“Within capitalism, some businesses will flourish for a long time while others will prove to be sinkholes. It is harder than you would think to predict which will be the winners and losers. And those who tell you they know the answer are usually either self-delusional or snake oil salesmen.”
- Warren Buffett, Founder, Chairman & CEO of Berkshire Hathaway
Happy Friday,
The S&P 500 ended February 2024 at 5,096, notching a solid gain of 5.1%. Meanwhile, at PointFour Capital, the performance of our public equity portfolio in February was 8.2%, mainly on the back of the two AI-related stocks that we accurately picked – NVIDIA and Microsoft. Our current 2024 year-end target for the S&P 500 remains at 5,000 – 5,200, which implies a small pullback in Q2/Q3.
No matter how you slice it, one thing is clear – the market rally that began in October 2023 has not been fully supported by fundamental underpinnings. Momentum, yes. Technical charts, yes. Sentiment and emotion, yes. Fundamentals and valuations, not so much. 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 (LEI) has fallen for nineteen consecutive months, including in Jan ‘24 where it fell 0.4%. While the declining LEI continues to signal headwinds to economic activity, they are no longer forecasting a recession ahead. However, they do expect real GDP growth to slow to near zero percent over Q2/Q3.
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 and beat the S&P 500 two-year (2022 & 2023) performance by 14%. In 2024, we seek to beat the S&P 500 performance while at the same time reducing overall risk by hedging our portfolio to protect against an expected market pullback later in 2024.
We have accomplished our 2022 - 2024 performance by acknowledging early on what the market had been signaling - that the 10-year “growth at any cost” and low-interest rate environment would end … and we would be returning to a more value-based investment thesis. In addition, we also astutely recognized the once-in-a-lifetime investment thesis in AI and identified two of the main participants to date – NVIDIA and Microsoft.
We are here for the long term and making a profit and avoiding the latest fads means something to us. We do not see AI as a fad of any kind, instead, we see it as a fundamental technology shift that will alter the world as we know it over the next decade.
In addition, we also continue to take advantage of opportunities in the commercial real estate market. The meltdown in this segment has been occurring in slow motion as defaults increase, especially in the “B” and “C” class office sub-segment. Our strategy is to take advantage of the dislocation of prices today in this sub-segment and continue buying office/industrial buildings in growth markets, like Atlanta, where we believe there will be a substantial inventory shortage in the next 5 years.
Remember that every significant market shift usually involves an over-correction, so we look to take advantage of short-term corrections and set ourselves up for a great 2024 and beyond!
Thanks again for your consideration, ideas, and trust. Have a great March 2024!
Best,
Vincent M. Oddo
Co-Founder & Managing Partner
PointFour Capital, LLC