"Successful investing is about managing risk, not avoiding it."
- Benjamin Graham, Economist, professor, and father of “Value Investing”

Happy Monday,

The S&P, Dow and Nasdaq were all down significantly in April. That followed an up March when the recent market pull-back had a partial reversal. In April, the S&P was down 8.8%, the Dow was down 4.9% and the Nasdaq decreased by 13.3%.

In our view, the market is being driven by two divergent realities. On the one hand, the Covid-19 recovery and government support payments are pointing the economy in a positive direction and there is a generally optimistic feeling regarding the re-opening of the economy. On the other hand, the markets are reacting to near-term inflation spikes in the U.S. (caused in part by the government support payments) and the war in Ukraine. These two competing realities have upset the markets, but we are in this for the long-term, so we need to keep a steady hand and look to add value investments in the near-term.

That said, April was a rocky start to Q2 ’22. We believe the markets will remain a bit uncertain, with pullbacks becoming a regular event in 1H ’22. Our public equities portfolio, which includes a significant amount of hedging, is still up more than 12% on a one-year basis, and up more than 10% on a ten-year basis.

The S&P went down 8.8% to 4,132 in April, as the markets continued the rotation into only the best value investments, especially those that are profitable and have reasonable valuations.
The Dow was down 4.9% to 32,973 in April, as the markets continued the rotation into only the best value investments, especially those that are profitable and have reasonable valuations.
Nasdaq decreased by 13.3% to 12,338 in April, as Tech and Growth stocks continue to be restrained by their already-high valuations.

In April, Covid-19 infections, hospitalizations, and deaths in the U.S. trended downward to the extreme and most public health professionals believe we have passed the Omicron peak. In addition, the Fed announced there would be 3-7 rate hikes in 2022 to control inflation which has cooled economic expansion expectations.

In May, we believe the public markets will continue rotating to value stocks with real earnings and low PE ratios compared to their growth prospects. Back in early January 2022 we increased the cash/bond part of our public equities’ portfolio to 60% and expect to keep at least 30% liquidity in H1 ’22 so we can periodically take advantage of any market corrections.

We especially like the Financial, Industrial, Energy and Utility sectors where values are more reasonable, and profitable growth stocks which should increase as the country opens back up for business. Morgan Stanley, Berkshire, Google, and Verizon (5% dividend) all continue to be top value selections as we view them as stronger and more nimble competitors in their respective sectors, and they do not have much exposure to Russia. Please visit our website to view our latest TOP 10 investments.

Thanks again for your consideration and ideas. Have a wonderful May 2022!

Best regards,

Marlene Oddo
Partner
PointFour Capital, LLC