September 2020

Many investors are concerned, if not outright worried, about being long equities. Especially at times when indices are at “all-time highs”... We argue that said highs are to be read as an unsaid consensus view that the future is rosier than the present. These same investors left the market at the January 2020 highs and look back at the 40% appreciation since... We say go with the flow, buy the winners, sell your losers!

S&P 500 at 3’500+ and people say “Expensive”. Let’s wait for the “correction”, implying that the market is wrong being at this level. But this is a fair price, a Dollar weighted opinion. It is a little preposterous to think you are right and the latter is wrong... Many have missed this rally, waiting for Godot’s correction... Expensive? That isn’t an absolute level, but a relative one! People confuse Value with Price; the former being subjective, the latter objective. The rule of thumb says you buy when Value is lower than Price, you sell when Price is greater than Value. The term “Expensive” is relative. When you say that the market is expensive, is it because the index is above where it had been before? We think that it is expensive only when you think that its price will be lower in the future, as buying now could result in a loss.

We think that many who considered the market “expensive” in January took a risk by not being invested, as today they need 40% more in order to buy the same portfolio they avoided some seven months ago... Ouch. Staying out can be risky. Let us take a closer look at what is really going on here;

The DJIA was at 28’528 at the close of 2019. It is now 28’395.

The S&P 500 was at 3’230 and now it is at 3’496, up some 8%, at an all-time high.

The NASDAQ Composite index closed 2019 at 8’972 only to reach 11’380 as we write. Up some 27% through a series of new highs. Where to next? Probably higher we say... Is it expensive? Compared to yesterday it is, compared to tomorrow it may well appear cheap...

When compared to other asset classes, the markets don’t necessarily appear expensive either! Let’s take the NASDAQ, oh so expensive people say... In early January the said index cost 5.90 ounces of Gold at $1’521. Today, the same index costs 5.95 ounces of Gold, now at $1’968. i.e., UNCHANGED!!! That isn’t an expensive market in our eyes...

A short history piece for the year 2020. All-time highs reached on more than 20 occasions in the year; a small virus called Covid-19 caused the fastest ever bear market, lasting only one month. We are now ending the summer “doldrums” and the S&P500 has set another record breaking new high, pushing the Corona Virus into the rear-view mirror. Or has it? In five months, the index has reboundedtonewall-timehighs. This has happened with the largest 100-day rally ever for the S&P500! If we look at history, and specifically the previous best “100-day rallies”, then the S&P500 continues to gain 17 out of 18 times one year later after the prior rally. As we have said many times before, history may not repeat itself, but it certainly tends to rhyme. Perhaps owning equities now is cheap relative to the future. BUT... when you look at the S&P index as a whole, this is one story... what about its constituents? Only 23 of the names are at all-time highs, 115 of the names are 50% BELOW their own all-time highs and for those chartists out there, more than 50% of the stocks are below their 200 moving day averages! The whole is more than the sum of the parts. In another incredible throw away point, Apple is now worth the same as the nearly the whole German listed stock market... we guess Sir Isaac was right! When viewed through Albert’s eyes, the World was drawn to that Apple... 😊