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The Unexpected

The Unexpected

March 01, 2024

Last Christmas, I was able to ride The Hulk roller coaster with my daughters at Universal Studios Orlando.  The ride was exhilarating, blasting us out of a foggy tunnel and immediately inverting us on exit.  On a ride like this, it's easy to forget we are securely strapped in, and the ups and downs are normal.  We arrived safely at the end of the ride.  

This morning, I am sitting by a warm fire after an early rise and remembering the excitement of our vacation, versus the calm of today. But then I begin to contemplate, and I remember the contrast of other things taking place in the world today.  A quick search of my pocket encyclopedia gives reminders, both good and bad. 

In 2023, we witnessed bank failures, Hawaiian wildfires, earthquakes in Turkey and Syria, war and terrorism in the middle east and Ukraine, presidential indictment, FBI scandal, unprecedented Federal Reserve actions, and subsequent volatility in both U.S. and global stock markets.  For now, inflation is cooling, and our economy seems to be shrugging off the most recent valley like we are just glad to be out of it.  But what does this mean for our markets?

The Fed's last hike was in August, when they carried the overnight rate to 5.5%.  This is a good bit different than 2004-2006 when the Fed hiked 17 consecutive times to pause at 5.25 in June 2006.   This pause lasted until September of 2007 when the housing market began to fail and the Fed had to lower rates to reduce the impact.  The chain reaction was already in place, though, and the unforgettable bear market would ensue the following year. 

During this fed-rate-roller-coaster-ride from 2004 to 2008, the SP500, a popular index we use to measure the U.S. stock market, did the following:

History shows there is money to be made during a Fed pause.  Slowing inflation, while it doesn't repay us for any wealth we lost, can stimulate stocks.  Bond markets can stabilize during this time as well, if financial markets are liquid and credit is sound.  While all this depends on the unpredictable (what inflation might do in the future), many experts are forecasting a peachy 2024 and lowering expectations of potential recession. 

In closing, let us remember a few things shared by Mr. Charlie Munger, who we lost in November of last year.  For any of you who haven't heard of him, he was Warren Buffet's long-time friend and business partner, serving as Berkshire Hathaway's Vice Chairman.

These "Mungerisms" were lifted from Mr. Buffet's favorites, and I feel they support our thoughts about long term investing.

• The world is full of foolish gamblers, and they will not do as well as the patient investor.

• If you don’t see the world the way it is, it’s like judging something through a distorted lens.

• A great company keeps working after you are not; a mediocre company won’t do that.

• Ben Graham said, 'Day to day, the stock market is a voting machine; in the long term it’s a weighing machine.' If you keep making something more valuable, then some wise person is going to notice it and start buying.

• You have to keep learning if you want to become a great investor. When the world changes, you must change.

-Published in Warren Buffet 's recent Letter to Berkshire Shareholders.

As we dig in to 2024, I encourage you all to heed the wisdom of people greater than ourselves.  Stay diversified, stay goal oriented, and trust in the wisdom of those who have experience with investments and have a heart to help.  

God Bless You in 2024!

Always with Candor,

Ivan