It’s your monthly 3 For 3!
“This time it’s different.”
I rarely go a week in my 28 years of what some might call a job without quoting perhaps my favorite pioneer in the industry, Sir John Templeton. Self made and dubbed “the greatest global stock picker of the century” Sir John wrote a memo in in 2005 predicting that within five years there would be financial chaos in the world, anticipating a collapse of the housing market and decline in yields on government-issued bonds to near zero, among other things.
I’m almost ashamed to be like Sir John and take the contrarian view, this go’ round. Yet, that’s what he’d encourage to do- avoid Groupthink and be open minded. BOLD, Courageous.
“This time it’s different,” Sir John quipped were the four most expensive words in investing.
This time, it just may be …different.
Here’s your February 3 For 3:
The Great Debate: Soft, Hard or NO Landing?
In the accompanying chart, we can see that when long-term Treasury yields fall below shorter-term returns, an inverted yield curve is created. This phenomenon has signaled every recession since 1976. Except this time (apologies, Sir Templeton), it’s different. There’s no recession in sight despite an inverted yield curve that began in July 2022. The question is, why?
The answer may lie in another one of my favorite bits of wisdom: “Don’t worry about the horse; load the wagon.” In other words, don’t let things you can’t change have an impact on the things you can. That’s just one of the many reasons we crafted your portfolio strategy to anticipate market volatility while also accounting for your goals, time horizon, and risk tolerance.
As always, if you have any questions about the above, please don’t hesitate to ask. Otherwise, we’ll continue to monitor markets and the economy with your goals firmly in mind.
Seasons: What’s in a Season?
If you snoozed through Punxsutawney Phil’s sunny no shadow performance earlier this month–you may have also missed that 2024 is a Leap Year. February gets an extra day and instead of 28 days, this year February will have 29 days. Almost everyone is familiar with the concept of leap year, but the reasoning behind it is a little complicated. For example, most people believe that leap year occurs once every four years, but that’s not always the case–so, why do we have leap year?
In a word, Seasons.
This from The Air and Space Museum/Smithsonian Institute:
A calendar year is typically 365 days long. These so called “common years” loosely define the number of days it takes the Earth to complete one orbit around the Sun. But 365 is actually a rounded number. It takes Earth 365.242190 days to orbit the Sun, or 365 days 5 hours 48 minutes and 56 seconds. This “sidereal” year is slightly longer than the calendar year, and that extra 5 hours 48 minutes and 56 seconds needs to be accounted for somehow. If we didn’t account for this extra time, the seasons would begin to drift. This would be annoying if not devasting, because over a period of about 700 years our summers, which we’ve come to expect in June in the northern hemisphere, would begin to occur in December!
By adding an extra day every four years, our calendar years stay adjusted to the sidereal year, but that’s not quite right either. Some simple math will show that over four years the difference between the calendar years and the sidereal year is not exactly 24 hours. Instead, it’s 23.262222 hours. Rounding strikes again! By adding a leap day every four years, we actually make the calendar longer by over 44 minutes. Over time, these extra 44+ minutes would also cause the seasons to drift in our calendar. For this reason, not every four years is a leap year. The rule is that if the year is divisible by 100 and not divisible by 400, leap year is skipped. The year 2000 was a leap year, for example, but the years 1700, 1800, and 1900 were not. The next time a leap year will be skipped is the year 2100.
And why is it called “leap year?” Well, a common year is 52 weeks and 1 day long. That means that if your birthday were to occur on a Monday one year, the next year it should occur on a Tuesday. However, the addition of an extra day during a leap year means that your birthday now “leaps” over a day. Instead of your birthday occurring on a Tuesday as it would following a common year, during a leap year, your birthday “leaps” over Tuesday and will now occur on a Wednesday.
And if you happen to be born on leap day February 29, that doesn’t mean you only celebrate a birthday every four years. Every three years, you get to celebrate your birthday on March 1 and continue to grow old like the rest of us.
Thanks to leap year, our seasons will always occur when we expect them to occur, and our calendar year will match the Earth’s sidereal year. My contribution; I love 3 of the 4 seasons. Bet you can guess which one I’d skip!?!? Who’s excited Christmas and New Year’s will fall on….Wednesday this year? Beats a Friday if you ask me and last year, Monday was my fave!
Buffett’s Secret Buy….
