“All intelligent investing is value investing – acquiring more than you are paying for. You must value the business in order to value the stock.”
- Charlie Munger, Vice Chairman, Berkshire Hathaway (Rest in Peace)
Happy Monday,
The S&P 500 increased 8.9% in November to 4,568. As noted in our Aug 2023 Market Update, the Aug S&P month-end close of 4,589 remains the high-water mark for 2023. Our year-end target for the S&P 500 remains at 4,000, although the implied pullback may likely get pushed into Q1/Q2 2024.
No matter how you slice it, one thing is clear – the market rally that began in October 2022 (and ended in August 2023) never had much in the way of fundamental underpinnings. Momentum, yes. Technical charts, yes. Sentiment and emotion, yes. Fundamentals and valuations, sorry, no. And this is why we never wavered in our position that fundamentals and valuations matter, despite all the external pressure to do so.
Everyone loves a bullish narrative, meanwhile, the Conference Board’s leading economic index has fallen for 18 consecutive months as economic uncertainty continues to grow. We are also taking our queue from the Bond market where rates have increased significantly in 2023 (short-duration T-Bills still yield ~5.4% with no state income tax burden). As fixed rates have moved up, astute investors have moved capital allocation in that direction to reduce equity market risk.
Here at PointFour Capital, we are adept at seeing the big picture since we have been at this for decades, thus we avoided the 20% meltdown in 2022. In October, the value of our public portfolio was up 2.4% as we sought to reduce risk and wait for better entry points in the future. Overall, in the first 11 months of 2023 the value of our public portfolio increased by 9.4%, as we hedged our portfolio in advance of further market pullback that we expect in H1 2024.
We accomplished our YTD performance by acknowledging early on what the market had been signaling for months - that the 10-year “growth at any cost” movement would end and we would return to a more value-based investment thesis. We are here for the long term and making a profit and avoiding the latest fads means something to us. Our perspective is that we will mind our business in 2023/2024 and get ready to shift capital allocation as inflation gets closer to the Fed target rate of 2.0% and other opportunities present themselves.
We also continue building a strategy to take advantage of opportunities in the commercial office real estate market. The office meltdown has been occurring in slow motion as defaults have increased in 2023, especially in the “B” and “C” class office building sub-segment. Our strategy is to take advantage of the dislocation of prices in this office sub-market.
Remember that every significant market shift usually involves an over-correction, and we expect that this will happen here, so we will look to take advantage of the coming over-correction and set ourselves up for a great 2024 and beyond!
Thanks again for your consideration, ideas, and trust. Have a great December 2023!
Best,
Vincent M. Oddo
Co-Founder & Managing Partner
PointFour Capital, LLC