market research

2024 Outlook: Opportunities and Threats?
A telescope on a stand

The start of the New Year is a natural time to take stock—and appraise the opportunities and threats we investors may face.

Many Wall Street firms, market pundits, and fellow investment advisors like to weigh in on what lies ahead. Some are quite detailed about which sectors of the market may shine or fade, whether interest rates are going to go up or down, and what the economy or the markets or the Federal Reserve are likely to do.

Here at 228 Main, we have a slightly different approach. Because our time horizon extends beyond the months ahead, we are thinking about how the next seven, fourteen, or twenty-one years are going to play out.

Just a few of our Research Team’s theories about companies, industries, and society illustrate this expansive timeline:

  • The leading player in a growing, fragmented industry is likely to continue consolidating the industry, gaining market share, and exploiting its economies of scale in the decades ahead.
  • The cost of connectivity and computing power and data storage will continue to fall—as they have for decades past—for many years to come. More chips in more places connecting in more ways than ever before are going to have an impact on companies that facilitate or profit from these trends.
  • In the future, we humans will still need places to live, ways to move around, and food to eat. Enterprises that meet those human needs will continue to see demand.

You may note that none of these depend on any of the details that most “2024 Outlook” reports focus on. We’re not all tied up in knots about the possibility of recession because we already know that the next one is coming (and so is the recovery which will inevitably follow.) And what will the Federal Reserve do? It literally does not matter, over our time horizon and yours.

The opportunity in 2024 is the same as always: to employ a longer time horizon than others, to be more patient with fluctuating markets, and to focus on the fundamentals of specific opportunities—not the frenzy about things outside our control.

And the threat in 2024 is also the same: the risk of getting caught up in short-sighted ways of looking at things, of following the crowd, of letting persistent pessimism into our brains.

In our opinion, it’s more fun our way!

All of us here at 228 Main want you to know that in 2024 we are going to continue with the values and principles that brought us to this moment, always seeking to refine our strategy and tactics as the future unfolds. That’s our “2024 Outlook.”

Please email or call, if there are things on your radar for 2024 that we should know about.

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss. Past performance is not a guarantee of future results. This material contains forward looking statements and projections; there is no guarantee that any forecasts made will come to pass.

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2024 Outlook: Opportunities and Threats? – 228Main.com Presents: The Best of Leibman Financial Services

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Going Shopping for Socks

The path to variety matters. In this week’s message, Mark’s got a hot take: it’s a lesson from sock shopping. Confused? Meet you in the video.

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How To Find a Bargain [video]

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Meet the Research Desk! [Q&A]

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Portfolio Developments, Emerging Themes

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This has been an eventful year in the markets, to put it lightly. Unforeseen events have had dramatic effects.

We wrote about some of the themes in our portfolios last fall. Airlines and biopharmaceutical companies both seemed attractive, with valuations at seemingly favorable levels. Needless to say, global pandemics turn out to be as great for biotechs as they are lousy for airline travel.

Our natural resource holdings had similar variation. Turmoil helped the shares of precious metal miners and hurt the shares of industrial metal producers as much of the global economy shut down.

We are keeping the long view in mind. The next energy revolution, driven by solar power and batter storage, will still require higher production of copper and other minerals. The decades-long trend toward higher levels of air traffic will resume. These are our views.

As we review the finances and prospects of our holdings and rebalance where appropriate, another theme has emerged. The shares of some basic kinds of companies, those involved in food and shelter and beverages, have gotten to bargain levels, in our opinion. It seems like it has been a long time since we felt that way, and we are excited to add holdings in these lines.

Last fall we believed that international equity markets had some attraction based on value compared to US holdings. We are more excited now about the emerging bargains we perceive here in the US.

Clients, these are the conclusions our principles and our processes are leading us to. If you would like to talk about this or anything else, please email us or call.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

All investing involves risk including loss of principal. No strategy assures success or protects against loss. .

International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets..

Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss.

Minesweeper, Free Cell and the Nature of Life

© Can Stock Photo / paulgrecaud

I recently upgraded my primary computer, a Microsoft Surface tablet. After using only a touchpad and touch screen for a few years, I decided to try using a mouse again. One quick way to acclimate is by playing games in my downtime.

The solitaire card game FreeCell has a fundamental difference from the puzzle game Minesweeper. Any game of FreeCell may be won, with enough thought or trial and error. You may go back to it as many times as you want to solve it. It is possible to win every game, sooner or later.

Minesweeper, on the other hand, forces you to make decisions from a position of uncertainty. You can know many things about the terrain, but not everything. You can learn more by leveraging what you know. But in the final analysis, you must act even though you cannot know everything you want to know. Sometimes you set off a mine, and that game is lost.

If investing were like FreeCell, all we would have to do is study and think enough, and every holding would be a winner. But investing is like Minesweeper—we cannot know everything we would prefer to know, and sometimes things blow up.

Some approaches to investing try to make it look like FreeCell: charts and graphs and computer models, all very scientific. But you know and we know it is like Minesweeper, prone to periodic blowups. There is no point in trying to disguise the nature of the game. The markets go up and down. Some years are down years. Volatility is an inherent part of long-term investing.

