“Every time, in my roughly half-century of investing, I became convinced that I knew something the market didn’t; it wasn’t the market that turned out to be wrong.”
-Nick Murray
Register Now for January 24th
As you know, we have changed the format for our “Great Investors” series from a monthly written commentary to a quarterly livestream seminar format. We will deliver a brief talk and summarize our outlook on current events, delivered in the same style you have come to appreciate in our monthly article series. We will then have ample time for Q&A and discussion in order to address any additional questions you may have.
Our next webinar will be held on Wednesday, January 24th, and will be available in person and via online live streaming for those who can attend. For those who attend in person, our talk will be followed by a cocktail reception. We will also make a recording available for those who cannot attend at the scheduled time.
Please find the registration link here, where you can register to attend or request a copy of the recording.
In last month’s article, we were reminded to never underestimate the power of human ingenuity. This month, we notice that the “bear” is still not growling.
The Bear is Still Not Growling
Back in May, we published an article about the surprisingly positive behavior of the global equity markets over the last 24 months, despite the litany of disasters we have been subjected to on the front pages of our morning newspapers. It may be worth reiterating and updating this point as the end of the year draws near, as we suspect that this may be the primary theme of our upcoming webinar in January.
The S&P 500 last hit an all-time peak back in January of 2022, and given the scary geopolitical events of the last 24 months, it is no surprise that stocks have languished ever since. Consider all that has occurred over the last two years:
- Geopolitically, it seems that important shifts are occurring in the global balance of power that has favored America for so long. In the last year, the war in Ukraine has continued and appears to be morphing into a dangerous proxy war between Russia and the West. An increasingly militant China continues to threaten hostilities against Taiwan. And the Middle East has once again exploded in violence as Iran continues to get closer to becoming a nuclear power.
- Here in the U.S., millions of migrants have entered the country illegally, devastating local economies and increasingly burdening the resources of several large American cities. Our country’s budget deficit and national debt have continued to increase at rates that appear unsustainable in the long run. Social Security and Medicare have continued on parallel paths to eventual insolvency unless reformed. Serial government shutdowns continue to loom, and we appear to be careening toward another bitterly partisan presidential election.
- Likewise, the stability of the world’s financial system seems to be more fragile than it has been at any time since the Financial Crisis of 2008-09. This year has brought multiple high-profile bank failures in the U.S., the demise of a major global financial institution (Credit Suisse), and the continuing habit of developed countries increasing their debt significantly faster than their economies are growing. Though the rate of inflation has slowed considerably, prices themselves have not come down, seriously stressing middle-class households. The affordability of the single-family home is at a low point historically.
- Since March of 2022, the “Federal Funds” short-term interest rate has increased a whopping five percent, from a rate of .25% to the current range of 5.25%-5.5%, which is the largest and fastest rate spike in history. In response to these rate increases, both equity and bond markets have declined, corporate earnings have struggled, several banks have failed, commercial real estate has wobbled, and many investors have begun to worry about the stability of the U.S. Dollar.
In short, as the media will no doubt constantly remind us, we should expect that the total chaos of the last few years is not going away and that, in fact, new and even nastier surprises can’t be ruled out. The “expected fact” that should be demonstrated in this circumstance is that the world should be experiencing a sharp bear market in stocks.
Despite all of this, the global equity market is not experiencing a sharp bear market at all right now. In fact, the S&P 500 hit a low point of 3,577 over a year ago, back on October 12th of 2022, and today stands more than 31% higher at a level of 4,707, very close to making another all-time high. Given the litany of disasters described above, the equity market should be hitting new lows — but it is not. Of course, it may still do so. But for now, we have a significant “absence of expected facts,” which may have some important meaning.
We must concur with Nick Murray’s quote above, and agree that in our long experience as investors, “We have become convinced that is we knew something the market didn’t, it wasn’t the market that turned out to be wrong.”
Helping Those You Care About
Over the last year and a half, the faith of all long-term investors has been severely tested. As must happen every few years, we were basically required to do just one big thing: reject the idea that “this time it’s different” and hew to the belief that “this too shall pass.” We must not doubt that we’ll get many additional opportunities to practice patience and discipline in the years to come.
Successful investing, while always fundamentally simple, will never be easy. You may have a family member, colleague, or friend who perhaps did not fare as well during the 2022-23 bear market and who you feel might have benefited from the sort of advice you were receiving. Should that be the case, we would certainly appreciate your introducing us to them. We very much enjoy working with you and would welcome the opportunity to offer the same level of planning and service to people whom you care about.
You are more than welcome to bring a friend or family member to our event on January 24th or to share the recording of our discussion that night.