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  • Writer's pictureJoe Cardello

Happy 2024!

January 30, 2024

Most other market prognosticators have released their views and/or opinions for 2024 at this point.  So where is August Wealth on these matters?  

Given that most of the expert forecasts from last January (2023) missed the mark, I will leave the “predictions” for markets to the so called “experts” for 2024 as well! 

The lesson, in hindsight, for 2023 (as is usually the case) was to remain invested, even though our fear of what could go wrong in the world may have created many impulses telling us to “Get out of the market”.  As I often say: “we don’t know what we don’t know.”  Our ability to acknowledge, accept, and admit honestly how little we know about the future is an advantage.  This gives us a fighting chance to discern more about market reality than most others and reflect that in our portfolio positions.  You are welcome to judge our performance by contacting me with any comments or questions.  

From the 30th anniversary edition of the bestselling book: Wherever You Go, There You Are, by Jon Kabat-Zinn:

“While our thinking colors virtually all experience, if we are honest with ourselves we might recognize that, more often than not, our thoughts tend to be less than completely accurate.  Usually they are merely uninformed private opinions, reactions, and prejudices based on limited knowledge and influenced primarily by our past conditioning.  All the same, when not recognized as such and named, our thinking can undermine our ability to see clearly in the present moment.  We get caught up in thinking we know what we are seeing and feeling, and needing, and in reflexively projecting our judgements out onto everything we take in.  Just becoming familiar with this deeply entrenched pattern and watching it moment by moment as it arises can lead to greater non-judgmental receptivity, and acceptance, to say nothing of insight into how easy it is to undermine our own sovereignty.”  

As Mark Twain said: 

 “It ain’t what you don’t know that gets you into trouble.  It’s what you know for sure that just ain’t so.”

As is our process at August Wealth, we approach the market for you by:

  1. Understanding and assessing your goals, needs, desires, and risk given your unique financial situation.  

  2. Reflect point number (1) by building a unique portfolio for you given the available opportunities available in the market.  

  3. Whenever points (1) or (2) change, we adjust your portfolio.

With that in mind, we have made some small changes to most of our portfolios:

  • Increased energy exposure based on geopolitical escalation potential, particularly in the mid-east.  Current prices for oil and gas are low by recent history, and we believe valuations for many companies are attractive again.

  • Reduced precious metal exposure now that the market predicts Fed Funds interest rates to decline in the USA in 2024.  Gold rose in 2023, but not nearly as much as we anticipated, and Silver remained largely unchanged in price.  

  • Slight increase in diversified Metals and Mining companies based on lower valuations and the continuing need for base metals such as copper in the world’s energy transition to greener sources.

  • Increased equity exposure through the addition of a diversified set of companies that meet our criteria for value, cash flow, and upside price potential.  The additions to the portfolio were funded by a reduction in the Russell 2000 index and the reduction in precious metals.  

  • Reduced inflation protection fixed income and increased overall equity weights slightly.  This reflects our on-going and now more confident view that inflation was largely a Covid related phenomenon due to an excessive government stimulus program to offset the pandemic.  These factors are likely exhausted, and we judge the probability to be inflation continues to remain close to the Federal Reserves target of 2%.  

  • We continue to hold fixed income in most portfolios because real rates continue to provide attractive income adjusted for inflation.  

Where we see potential risk

One potential risk I see on the horizon is what I alluded to in our December 1st commentary regarding the issues with the cap weighted nature of the S+P 500 index.  In my opinion, there are some signs that investors both globally and domestically are allocating to these large cap companies because they continue to make up a large part of the index returns.  I will not get into the details here, but history is littered with examples of money being invested because of FOMO.  Some popular examples are:  2000 technology shares, 2008 real estate, and 2021 fixed income and private equity markets, and many more.  

I recently listened to a podcast from one of the largest Ivy League school endowments, which point out that they had to invest more in the S+P 500 to ensure their returns kept pace with the market.  It reminded me of 2007 when Chuck Prince, head of Citigroup, made the infamous comment: “As long as the music is playing, you’ve got to get up and dance”, in reference to doing deals despite increasing risks.  

This is what I call potential for systemic risk.  Investors, regulators, and industry in general all move in one direction because they are not incentivized to go against the prevailing trend.  It is comfortable to go with the crowd because even if you get it wrong, you will probably be forgiven.

To outperform a market index, you must be comfortable being in the minority, being different, and going against prevailing trends.  

We assess risk, and we invest accordingly, and this often is different from the prevailing industry norms.  This can result in underperformance over certain time periods, but we remain comfortable with the approach.  Why?

  • Risk is assessed based on the information and data we gather.  Investing in an asset class just because it is the one making the most money over short periods of time is not a valid reason to risk your (nor my) money.  

  • We understand that most market participants (private and public) are motivated by keeping their current jobs or retaining their assets under management.  They are not willing to risk underperformance of investment returns.  This is a perfectly rational modus operandi; however, it doesn’t always work out well for the investor (see examples above).  

  • We are patient:  Our goal is to protect your purchasing power, protect your wealth, and strive to grow your wealth over the long-term.

  • We accept that we may be wrong, we accept you may not agree, and we accept that our approach is not for everyone.  However, we are comfortable with these risks to our business.  Because:

    • We must understand the merits (risks and rewards) of the investments we make for you.  This allows us to have conviction that the portfolio we build for you reflects your goals with the least (in our estimation) amount of risk.  It also allows us to explain in simple terms why we are invested this way for you.

    • August Wealth is built upon doing what we believe is in your best interests.  The growth of our business is secondary to your best interest.  If we do our job well, we need not worry about our success.

    • Relationships are built on mutual trust and benefits.  If we are helping you, our relationship grows stronger. 

How do I measure a job well done at August Wealth?

  • The level of care we put into all your financial, investment, and other needs.

  • The level of experience and skill we deploy to help produce the wealth

  • The straightforward and simple explanations we provide to (hopefully) demystify investing.  

  • The reduction in stress you hopefully feel by trusting that we are competently working to achieve your best interests.  

As always if you have any questions or comments, I would love to hear from you. 

- Joe Cardello

Investment advice offered through Stratos Wealth Advisors, LLC, a registered investment advisor. Stratos Wealth Advisors, LLC and August Wealth Advisors are separate entities.

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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful. No reader should make any investment decision without first  consulting his or her own financial advisor and conducting his or her own research and due diligence.

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