mathematics. If you are 70 years old with $1 million in capital, earning 4% on short‑duration bonds, this yields $40,000 annually. For many retirees, this is abundance when paired with other forms of income. The ability to sleep soundly, to plan with confidence, and to know your principal is intact when markets crater is worth far more than chasing an extra 2% or 3% in volatile equity returns. As Seneca, Nero's advisor and another great Stoic wrote: "It’s not the man who has too little, but the man who craves more, that is poor."

     In 2025, I’ve maintained the conviction that short‑duration bonds offer fair compensation for the risks taken. Investors holding bonds today are being paid adequately, no longer starved for yield. There’s dignity and wisdom in that trade. 

On Gold, Silver, and the Allure of Quick Riches

     Every year, investors ask about alternatives, assets that promise to solve every problem simultaneously. Gold and silver have held human fascination for millennia, yet their history is one of volatility masquerading as stability. Gold is not always golden. It produces no earnings, no dividends, and no cash flow. Over centuries, well‑managed businesses have outperformed static assets by orders of magnitude. Yet we maintain small positions in select gold‑mining companies for a few clients with appropriate risk appetites. These investments require knowledge of geology, mining operations, and capital cycles. Mining stocks are absolutely not for retirees seeking peace of mind. I believe many of the miners offer much better value at this point in the cycle than bullion offers. With gold having surpassed $5,000 per ounce, many smaller explorers continue to trade as if gold is still trading at $2,500. Buying gold in the ground is now cheaper than the bullion. The real risk here is execution. Mining management teams must execute and make good on their promises. 

On Crypto

     Finally, regarding cryptocurrencies, in 2025, I formally banned crypto investments in managed portfolios. This decision reflects not a judgment on the holders of these assets, but rather a clear-eyed assessment of what cryptocurrency actually is. It’s speculation, not investment. It produces no earnings and has no intrinsic value. Its price depends entirely on what the next buyer is willing to pay. Yes, we can say the same about gold, but gold has thousands of years of history behind it, and central banks globally are buying it. Major central banks are not buying Bitcoin.

     Some of you may own crypto outside my management. That’s your prerogative. But within the accounts I steward, I remain committed to investments grounded in economic reality, businesses with cash flows, bonds backed by creditworthiness, and real assets with utility. As Warren Buffett noted with characteristic simplicity: "Rule No. 1: Never lose money. Rule No. 2: Never forget rule No. 1." Speculation violates rule No. 1 more often than not.

The Path Forward

     Here is what binds all of your portfolios, whether heavily weighted toward stocks, bonds, or some measured combination: a shared commitment to avoiding catastrophic capital impairment. The Stoics understood that the root of all despair is the loss of things once held. My job is to grow your wealth, yes, but first and foremost, to preserve it. To build it incrementally. To let compounding work its quiet magic over decades, not quarters. Whether you've chosen equities for their growth potential or bonds for their stability, you've made a deliberate choice. That deliberation is itself an act of wisdom.

     As we begin 2026, let us remain focused on what we can control: our temperament, our discipline, and our commitment to thinking long-term in a world obsessed with the short-term.

Respectfully,

/s/ Christopher Wargas
President, First Shelbourne