Here There Everywhere
Last year we witnessed the collapse of high multiple stocks as the Fed pushed interest rates higher to fight inflation. This year the bounce back has been remarkable. Even so, the three-year average return of the Standard and Poor’s index has only been 7.7% and the NASDAQ composite at just 5.3%.
The difference in performance between the average stock and the big seven stocks has been dramatic and has left many investors in the cold. This is specifically true among the value investors who have underperformed. These periods can be met with reversals which bring returns back to the mean. It is possible that 2024 will bring value investing to the fore as higher rates and a tired and overindebted consumer slow the economy. If declining rates are met with good earnings, the markets might continue their upward trend. However, if earnings slow and recession fears spread, the markets could run out of steam.
The big tech companies are crushing it! Their balance sheets are flush with cash and their earnings power remains strong. Despite continued high valuations the market continues to show love to these companies. Their leadership, however, has been at the expense of the average stock. In fact, the equal market weighted index of the Standard and Poor’s companies is up only 3.75% so far this year and only 1.15% in the last twelve months.
Oil prices have moderated also portending a slower rate of economic growth. Gold, however, has held steady and recently moved higher. This could be predicting a stubborn inflationary environment. It is also possible that the rally in gold has been helped by moderating interest rates as lower rates make it less expensive to borrow and buy collectibles.
As we observed in 2022, alternative investments such as market-neutral hedge funds helped to dampen volatility in portfolios. This has held steadfastly true over the years. We are proud of the alternative investments that we have in our portfolios, and are looking forward to continued success in this area.
As we move to 2024, we are expecting problems in traditional commercial real estate assets and credit which has been extended to poorly financed enterprises. If we do not have a soft landing, these problems could be exacerbated.
Biotech is our special interest in the coming years. Artificial Intelligence will help drive biotech to new heights. We are looking at the best ways to include these types of investments in your portfolios.
The world is a mess – here, there and everywhere. Our prayer is for peace across the globe and good health for our family and friends.
Albert Einstein had said, “Learn from yesterday, live for today, hope for tomorrow.”
Thank you for your trust and confidence this past year. The best part of our business is the relationships that we have built for over thirty-four years. Those of you who know me, know that I love what I do. My New Year’s wish is that I am able to serve you, as your “family manager” for a very long time.
Charlie Munger, Warren Buffet’s partner and Vice Chair of Berkshire Hathaway, has passed at 99. G-d rest his soul. He was a legend in our business and a great man. I would certainly take 99 right now and hope to serve you until then.
Happy Holidays!
As Always,
Seymour W. Zises
