In a few weeks, it will be 40 years since I entered the investment business. Every one of those years has involved me spending some number of hours on a weekend drafting a market letter. For the first 10 years I alternated quarterly letters with my late partner Ernie Kiehne; the past 30 years I have done one every quarter. Having passed my biblically allotted three score and 10 years, it seems reasonable to free up those hours to pursue more productive pursuits such as walking the dog or taking a nap. Accordingly, I will leave future ruminations on the market to Samantha McLemore and Bill Miller IV to make as they see fit.
Over the past decade or so my letters have been focused mostly on saying the same thing: we are in a bull market that began in March of 2009 and continues, accompanied by the typical and inevitable pullbacks and corrections. Its end will come either when stocks get too expensive relative to bonds or when earnings decline, neither of which is the case now. There have been a few other themes: since no one has privileged access to the future, forecasting the market is a waste of time. It is more useful to try and understand what is happening now and give up trying to predict what is going to happen. In the post-war period the US stock market has gone up in around 70% of the years because the US economy grows most of the time. Odds much less favorable than that have made casino owners very rich, yet most investors try to guess the 30% of the time stocks decline, or even worse spend time trying to surf, to no avail, the quarterly up and down waves in the market. Most of the returns in stocks are concentrated in sharp bursts beginning in periods of great pessimism or fear, as we saw most recently in the 2020 pandemic decline. We believe time, not timing, is key to building wealth in the stock market.
When I am asked what I worry about in the market, the answer usually is “nothing”, because everyone else in the market seems to spend an inordinate amount of time worrying, and so all of the relevant worries seem to be covered. My worries won’t have any impact except to detract from something much more useful, which is trying to make good long-term investment decisions.
Today’s worries include, but are not limited to, China’s regulatory actions, high and rising fuel and food prices, labor shortages, inflation or stagflation, the effect of Federal Reserve tapering, disrupted supply chains, potential default due the debt limit standoff and the ongoing dis-function and polarization in Washington. These are legitimate concerns and seem adequately reflected in the market, particularly so when stocks corrected in September. One thing I am pretty confident of is that twelve months from now those worries will have been replaced by a new set of worries.
In the meantime, stocks are entering their strongest seasonal period. The major US indices are all up double digits, so the bull market continues. As in most markets, there are areas of over-valuation and of under-valuation, with the bulk of shares appearing to hover in the area of fair value relative to their prospects. We, of course, continue to focus on securities where the opportunities for long term excess returns appear greatest.
My taking leave of writing a quarterly market commentary does not indicate a desire to enter into an Ezra Pound end of life silence, although that does have some appeal. If I think there is something interesting or useful to say about the market that others are not saying, I will sit down at the keyboard again.
October 9, 2021