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As the holiday season approaches and we look back on an eventful year, we are filled with gratitude for your continued trust and partnership. This year has been remarkable in many ways, and as we approach the joyous time of Christmas, we want to share some reflections and positive outlooks on the investment landscape.

2024 has proven to be a year of resilience. Despite facing various challenges and uncertainties, the markets have shown strong growth and recovery. The Magnificent Seven tech giants have particularly stood out, demonstrating their ability to lead the market and drive innovation. As we move into 2025, we remain confident in our strategy of balanced and diversified investments, ensuring that we are well-positioned to seize opportunities while managing risks.

The new year brings with it new opportunities. The investment landscape is rich with potential. As we look ahead, we are excited about the possibilities that lie within sectors such as artificial intelligence, biotechnology, robotics and computing. Even sleepy sectors like utilities, energy, financial services and consumer-oriented businesses stand to benefit by emerging technologies, software and hardware. By staying informed and adaptable, we will continue to position our portfolios to benefit from these dynamic and promising areas.

As we gather with our loved ones to celebrate Christmas, we are reminded of the things that truly matter—family, friends, and community. In the spirit of the season, we encourage you to take a moment to appreciate the blessings of the past year and to look forward with hope and optimism.

We extend our warmest wishes to you and your families. May your holiday season be filled with joy, love, and laughter. Thank you for being a valued part of our investment community. Here’s to a wonderful Christmas and a successful and prosperous New Year!

It’s been a couple weeks since the election, and life goes on. Over the past year, there were a lot of fears and anger about the extreme views of the presidential candidates. Many people urged others to vote for their candidate or even leave the country if they didn’t win. During these tense times, I tried to stay neutral, as I’m a middle child. Trump won the election and now controls the Senate and House. The media’s predictions of a close race were wrong again!

Our investment portfolios have faced challenges, especially with the focus on the ‘Magnificent Seven’ stocks. While other stocks do matter, the numbers show that these were the leaders, and you needed to own them. We take a balanced approach to avoid too much risk. In 2024, the market rewarded those who invested heavily in these tech giants. We compared this to other times in market history, and it felt familiar. Our portfolios saw great gains, and we still believe in these companies. We also believe in quality businesses that didn’t have huge returns. We keep our investments equal and neutral across different economic sectors.

The election and market changes require us to be patient and calm during these challenging times. As Reinhold Niebuhr said, “Grant me the serenity to accept the things I cannot change, the courage to change the things I can, and the wisdom to know the difference.”

The future leaders in Trump’s administration are still being chosen. The focus areas like taxes, immigration, and international affairs are just starting to be discussed. The next four years will bring actions and reactions to various situations. We don’t know where the markets or economy are headed, but we believe our perspective will help us navigate through it. The debates about who won are over, and we need to focus on what we can control—the present. Our investment decisions will be influenced by the budgets and policies of the next four years. There can be many good ideas, but only time will tell how these challenges are solved. Our portfolios are built with long-term goals in mind, and we believe they are resilient. I hope we can all have more balanced discussions to help everyone succeed. Let’s give each other the space and time to work towards a better country.

~ Steve Davenport, CFA

My grandfather was a Texas oilman. A few times per year, he and the other employees were awarded stock in the company they worked for. It was a bonus. Often it was a few shares. And on those days, when the employees would gather in the cafeteria for lunch, my grandfather would offer to buy shares from anyone who wanted to sell. I can’t say whether he was a particularly shrewd trader, but he knew what the stock was worth to him, and I’m sure he got a good deal. In that way, he accumulated a block of shares over time and the dividends gave him extra cash flow in his retirement.

Once he bought shares, my grandfather never sold. He could have. Any contemporary investor certainly would have, if for no other reason than to diversify. Looking at a chart of the company he owned, there were periods when the value of his holdings went down 50%. Many investors probably would have sold shares during one of those occasions when oil prices, and oil stocks, tanked (remember oil at $10 per barrel in the 1990s?). But, my grandfather didn’t sell even in those periods; the company was worth more to him, as was the consistent stream of dividends the company produced.

