Alone With My Thoughts

A common investment theme around here is that “savings and innovation equal economic opportunity”. The 2023 market certainly benefited from that view even though an MIT study had previously indicated that innovations are less likely to trigger economic growth because the big ideas are harder to find. With two letters, AI, innovative new technology arguably single handily carried the market through the first three quarters of last year. After pausing in October, the rest of the year was led by medical innovations, most notably in weight loss and to a lesser extent Alzheimer’s. As we look to 2024 and beyond, the future remains bright for innovative solutions to the world’s most vexing issues. Hopefully, potential gains on Wall Street may follow.

We don’t know what AI is going to unleash in the future but in 2023 it saved the day.  After a disastrous prior year, when the Fed began their interest rate hikes to the sea, excitement on Wall Street over AI has lifted tech stocks and the major averages.  At the end of October though, the “magnificent seven” accounted for most or all of the gains for stocks.  Then in early December, the Fed finally abruptly pivoted, rates went from 5% to less than 4%, and the markets broadly took off across the board.  Instead of a Santa Claus rally, we can call this the Santa Claus Pivot.  Enjoy the holiday season!

Next time you are shopping for a birthday card, look at the lowest level of the rack. There you will find birthday cards for 100-year-olds. Think about it, birthday cards commemorating that huge milestone. In fact, ages 85 and older is considered the fastest growing segment of the US population by percentage, and those over 65 should double in number in less than 20 years. For investors, the idea of retiring and going completely into bonds is probably a risky strategy, when confronted with inflation. Stocks and growth assets may then be a bigger part of portfolios for a much longer period of time. Speaking of time, the best time to invest is today, releasing the exponential compounding to do its thing. Thanks to First Trust for the birthday wishes, even if they are jumping the gun.

The Mendoza line is baseball jargon from the seventies for the supposed threshold for offensive futility of hitting at an average of .200.  Players can be above or below the Mendoza line (named for major leaguer Mario Mendoza, a lifetime .215 hitter).  There are several Mendoza lines on Wall Street currently…lines that when crossed get everyone’s attention.  For example, the Mendoza line for the ten-year treasury appears to be 5%, above that and money flows from stocks to bonds.  Gasoline has a Mendoza line at $4 per gallon, above $4 and the economy begins to slow.  Bitcoin has seen somewhat of a Mendoza line at $26,000 and has made a recent significant rally to $34,000 plus.  For stock traders, the 200-day weekly average is at $3,945, which is a line we do not want to see crossed.

The finance industry has always made investing seem complicated and mysterious to many of us. As a form of job security, the more dependent their clients are, the more “silver bullet” products and plans can be sold. But like the Wizard, once the curtain is pulled back, investment success can be relatively simple…spend less than you make, have a financial plan with the guidance of someone that understands your goals, and invest in great companies and mutual funds. The first step is to do the simple things that you can control and then ignore the man behind the curtain.

The world lost an iconic legend last week when Tony Bennett passed away at 96.  Tony Bennett captivated the nation, most notably a young Frank Sinatra, who famously claimed in a Life magazine article that “for my money, Tony Bennett is the best singer in the business.”  Speaking of money, Tony Bennett represented everything good about successful investing.  He was innovative, with an incredible knack for re-creating himself time and time again.  He thought long-term, achieving 19 Grammys, with 17 of them coming after he reached his 60’s.  He was frugal, as he ands his manager son mapped his 200 appearances a year to perfection.  From Ray Charles to Lady Gaga, he was diverse and willing to take a little risk.  Cheers to a national treasure.