As college football enters bowl season, this SOTW is inspired by the many musical traditions in college athletics. We are not talking about traditional marching bands (also great), but we are inspired by the stadium-wide sing-alongs to popular studio-produced songs.
University of Wisconsin started the trend in 1998 when they played “Jump Around” during their homecoming game against Purdue, with fans shaking the stadium with their enthusiasm; however, the most famous is likely Metallica’s “Enter Sandman” played during the magical entrance of the Virginia Tech Hokies. Across the state line in West Virginia, the fans sing the obvious “Take Me Home, Country Roads,” but the rarely discussed “I Won’t Back Down,” played at the University of Florida Gator games, deserves some attention.
This SOTW is influenced by the spirit of “I Won’t Back Down” by Tom Petty. This tune is our anthem for investing in the wild market year.
Tom Petty’s inspirational message of never quitting and continuing to fight in the face of adversity is played before the start of the fourth quarter at each game in Petty’s hometown of Gainesville, Florida. See the video from the Swamp here.
The song’s message seems appropriate for investors in the swampy year of 2023. Below is a chart of the equal-weighted S&P 500 for the year. At this point, we think most investors understand that looking at the capitalization weighted S&P 500 does not give a fair representation of the average stock.
The wild ride is illustrated below:
(Source: Bloomberg)
We promised ourselves not to mention the fact that seven stocks are driving the performance of the market capitalization weighted S&P 500 Index in 2023, but the inclusion of the equal-weighted index required some explaining.
The market began the year with a 9% rally, then fell -12%, but the summer brought a 13% rally. After Labor Day, before we could put away our white pants, the market dropped 14% as fear of higher interest rates ripped through the capital markets. Today, the equal weighted S&P 500 stands 8% higher than when the year started.
Wow … what a ride. In the face of it all, we stood our ground and did not back down. “Hey baby, there ain’t no easy way out,” especially not as this world is in transition from low rates to higher rates, a topic we discussed at the beginning of this year.
After all, we do not invest in markets, but we invest in stocks. Let’s look at a couple examples of stocks we own in the Global Vigilance portfolio to serve as an example of our ground holding.
Consider the stock Datadog (DDOG) illustrated below with a chart of the price over the year:
(Source: Bloomberg)
The technology company gave investors many reasons to question their theses with several drops of over 10% in a year where the mega-large technology stocks rallied. It was not until November that the stock rallied 48% in 26 calendar days.
The next example is New Fortress (NFE), which displays a very similar chart from June 23, 2023, when we first purchased the stock.
(Source: Bloomberg)
This natural gas exporter was flat from when we purchased until the November earnings call where the company announced solid earnings. The stock climbed 42% off the lows. This is another example of the Lear team sticking to our guns and trusting the research.
In a world that keeps on dragging us down, we did not back down in the face of adversity in this confusingly manic year of 2023. However, there is still another month left and anything can happen, so get ready for college football playoffs and the final month of trading in capital markets.
Disclosures
LIM is a Registered Investment Advisor based in Dallas, Texas and registered with the Securities and Exchange Commission. Registration does not imply a certain level of skills or training. LIM is a company with purpose, dedicated to creative and unique thinking. We focus on portfolio valuation and research, along with superior client experience. We seek to identify investment opportunities by looking at economic factors, security valuation and human behavior. We start with the fundamentals of portfolio management and valuation. Then we build on these fundamentals with unique thinking and creative intelligence gathering to form a viable investment thesis. We believe this approach leads to dynamic global portfolios with increased return and managed risk. LIM utilizes Charles Schwab & Co. Inc. (“Schwab”), a FINRA-registered broker-dealer, member SIPC, as its custodian of assets. LIM is independently owned and operated and not affiliated with Schwab.
Additional disclosures:
This document may contain forward-looking statements based on LIM’s expectations and projections about the methods by which it expects to invest. Those statements are sometimes indicated by words such as “expects,” “believes,” “will” and similar expressions. In addition, any statements that refer to expectations, projections or characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. Such statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Therefore, actual returns could differ materially and adversely from those expressed or implied in any forward-looking statements as a result of various factors.
This material represents an assessment of the market and economic environment at a specific point in time and is not intended to be a forecast of future events or a guarantee of future results.
Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions.
The examples included are representative selections and not inclusive of all recommendations made by the adviser. Additional information can be provided on request.
This document is a general communication being provided to you for information purposes only. Communication is educational in nature and not designed to be a recommendation for any specific investment product, strategy, plan design feature or any other purpose. By receiving this communication, you agree with the intended purpose described above. Any examples used in this material are completely hypothetical and for illustration only. The document is for the sole use of the person to whom it is addressed and is privileged and confidential. Use by anyone other than the addressee is strictly prohibited.
Definitions
The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market-value weighted index (stock price times number of shares outstanding), with each stock’s weight in the Index proportionate to its market value.
The Nasdaq Composite Index is a market cap-weighted index, representing the value of all stocks listed on the Nasdaq Stock Market. The composition of the Nasdaq Composite is a mix of long-established companies that have been on the exchange since inception, to IPO newcomers, companies that grew from OTC exchanges or switched from other exchanges.
Past results do not guarantee future performance.