Broker Check

Anthony’s 2024 New Year Letter

Dear Clients,

As we say goodbye to 2023, I would like to wish you and your family a healthy, happy and prosperous new year.  Each January, as I reflect on the year just completed, I like to revisit our investing principles.  I find they help us stay grounded from economic and market noise and focused on our long-term plans.  Further on, you will find some current observations on where things stand with respect to the economy and markets.  Though not meant to be predictive, I do hope you find this helpful and reassuring as we enter 2024. 

It is fairly simple to summarize the behavior of the equity markets, not only in 2023 but over the last two years.  In 2022, the Dow, the S&P 500 and the Nasdaq 100 experienced declines from their peaks of 21%, 25% and 35%, respectively. A week before Christmas 2023, all three were in new high ground on a total return basis. Why stocks did this is irrelevant to the important lessons to be drawn from this experience. What should matter most to us long-term, goal-focused, plan-driven equity investors is not why this happened but that it happened. Specifically, there could be a pervasive and very significant bear market over most of one year, and those declines could be entirely erased in the following year. Although not nearly as quick or as perfectly symmetrical as the 2022-23 experience, in the largest sense that’s how the equity markets work. 

General Principles

  • The economy cannot be consistently forecast, nor the market consistently timed. Thus, we believe that the highest-probability method of capturing equities’ long-term return is simply to remain invested all the time.
  • We are long-term owners of businesses, as opposed to speculators on the near-term trend of stock prices.
  • Declines in the mainstream equity market, though frequent and sometimes quite significant, have always been surmounted, as America’s most consistently successful companies ceaselessly innovate.
  • Long-term investment success most reliably depends on developing a suitable plan and acting continuously on that plan.
  • An investment policy based on anticipating or reacting to current economic, financial or political events/trends most often fails in the long run.
  • Unaided, most people are incapable of detaching their investment policy from current events/trends for any length of time. Many investors will serially make the same fatal mistakes—panicking out of a temporarily declining market, piling into a temporarily hot fad—unless an advisor who is totally focused on planning and behavior management intervenes. 

Current Commentary

  • I remain convinced that the long-term disruptions and distortions resulting from the COVID pandemic are still working themselves out in the economy, the markets and society itself, in ways that can’t be predicted, much less rendered into coherent investment policy.
  • The central financial events in response to COVID were a 40% explosion in the M2 money supply by the Federal Reserve and supply side constraint issues, resulting in a significant increase of inflation.
  • To stamp out that inflation, the Fed then implemented the sharpest, fastest interest rate spike in its 110-year history. Both debt and equity markets cratered in response.
  • Despite this, economic activity just about everywhere but in the housing sector, has remained relatively robust; employment activity has, at least so far, been largely unaffected.
  • Inflation has come down significantly, though not yet to the Fed’s 2% target. But prices for most goods and nearly all services remain stubbornly elevated, straining budgets.
  • Capital markets have recovered significantly. Speculation now centers on when and how much the Fed may lower interest rates in 2024, and whether a recession may yet begin.  These outcomes are unknowable—probably even to the Fed itself—and don’t lend themselves to forming a rational long-term investment policy.
  • As always, significant uncertainties abound. Trends in the U.S. federal deficit and the national debt appear unsustainable. Social Security and Medicare appear to be on paths to eventual insolvency unless reformed. The absurd annual debt ceiling crisis, a bitterly partisan presidential election looms and many significant global events and conflicts, such as the wars in Eastern Europe and the Middle East, will also undoubtably weigh on markets. 

My recommendations are essentially what they were two years ago at this time, and what they’ve always been. Let’s revisit your most important long-term financial goals soon.  If we find that those goals haven’t changed, I’ll recommend staying with our current plan. Alternatively, we may find those goals have changed, or life has dealt us the inevitable curve ball, in which case we may need to pivot as well.  

Please don’t hesitate to call my office and schedule an appointment to review your plan.  As always, I welcome your questions and comments, and I look forward to talking with you soon. Thank you again for the opportunity to serve you and your family. It’s a privilege for me to do so.

Sincerely,

Anthony


Anthony P. Longobucco

anthony@apl-associates.com

(914) 698-0172

Anthony P. Longobucco Associates
Financial Consultant

https://www.apl-associates.com/

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