2024 Q3 Investing Insights (Stocks)

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Hello everyone. I as part of my routine, I go through and share my thoughts and insights covering global financial markets and investing. Several quarters ago, I split that into two different recordings, one for stocks and one for bonds. And so in this one, I'll be going through my thoughts for equity markets or stocks in general, generally, these will be global in their orientation. Before I dig in, know a few words from from a compliance perspective, statements made during this recording of for informational purposes, and are on my opinions. They are subject to risk and uncertainty, some of which are significant in scope and by their very nature, beyond the control of myself, wealth factor and farther, there can be no assurance that such statements will prove to be accurate and actual results in future events could differ in a material way from said statements. Historical results are not necessarily indicative of future performance.

So I'll just cover a quick overview and update on on general markets. I'm going to continue to talk about concentrations and valuations, and specifically looking at non US valuations. We have had kind of a steady drift up in asset prices. In general, you know, no catastrophic bad news. And generally US corporate companies continuing to produce goods and services and increase profits, or at least not having a decrease of profits, profits. And so there's, there remains, this kind of general optimism, although maybe it's shifted to be a bit more cautionary, as it naturally ebbs and flows and so, you know, my the thing I might mention is that the the recent period, you know, post pandemic, there have been ups and downs, but it's been a Nice testament in multiple ways and multiple environments to the case to just simply stay invested over, over the long run. Okay, so just an overview of of returns in in broad categories,

likely in early 2025 I'll, I'll remove the multi year analysis here, but I've made this habit of keeping 2022 and 2023 on here, just because of how poor and different from an up and down perspective, and then large US versus a growth versus large US value the differences and shifts in that performance. So just kind of drawing extra attention to to those dynamics on purpose. But, and in 2024 specifically, those dynamics are are less intense than they they have been in and prior, in some of the prior periods. But, you know, we're still seeing that with large growth. And then you know most specifically, the largest, or it's called mega cap growth, types companies having a very strong performance. So it's been a very good year for US equity markets and and non US equity markets have done, done fine as well. And then, you know, we've seen periods where there have been wider gaps in the performance between growth versus value than recent but really, we've had a very strong bounce off of the, you know, relatively weaker value oriented performance and values really held its own and produced reasonably strong returns, albeit less than growth, at least so far this year and then really since the large declines we saw in those areas in 2022 so this will be intentionally brief this quarter, because a lot this, this sort of melt up environment where stocks just kind of continue to march higher slowly, with a variety of, you know, very normal and and not noteworthy issues or declines, and in any one given example, like Iran firing a missile to Israel, Israel, you know it that sounds so such like such a big deal, but in the scope of the history of global financial markets and world events, most of those tend to be inconsequential to what drives stock market returns over the long run, which are things like general inflation of an asset price change, but more importantly, the. The increases in corporate profits. So this is a graph I shared last quarter, a part of one anyways. So I want to just reemphasize that the S and p5 100 and many indices US based indices remain very concentrated and a very high levels. And you know, the in the footer these the different 10 companies are listed, Apple, Microsoft, Nvidia, Amazon, Google, meta, Berkshire, Broadcom, Tesla and Eli Lilly and so. And I highlight this because it's so common to have people who have built their own portfolios own a bunch of index funds and then own these very same companies, and so maybe, and part of that's just because many of these have done so well from a forest perspective. And there's this natural if, if one doesn't have an investment plan and a disciplined methodology for portfolio management and construction, then this is very natural. It's human nature, and it's been something and it's been sort of reinforced by strong performance recently. For those that have allowed this to happen, if, if long term history is any guide, those sorts of practices are ones that probably ought not to be continued, and one should be very skeptical, or one should be not skeptical, but very willing to reevaluate how they've done it to date and think about doing things differently. But the point of this particular page is really the idea that one is not as diverse just by owning the index. And the secondary point that I was sharing context around is, if you not only own index based exposures, but then also in any of these top 10 companies, you're really taking something that you already have concentration to and increasing its concentration. And in my opinion, the timeliness of that is probably not optimal. So this is a, this is this slide. Is, I think, some interesting has some interesting data points, and it speaks to the points I was just making. But this is actually putting some data to it, and why I think it's important. I also, whenever I show graphs and and I know I say something like this fairly regularly, it I encourage everybody to take a very guarded approach to saying to identifying patterns and projecting them into the future as an evidence based investor academic research and just general my general research on the dynamics of markets is that's not often the case. If anything, things tend to revert back to means more often than patterns persist into perpetuity. So on this particular page, we're narrowing it down to the Magnificent Seven. So the last page was seven or the 10 largest stocks in the s, p, this is just seven of those specifically. And I think that this, the media has coined this term Magnificent Seven, and that's why this particular analysis is narrowing that universe. There's a little bit of cherry picking that's happening here, because these are some of the more tech and stronger performers. But the what you could see is, in recent terms, the performance has been very strong for these particular companies, and that's partly supported by, if you look down the bottom right, profits or earnings growth. So you've got, you've got two dynamics here that have increased stock price, one, the actual strong performance from an earnings and earnings growth perspective for many of these companies. But then on top of that, this massive attractiveness and investment and dollars into it, which has increased the valuations, oftentimes in many of these companies. So you'll have you have two dynamics that are creating increases in stock prices, one of which is very natural and sustainable, the other of which is independent from the fundamentals of the company, and it should be at some point, and investors should be concerned with being concentrated in in companies that have high valuations, especially if they're mega in size, in my opinions. So the. These are concepts I've talked about several quarters in a row now, but I wanted to maybe shed a little bit of light specifically on the earnings dynamics here for the purpose of this recording, I'm not going to get into I'm going to try not to get too detailed, but slides will be available, and so feel free to dig in on some of the data points that are in these slides that I may not be able to cover verbally, trying to keep these two concise recordings.

Last thing I'll just highlight, since I didn't talk about non US really last quarter, is the unlike the mag seven, the non US, valuations are attractive relative to all things us. So if you look at the US there, and I'm not sharing the graph on this today, the valuations of value stocks are attractive relative to growth, but really, all across the US, valuations are far less attractive than they are in non US, and in all three of those dynamics, it's always the case that markets are pricing in something that's probably real. And there's a reason for that, that difference in valuation, however, at some extreme and two standard deviations is probably adequate when you talk about, when you try to quantify extreme, the reversion potential is probably worth, worth serious consideration. And so in to put this all into actionable terms, which has already happened in our client accounts, we're at the highest level of target exposure to non US stocks as a percentage of overall stocks than we've ever been the it's my opinion that, you know, you not only get diversification benefit or value by having exposure to non US, the valuation component, I believe, is, is one where there are The relative attractiveness of current non US valuations. Probably is a there's not just diversification benefit, but probably risk adjusted return potential benefit as well. So as is always the case, there's an incredible complexity to global financial markets. There's a lot I could cover. Instead, I'm going to I'm going to make these as short and concise as I can, and try to cover elements that I think are timely and most useful as always. Follow up with me, schedule time, ask questions in response via email.