Archive for category: Newsletter

Our focus on navigating the markets during this election year may prove to be more challenging at times. However, as discussed in past pieces, election year results typically have little impact on long-term investment returns. Instead, we are specifically focused on any significant White House policies that could impact or interrupt any longer-term theses we might have in play, especially in hotly contested topics such as healthcare policy, spending priorities like renewable energy and defense, and anticipated tax policy changes.

We must be careful here and go where the puck isn’t to butcher a Wayne Gretzky saying. That means being contrarian – focusing on opportunities in value and dividend-paying stocks and other stocks that have underperformed as well as stocks that are well-positioned to grow earnings and cashflow. There is clearly a path for continued appreciation in equities if the so called economic “Soft Landing” holds true and inflation continues to decelerate to more normalized levels. However, after coming off such a growth driven outperformance in stocks, we are more comfortable primarily sticking to finding undervalued companies with durable cash flows, solid balance sheets, strong competitive positions, and consistent dividend growth that trade at attractive valuations.

Despite the prevailing economic concerns, as investors, we must look through the noise and focus on what matters most – identifying high-quality companies that can benefit from any economic malaise. With many potential risks still lurking, we continue to opt for companies with durable cash flows, strong balance sheets, and strong competitive positions, trading at attractive valuations.

The walls of worry are endless, and the odds of the U.S. entering a recession are a foregone conclusion, especially if you ask any economist at any major investment firm. But the market is forward-looking and often a good predictor of what may come. Thus, it is plausible that 2022’s negative returns were the market telling us that we are in or entering a recession. As contrarian Humphrey B. Neill says, when everyone thinks alike, they are often wrong. It’s better to think creatively and differently about possible outcomes and timing.

We believe in the resilience of capitalism and the ability for well-run companies to adjust and manage through times like this. So, we look at the next 6-8 months as a time to be picky, to diversify, and to avoid big calls or undue risks, especially after the powerful multiyear run we have enjoyed in the equity markets. Hopefully things turn out better AND sooner, but let’s not expect that. This year will be one to build portfolios for the next leg in the economic cycle.