Most investors (including most advisors) treat the stock market like it’s a game. They jump on the bandwagon for popular stocks, then dump their holdings at the hint of economic trouble. Having a liquid and electronic stock market makes buying and selling shares easy. But just because we can sell, or buy, doesn’t mean we should. And that’s where my grandfather’s philosophy was a benefit. He recognized there was a real company behind the shares he was buying. That company made products he knew were important, and he respected the company’s history, employees and leadership. And his “stock market”—the cafeteria where he and his coworkers struck handshake deals over coffee and corned beef sandwiches—may have been simplistic, but it definitely was not a game. And what Wall Street analysts thought of his company, or what the Dow did each day, could not have been less important to him.

Election years tend to be volatile for the markets. Investors everywhere, every day, react to the latest news and polls, driving stock prices higher one day and lower the next. And this election year, more than any other, has Americans anxious about the outcome. But during times like this, we should remember that we are investing in great businesses, and great businesses share common traits. They are often the best or only company that does what they do. They are highly profitable. They are financially strong. They have skilled management teams and they retain their customers, even during difficult times. Elections don’t determine the future of companies like these; they serve their customers, their communities, and investors for decades, which is why owning them and holding them is the best long-term investment strategy.

~ Travis Raish, CFA

July and August have been tumultuous for the markets. The stock market in general was down for the month, but it was more pronounced for technology stocks. The ups and downs have been driven mostly by “The Magnificent Seven”. It sounds like the title of a spaghetti western, but these tech-oriented companies have pulled the market up as people have gotten more excited about AI (Artificial Intelligence), and have sold off more dramatically when investors worry about the health of the economy.

As with most market storms like the one recently, there were several factors that increased the velocity of declines:

• The Japanese market was down 10%
• Weak jobs data was reported by the Bureau of Labor Statistics
• Warren Buffett sold half of his stake in Apple (a Magnificent Seven company)
• The US market had been getting more expensive

In response to the market’s declines, investors were clamoring for the Fed to take heed of their suffering, and to hold an emergency meeting to lower interest rates. In fact, many “experts” believe the Fed should have already started lowering interest rates to help borrowers, the economy, and ultimately the stock market. Then the Fed met and said they may lower rates in September, later than many investors would like.

While this market storm was underway, a real storm in the form of Hurricane Debby was approaching. Storms gather momentum as they sit over the ocean and spin. Debby hit Florida with a fury and people were surprised by how much damage it brought. And like so many storms of this magnitude, the people hurt the worst were largely those living in homes that weren’t built or were ill-equipped to handle hurricane-force winds and storm surge.

There will be storms, financial and real, and we rarely know far in advance when they are going to hit. And unlike homeowners in coastal Florida who may have difficulty reinforcing a home to withstand a hurricane, investors have easy to implement strategies to help their portfolio withstand a market storm. These include diversifying our portfolios, buying quality companies and having the wherewithal to stay invested through good and bad times. In doing so, we face the challenges of life with our head up.

There will always be a Debby and a decline on the horizon. Let’s make sure we are ready.

~ Steve Davenport, CFA

Investors have changed little over the past 30 years. They still clamor for growth stocks, especially those at the forefront of technological developments. This is especially true today of companies that are working to develop artificial intelligence. And one such company, Nvidia (NVDA), has come from relative obscurity just a few years ago to become one of the largest and most popular companies in the world among investors. But as challenging as it is to become one of the best, staying at the top can be even more difficult.

In 1993, Intel (INTC) was one of the largest and most highly regarded tech companies. Famous for Moore’s Law, an observation that says that semiconductors can get 40% faster every two years through advancements in technology, the company provided computer chips to nearly every major computer manufacturer. Intel Inside was a sticker companies wanted on their products, and just like Nvidia today, Intel’s products were used by the best companies producing the best technologies. As an analyst working at a growth stock investment company, there wasn’t a mutual fund that we offered that did not contain shares of Intel. And to put things in perspective, a $10,000 investment in 1993 would be worth $100,000 today. That’s not too shabby if you had the wherewithal to buy and hold Intel over the past 30 years.