In other words, investing is a lot like life itself. We do the best we can with what we have, and deal with the surprises as they come up.

Clients, if you would like to talk about this or anything else, please email us or call.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.

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.

Short Cuts

© Can Stock Photo / BackyardProduct

When I was a child, a friend and I were off on some adventure or other. We arrived back at his home quite a bit later than expected. His mother was waiting, and demanded an explanation. My friend’s answer was Marx Brothers-quality dialogue: “We took a short-cut!”

His mother seemed to think that a short cut ought to reduce travel time, not increase it.

Some financial professionals and investment advisors take a very similar short cut. They adopt the view that it is either not possible to do better than the market averages, or not worth the effort of trying.

The reasons sound plausible, but may not stand up under examination. Human nature often encourages counterproductive behavior. We believe untrained human nature is a poor guide to investing; training and education may improve investor behavior, which may improve investment results. But the short-cutters seem to pander to human nature in its untrained state.

Active investment managers typically underperform the market averages, and this is often cited as evidence “it is too hard to beat the market.” What many fail to see is that active managers have human beings as customers, so may include popular investments and avoid out-of-favor sectors in order to draw more funds to manage. These tactics, of course, may be detrimental to actual investment results.

So that human nature thing enters into that argument, as well.

Life is straightforward for the short-cutters. They typically avoid the hard work of researching specific investment opportunities; they spend no time reading SEC filings, press releases, and conference call transcripts. They have no reason to try to understand the role of emotion driving money into different market sectors.

Hey, it is a free country and we are glad it is. Each person is entitled to his or her own opinion; investors are free to use or ignore any advice or advisors.

The short-cutters have become very popular. At the same time, with your help, our business has continued to grow and prosper. We do not mind the existence of short-cutters; they may actually reduce the competition for favorable opportunities. But we do want you to understand what we are talking about, and why.

If you have questions or comments on how this may apply to your situation, please write or call.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Spring 2017 Market Themes

© Can Stock Photo / photoslb

We look for promising investments by studying opportunities in detail, reading annual reports, SEC filings, analyst commentary, and doing our own arithmetic. Potential gains live in the gap between the unfolding reality and consensus expectations. The outcome of this study and thought is a list of investments we would like to own.

Although we look at individual companies, we often find themes in our list. This makes sense when you consider that undervalued companies are often found in unpopular industries.

Last fall we wrote about three of our market themes. Biotechnology companies, the evolution of the automobile, and natural resources continue to figure into our thinking. Other themes have emerged.

Consolidation has fundamentally changed the dynamics of the airline industry. It used to be that fierce waves of competition caused price cutting, which led to poor financial results and even bankruptcies. But there are not twenty players, or even ten any more. Consolidation and liquidation has reduced the number of major competitors to four.

The four biggies compete with each other, but more gently. Each knows that lower growth ambitions and stable pricing may lead to greater profits than higher growth ambitions and lower prices. This idea of a pricing oligopoly seems to explain the behavior of the airlines, which are booking record profits. We believe the market has not awoken to the new dynamics, and undervalues the stocks. We may be wrong.

The European equity markets have had one problem after another for more than a decade. An index of major blue chip stocks, the Eurostoxx 50, is lower than it was ten years ago. Meanwhile in the US, major averages have doubled. Dividend yields and prices are more favorable “over there.” So we have begun to include European equity exposure in portfolios.

The Buy List of thirty-some holdings reflects these themes and other opportunities we believe to be attractive. There are no guarantees on any of them. We can tell you we are excited about the prospects. If you would like to discuss your holdings or situation in detail, please write or call.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.

Stock investing involves risk including loss of principal.

Value investments can perform differently from the market as a whole. They can remain undervalued by the market for long periods of time.

Because of their narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies.

Meet Our Research Sources

© Can Stock Photo Inc. / meggichka

You already know Mark Leibman and Greg Leibman. But you might not know our allied staff economist, our fixed income research director, our market strategist, or the fellow who oversees the whole allied research effort. The executives at LPL have decades of combined experience, advanced degrees, specialized training and the appropriate professional designations.

Most importantly, they each have the ability to communicate economic and market developments with the context and background needed to get at the real meaning and significance.

These folks do not work at 228 Main. They are the key people among dozens in LPL Financial’s Research Department. In our quest to find the right investments, and to understand the economic and market environment in which we live, they play a major role. They put out reports, they help conduct the daily Research Morning conference call, they blog, they tweet—they communicate.

One of the wonderful things about life in the 21st century is the vast amount of information available. We’ve spent a lot of time appraising the quality of commentary from across the financial industry. We are able to follow key specialists at Schwab and Morgan Stanley and Wells Fargo and other firms, as well as our most respected peers and money managers.

The Washington Post, the Wall Street Journal and the New York Times provide a great overview of the major stories of the day, and more detailed trade publications are a vital source of news about the industries in which we’ve invested. People with specialized knowledge are available through blogs and social media, as well. We read the Detroit newspapers for auto industry news, Australian papers for news on global raw materials producers, and we find news sources for other situations as needed. Subscription-based investment research and data round out our fundamental sources.

We have what we need to do our own thinking, draw our own conclusions, and take action in pursuit of your interests. If you have specific questions, please call or write to ask them.