January was a surprising month. After a troubling 2022, the markets began this year with a jump. The S&P 500 was up 6.2%, and the NASDAQ up was up 10.7%. This was not something that was widely expected.
Our modern economy is now constantly buffeted by fiscal, political, and monetary interference. The point here is that trying to make predictions of what is coming is at best difficult, and often impossible. It is difficult to know what to do.
Our last letter was titled “2023 Back to Normal”. It argued that going forward, the markets would not behave like they have in the previous decade. When the Federal Reserve dropped interest rates to historic lows and ballooned the money supply, Growth stocks were king. Their current earnings and intrinsic value mattered less than the projections of future gains. Growth stock prices rose beyond what was traditionally fair value. This changed last year. The premium of large Growth stocks diminished, and the mania for new disruptor stocks popped.
Fortunately, the market is re-discovering Value Stocks (i.e., the great industrial, financial, and medical companies that build America). These companies have an established history and a well-documented future direction. Many pay dividends (which have historically been a meaningful part of returns over the last decades). Their story may not be exciting, but a successful long-term track record is not uncommon. It is time to rediscover Value stocks.
At WST, we believe going forward, as it has been in the past, progress will continue to happen in fits and starts and markets will be volatile. Furthermore, we believe the solution is a thoughtfully built and monitored portfolio of investments that is highly diversified and as always, our resolve and the markets will be tested. Keep the faith.
Know what you own, do not overinvest, and stick with quality.
-Cliff Jarvis