In contrast, there was another chip company back in 1993 that wasn’t nearly as popular, especially among growth investors. The company was roughly the same size as Intel. But this company’s executives didn’t care about Moore’s Law, and they certainly never lost sleep about how many transistors could fit on a computer chip—that’s because their chips are not made from silicone, but from potatoes. Pepsi (PEP), the maker of soft drinks and snack foods like Lays Potato Chips, was boring as a company and as an investment. As a 24-year-old investment analyst, I ate potato chips, but I certainly didn’t want to invest in them. At the fund company, we may have had one mutual fund with an investment in Pepsi and most of us thought about it as an investment for old people who want dividends, but not for anyone who wants to grow their portfolio. Ironically, however, $10,000 invested in that unglamorous chip company would be worth $165,000 today.

The point is that some of the best investments are not in the most glamorous, popular, or exciting companies. But good companies, regardless of industry, often produce products and services that are highly profitable. And because many of these companies are “boring” they have few challengers trying to steal market share from them. When was the last time you heard about some startup trying to take down Pepsi? On the other hand, with microchips that sell for $25,000 apiece, every company even remotely tied to tech is trying to chip away at Nvidia’s lead. This is not to say that Nvidia is going to fall apart, or that the stock is going to tank. But it is to say that the combination of high profits and high profile can be challenging to maintain. The good news is that we don’t have to pick just one—Nvidia or Pepsi—we can have both … and we do.

~ Travis Raish, CFA

In the past month, we bought a house in Charlotte, sold a house in Atlanta, moved everything in between them, watched our daughter receive her doctorate degree from Rice University, and still found time to schedule hip replacement surgery for me. To say we have been busy is an understatement, and all of these activities have brought us a certain amount of joy or stress. But it’s the last of these, the idea of having an artificial hip, that has me a little concerned.

Artificial hip surgery was first attempted in 1891. Since then, there have been countless inventions of other artificial replacement body parts. Today, we are confronted with the idea that we have surpassed even that, with artificial intelligence. Personally, I find it insulting to think that the thing that makes us uniquely human—our experiences and intelligence—can be artificially replicated by computer code. Perhaps an actual thinking computer is still a long way off. But still, I prefer real things; I want real intelligence just like I want a real hip—nothing artificial for me, thank you.

The fervor around artificial intelligence, and the companies that are developing the hardware, software, and programming to make it possible, have helped to fuel some nice gains in the stock market. Maybe artificial intelligence will change our lives the way the PC did in the 80s, the Internet did in the 90s, and the smartphone did in the 2000s. But we still must remain cautious. We always have to be mindful of the quality of the businesses that we own. We have to maintain balance in our portfolios so that we don’t have too much or too little exposure to the different industries and sectors and businesses that make America great.

Certainly, owning tech companies is a big part of investing. Tech represents about 30% of the US economy, in stock market terms. But tech isn’t the only part, and it’s important to have great companies in other industries too, and many of these are the name brand companies with products and services you use every day. We can’t know if Pepsi or Coke, Home Depot or Lowe’s, Costco or Walmart, will deliver better results over any given period. But these companies all have qualities that make them great businesses, and it’s these qualities we gravitate toward for our investments.

~ Steve Davenport, CFA

P.S. The image above may look like a photo, but it’s not. It was generated by artificial intelligence in about 15 seconds. Not bad for a computer pretending to be human.

In the 2011 film, Moneyball, Oakland A’s general manager, Billy Beane, turns to statistics with the hope of helping his team win the World Series. While his efforts help his team get to the playoffs, they fail to win the championship and with the lights dimming over A’s stadium, we hear a critic say, “Nobody reinvents this game.” Whether it’s baseball, business or politics, this sentiment reveals our natural tendency to embrace the familiar, finding comfort in our traditions, even while we often hope that changes might make things better.

I am reminded of this, especially this month, as I celebrate 30 years working in this industry. Rarely has a year gone by where I haven’t wondered what advancements will come that will make our lives better. In some years, it’s a new technology that will supposedly reinvent the way we handle our finances. In other years, it’s our government trying to reinvent some aspect of the economy. In most cases, we are reminded in the years that follow that the laws of money aren’t so easily changed.

We got another reminder of that this week. Inflation is still a problem. The cost of living is higher today than it was a year ago, and significantly higher than it was before the pandemic. We feel the pinch of higher prices every time we buy gas, shop for groceries or take our families out for dinner. It is the natural consequence of a government with easy money policies. Flood the economy with money to keep it from collapsing, you get inflation. Force interest rates to zero to encourage people to borrow and spend, you get inflation. Shut down industries so they can’t produce enough goods to meet demand, you get inflation. Do all three at the same time in the wake of a pandemic, you end up exactly where we are today. The only question is why anyone would be surprised by this.

