Famous last words.
Actually, I don’t believe that for a second but it made a good headline.
In 40 years of being involved in the equity business I have only seen two or three times when you knew what was coming. After the crash of ‘87 and around February or March of 2009. It was plainly obvious to me that enough was enough and the market would turn.
You know I am not a big proponent of timing the market but sometimes it smacks you in the face and those were two times I was smacked.
In 1987 I was still wet behind the ears and I was in no position to make any bold, declarative statements. But I did. I famously told one of our accounts on the Friday afternoon before Black Monday, “You will never see another day like this”. Oops.
I did learn a thing or two over the years and it is not so much timing a turn around in the market, it’s more taking a look at where the good stocks have gone, how far they have traversed and realizing that those good stocks are either worth way more than were they are trading at or are trading at a much higher multiple than they deserve.
It really is not rocket science.
I will give you an example: For an individual stock that has been trading at a certain multiple over a certain period of time, if you start to see it diverge from that multiple for a short period of time, you can decide if it is oversold or overbought and take the appropriate trading strategy to the bank.
I live by many axioms as far as investing is concerned and one of the most important ones is that stocks will always go back their valuation. They may run up or sell off with the market but over time, they will find that level again. When stocks are fairly priced, thats when investing gets much, much harder.
Of course a companies stock price is not in a vacuum. Their are a multitude of factors that alter a stocks price. A strike, a spike in a certain commodity price, personnel changes at the top and so on. Many can be seen a head of time, many can not. So, if you have a stock that looks undervalued, look at it’s price pattern, look at company news and look at competitors valuations and if there is a trend, make your decision based on that trend.
Another axiom everyone should learn to love is “Sometimes the best decisions are the ones you don’t make.
Sometimes doing nothing is the right call.
Back to the obvious and not so obvious.
First thing, one of the most obvious investment decisions of the last few years was being fully invested for this year. I have mentioned this a couple of times but sometimes historical facts are good indications of future trends and that was what happened this year. Last year sucked. It was plainly obvious to me and anyone who follows these things that this year, barring a nuclear war or another pandemic (another plainly obvious investment point) this year was going to be a rebound year. Two historical factors collided this year. The first one is that 76% of the time after a yearlong washout of stocks, stocks rebound an average of 11%. The second factor was a little more tenious but I believed it, and rightly so. The year before an election year which coincides with previous down year has been positive 100% of the time.
Those two factors slapped me in the face and said 2023 was going to be a good year for stocks. It has been and it will continue to be a good one.
The wild card for the last decade has been the Fed and I am pretty sure there going to leave things as they are when they meet in mid December. The do nothing and say even less policy will continue for another month or so. Where things might get interesting is the second quarter of next year.
I, like everyone else who follows these things, know that making educated guesses is what people do and when you are wrong or right you take your medicine.
The Fed next year will be juggling more balls than they already have. The election will be just one of the things the Fed will have to take into account. Even though they are supposed to be removed from politics, they aren’t. Also, we will be seeing a slow down in the economy in the late first quarter and through the second quarter. Recession? I don’t know. Maybe. However, we are slowing down and the Fed will have to balance the slowing and possible stalling of the economy and using their levers without making it look like they are inflating the economy for the President.
Typically markets do well in an election year. The Federal Government miraculously spends money in areas that seem to be important for whatever party is in power.
When a Democrat is in the White House you don’t see a whole lot of Fed monies going into states like New York or Illinois but you see a whole lot of money going into swing states like Georgia and Wisconsin. Wonder why?
In any event, they typically ramp up spending. This coming election year may not see that again because the last time the Biden administration ramped up spending it stoked the fires of inflation and it cost Americans roughly two trillion dollars in additional spending. Yeah so I am not so sure the Biden administration wants to revisit that idea.
That is another reason that next year will be tricky.
So, for now I will enjoy being right and continue to dig up ideas and reasons why things will happen. A lot of it is common sense for sure but you can never totally discount intelligent research. I don’t.
Good Article, and Yes, you are right......again!