Have you heard the one about the dog who caught the car? After chasing numerous automobiles, a dog finally caught up to one and then realized he had no idea what to do next. The market seems to be in that mode.
2024 has been a great year for the market: The economy has continued to grow faster than predicted; Inflation has slowly but surely gotten better; The elections are behind us, and there was a clear winner and no real protest. We enter the holiday season with a deep sigh of relief, but wondering, what now?
The initial market reaction to the election was positive, then investors started to wonder, “What is this Trump administration going to do? Will it be a policy repeat from the first Trump administration?” It could be, but then again, the rhetoric from the campaign trail was not the same. There are new people surrounding Trump who were not there in 2016. A few notable members of this group were on the other side in 2016. What will they do?
Pundits will speculate, but the truth is, we don’t know exactly what the policies of this new administration will be, or for that matter what world events will shape the next four years. So, what is an investor to do? Should we cash in our profits from this year or keep letting those winners run?
The answer can be found in a series of The Quarterly Report newsletters that I wrote in 2013. I began that year with “The Three Rules of Prudent Investing.” Rule one is that all prudent investing is done from the bottom-up. While traders on Wall Street love to speculate on politics, monetary policy, and even who wins the Super Bowl, the truth is that prudent investors focus on each individual investment from the bottom-up. Is this a company I want to own? Apple will sell phones no matter who is in the White House. People will eat at McDonald’s no matter what the Fed does with interest rates. Ultimately, what drives stock returns are the earning of the companies. The primary driver of those earnings is the quality of the company and its product or service.
Rule two is that all prudent investing is absolute return-oriented. I have never had a client whose financial goal was to beat a market index. Real people have real goals, like paying for retirement or their children’s education. There is a rate of return that must be achieved to reach those goals; that is the focus of prudent investors. The opposite of that is what I like to call competitive investing – always comparing to some random index or to what your neighbor claims. This leads to the fear of missing out (FOMO). FOMO leads to some of the dumbest decisions ever made, and not just in investing. Read here
Rule three is that all prudent investing is risk averse. We don’t take risk for risk’s sake; this is different than being risk avoidant. Risk averse means we manage risk, and only take risks that are prudent. Defense really does win championships. Read here
So, what are we going to do now? The same thing we have done since the day I left INVESCO and started Iron Capital in 2003: We are going to do the basic boring day-in and day-out work of prudent investing. We are going to invest from the bottom-up with specific goals in mind for each of our clients, and we will manage risk along the way. Don’t worry, we will pontificate on the world’s events just like everyone else, because it is fun and our clients enjoy it; we just won’t let that tail wag the investing dog.
It is Thanksgiving once more, and we have much for which to be thankful. This has been a year with a lot of change. I lost both of my parents last fall and will miss them at the Thanksgiving table. Iron Capital was acquired by AssuredPartners Investment Advisors (APIA) on June 1. After 21 years of being my own boss I am now part of a much bigger team. My wife has a brand new hip after suffering for too long on the one that no longer worked. My son has a fresh surgically repaired shoulder. This is the give and take of life. There is no return without risk, there is no joy without suffering, and there is no gratitude without loss. The old decays so that the new can grow. It has been a full year with both sadness and joy.
It is Thanksgiving, and I am extremely thankful. In keeping with our tradition here is my list:
~ I am thankful that we base our investment decisions on sound fundamentals, not narratives.
~ I am thankful for the strong foundation that my parents provided for my four siblings and me.
~ I am thankful that college basketball has begun, and that Wake Forest has two more wins than Duke and three more than UNC.
~ I am thankful for all my new APIA colleagues and the bright future we have.
~ I am thankful my wonderful wife and that she can once again keep up with the rest of the family.
~ I am thankful for my son and my daughter, both of whom are growing into wonderful human beings.
~ I am thankful for my family, immediate and extended.
~ I am thankful for my friends.
~ Of course, I’m always thankful for Mama’s pumpkin cheesecake, though she is no longer here to enjoy it. I don’t think she will mind me eating her slice.
~ Finally, I am thankful for you, our clients and friends. Your trust in Iron Capital and now APIA is our greatest asset, and we value it every day of the year.
Happy Thanksgiving!
Chuck Osborne, CFA
Managing Director