Not disclosing new portfolio positions is NOT a new tactic for the The Omaha-based juggernaut, Berkshire Hathaway; the stock climbed 2% in the past week to hit an all-time high with the Class A share piercing the $600,000 mark for the first time ever on an intraday basis. BRK.B (the “cheap” version at $400/share), an Alphavest 10 Year Core Equity Model holding has gained more than 13% in 2024, more than doubling the S&P 500′s return of +5.09% YTD helping the 10 Year Core Equity model returns to a YTD return of 6.63%.
Most bets are on Warren Buffett building a big stock position in the banking sector in his Berkshire Hathaway portfolio.
For the second quarter in a row, his Berkshire Hathaway asked regulators to keep one or more stock purchases secret in the fourth quarter, according to a new 13F filing released last week. The news indicates that the “Oracle of Omaha” has spent two quarters buying something new.
The Securities and Exchange Commission typically grants such a treatment when the disclosure of an ongoing investment strategy, by any asset manager with more than $100 million, “would impede competition and could cause increased volatility in the market place.”
Due to the sheer size of Berkshire’s equity portfolio, which holds more than $360 billion worth of stocks, any bet would usually have to be in the billions in order to move the needle. It could easily take a few months to build a stake that big.
So keeping a new stake confidential for the time being is beneficial for Berkshire as it keeps the volatility at bay until it’s done buying or selling. A new stock pick from the 93-year-old Buffett almost always leads some investors to follow suit, quickly moving the share price.
Requesting such a confidential treatment is rare for Berkshire. The last time it kept a purchase confidential was when it bought stakes in Chevron and Verizon in 2020.
Of course, the latest request for confidential treatment could also have been the work of one of Buffett’s investing lieutenants, Todd Combs or Ted Weschler. They oversee about $15 billion each for Berkshire, and one of them introduced Buffett to Apple, which now accounts for about 45% of Berkshire’s portfolio.
For Buffett watchers eagerly awaiting the name of the new stock, here’s a clue. Berkshire’s 10Q filing from the third quarter said that the conglomerate had bought “banks, insurance, and finance” stocks for $1.2 billion. Alphavest, too, has added bank exposure to our Equity Income portfolio and are seeking other finance positions to add.
Berkshire’s second-biggest holding at the end of 2023 was Bank of America, while American Express was third. Berkshire has been a longtime shareholder in credit rating agency Moody’s, and bought a big stake in Citigroup in early 2022. The conglomerate also owns Mastercard and Visa. Bank of America, -3.37% and -0.18% on a 1 YR and 3 YR basis was an Equity Income position sold in 2022. Currently, Alphavest has positions in Chubb/CB, Key/KEY, Truist/TFC and Visa/V in both the Equity Income and Aristocrats portfolios.
Buffett sold a string of bank stocks in 2022 and early 2023, including Wells Fargo, Goldman Sachs, JPMorgan, U.S. Bancorp. and Bank of New York Mellon.
David Kass, a finance professor at the University of Maryland’s Robert H. Smith School of Business and a Berkshire shareholder, suspects that Buffett could be buying back JPMorgan.
“Buffett has always admired Jamie Dimon and has praised him frequently,” Kass said by email. “Todd Combs has been on JPM’s board of directors since 2016 at age 44, and remains the youngest of its 12 directors today at age 52. JPM is generally acknowledged to be the best managed and most profitable bank.”
Shares of JPMorgan gained nearly 27% last year, far outperforming Bank of America’s less than 2% return. That rally is also be a reason why JPMorgan may not be cheap enough now for the value-oriented Buffett. When will we know?
If the new stake ever exceeds 5% of whatever stock it is, Berkshire would be required to report its holding with the SEC. And, then, arguably, it may be too late. Buffett, like Sir John Templeton has the gift of SIZE, conviction and patience–“I’m always right, but I’m often early” clients have heard me quote Sir John over the years.
Buffett might be asked to reveal the identity of the mystery stock at Berkshire’s annual shareholder meeting in early May. Alternatively, in the unlikely event the new stock made it into Berkshire’s top five holdings, it would show up in its next earnings report, which comes out on the same day as its annual meeting.
If none of the above happens, investors might find out when Berkshire files its next 13F for the first quarter in mid-May.
Buffett, nor Sir John always “got it right.” Let’s look at the Alphavest portfolio and our YTD winners and losers:
YTD Portfolio WINNERS:
Top 5: NVIDIA, Eli Lilly, Meta, Merck and Brown & Brown
YTD Portfolio LOSERS:
Top 5: Vanguard Extended Duration and Long-Term Corporate Bond ETFs, SPDR S&P 500 Regional Bank ETF, Apple (sold 2/13/24) and Illinois Tool Works
As always, sending you a Perfect Day,
Advisory Services offered through Red Triangle, LLC DBA Alphavest
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