The good news is that some, if not all the tools our government has at its disposal are working to stabilize the dollar. To speed things up, Congress could limit their spending, and the Fed could push interest rates even higher. Both approaches are unlikely, however. Representatives spend taxpayer money to keep their voters happy and Fed governors maintain their appointments by keeping the current resident in the White House happy. None of them want to lose their jobs for making unpopular decisions. But even with rates where they are today, inflation could subside. It just may take longer than anyone in Washington expects.

The American economy is nothing if not resilient. Our history is replete with examples of how we adapt and change, and often are stronger for having gone through challenging times. The advancements of the past hundred years have made our financial system more stable. We are less likely to experience a 1920s-style depression because of the regulatory policies we have in place today. We can even hope that our friends in Washington might learn a lesson from the past four years, that their efforts are better spent on preserving the American dream for everyone than on tinkering with the economy, the markets, the money supply, and playing favorites with certain businesses and industries.

The next decade or two will likely be similar to the past few. Ingenious people will invent new technologies, and our elected and appointed officials will implement new policies, we hope with the noble intent of making our lives better. And maybe their efforts won’t reinvent the game, but they could improve the game for all of us. And that, I think, is something we can all agree is worth pursuing.

~ Travis Raish, CFA

CryptoPunk #5822 is a piece of collectible digital artwork (not pictured).* It is a pixelated human head with a bluish hue, and either blue hair, or a blue bandanna, it’s difficult to tell which. In February 2023 it sold through an online marketplace for over $23 million. Before you think that must be a typo, trust me, it’s not—and it’s not even the most expensive Non-Fungible Token (NFT) to sell. That prize goes to a piece of digital artwork called The Merge, and it sold for a whopping $91 million.

NFTs like CryptoPunk #5822 and The Merge are the products of the world of cryptocurrency. And the marketplace for expensive pieces of collectible digital art is dominated by people who have made fortunes in that industry, often as early investors, or as executives who have created and developed the technology. By all accounts, this group of highly technical executives/developers/investors is relatively small, and when I hear stories like this—a piece of digital artwork selling for millions of dollars—I wonder if these people are spending a bit too much time buried in their work.

It’s easy to judge that which we do not understand. I don’t understand NFTs. But I can appreciate that other people who understand that market better than I do, see value and opportunity where I don’t. I can look at the digitized head of a monkey selling on an NFT exchange for thousands of dollars and think, “why bother?” But in the same way, I can spend hours studying a company to determine if it’s a good investment, and someone else might ask me the same question.

We all have our areas of expertise. Each of us tries to create or deliver value in our own unique ways. My guess is the blockchain developer working in the world of cryptocurrency and NFTs would say their work is important. Perhaps it is. I can’t say for sure. But I can say with certainty that even though we might occasionally dig too far into the minutia of an investment, focusing on details that may not always be of much consequence, the work we do is very important because it brings value to our clients.

The good news is you don’t have to worry about the investment details. That’s what we’re here for. We pay attention to the Fed, interest rates, the economy, election cycles, the markets and all the individual companies we own, so you don’t have to. That also means that especially this week, as we look ahead to Easter weekend, you can focus on the things that matter most—faith, family and community.

Blessings to you this Easter, and in the weeks ahead.

~ Travis Raish, CFA

* NFTs are privately owned so we didn’t post images, but if you’d like to see what tens of millions of dollars can buy in the world of digital art, search for them online.

I have lived through Black Monday, the Tech Bubble, the Great Recession, the Credit Crisis, a COVID pandemic that shut down the world’s economies, and several other choppy markets along the way. The reality is these bumps in the road create short term problems for investors, but they have less impact over longer periods of time. Still, volatility is hard to ignore. This is especially true when we are within a few years of retirement and we feel there is little room in our plan for a 20-30% decline in the markets, even if it might be short lived.

We all approach challenges differently. For me, I like to know what my choices are. At a restaurant, I ask what the waitress recommends, because I want to hear her ideas. Usually I order something else, and it may seem like I wasted her time, but I often feel better about my choice when I know what my options are. Investing is similar. If we have a worry that our account might lose more than we are comfortable with, we have to know what our options are for managing that risk.

One solution I offer to clients is to use options to generate extra income or protect against losses. I have been using these strategies for over 20 years. Even so, I don’t know it all, but I know enough to be careful. Options are not for everyone and it takes time for clients to learn how options work and what to expect. And for this reason, I often start working with new clients on a smaller scale, if they express and interest in having me generate income, or offer protection from market risk. The result is that some clients may find greater comfort, especially if they have a higher allocation to stocks—often a more volatile type of investment—in their account.

There are several challenges on the horizon, including fears of recession, continued inflation, conflict in Ukraine and the Middle East, China’s and Russia’s relationships with the rest of the world, and the upcoming Presidential election. Like so many other challenges, these may also prove to have little impact on the markets. We expect our investment decisions will be fruitful and having the proper asset allocation will provide us with a smoother journey. And we will continue to buy high quality companies, expecting them to weather difficult times, and thrive when times are good. But if your concerns get the best of you, please let us know. There is no bad time to review your portfolio, and to make sure we are doing what we can to make the journey better for you.

~ Steve Davenport, CFA

What will the new year bring?

It’s a good question. Perhaps my favorite answer is from the late Louis Rukeyser, the host of Wall Street Week, a popular financial news program many years ago. To paraphrase Mr. Rukeyser, “May the new year bring us exactly what we deserve, plus twenty percent.”

We got more than that last year. The U.S. stock market had a strong rally in 2023, notching a 26% return for investors. As we look to 2024, is it too much to ask for more of the same? By the numbers, it’s certainly possible.

Interest rates have stabilized at levels that are both reasonable and still good from a historical perspective. And while borrowers can’t get mortgages for free the way they nearly did a couple of years ago, the interest payments on a mortgage still aren’t likely to break the bank for most American homeowners.

Economic growth is also reasonable. The Christmas shopping metrics are not in just yet, but signs point to the fact that Americans spent money the way they typically do. And American businesses were happy to oblige, ramping production of everything to ensure the shortages that plagued prior holidays didn’t affect this one.

How about the job market? Virtually anybody who wants a job can get one. This may not be true for the recent college graduate, shedding tears because they can’t find an employer willing to pay a six-figure salary to someone with zero experience. But for those seeking employment, there is work to be had.

And what about inflation? Many goods cost 50% more than what they did just two years ago. We all feel that pinch every time we go out to dinner or shop for groceries. But signs point to the fact that inflationary pressures have diminished lately, and prices seem to be a bit more stable.

Reasonable economic growth. Jobs aplenty. Inflation under control. The ability to borrow at reasonable rates. These factors provide all the fuel we need to keep the good times rolling. So why is it, according to a recent Pew Research Center study, that the average American is not so optimistic about 2024 and beyond? Two words … Presidential election.

Election cycles make investors jittery. The uncertainty of not knowing who will be in the White House in the following year often causes investors to trade their stocks like they do players on their fantasy football teams and treat the markets like an offshore sports book. But even beyond the naturally elevated anxiety felt by Americans during an election year, there are other political factors that are exacerbating the problem.

The appearance of impropriety at many levels of government and law enforcement has caused Americans to question whether the U.S. is any less corrupt than many Third World countries. In 2021, three Federal Reserve branch bank presidents resigned over allegations they may have profited personally by the actions they were taking to stabilize markets during the Covid crisis. Hundreds of congressmen and dozens of senators have reportedly enriched themselves, or their campaigns, by accepting Big Checks from Big Pharma, Big Tech, and Big Bank. Even the justice system resembles a circus side show when we see how easily it is manipulated by politicians who are intent on furthering their own careers or destroying the careers of others. In all this, we scratch our heads, wondering how these behaviors are possible in the United States—mankind’s crowning achievement of civilization.

Put simply, Americans’ unease about what the future holds is a simple reflection of how we view the character of those in charge. We want to believe that our elected and appointed officials are not just following the rule of law—certainly not a given today—but are also adhering to a moral law, and hopefully one even higher than we hold ourselves to. As parents, when our children make mistakes, we waggle our finger and say, “you should have known better.” It may be frustrating, but it’s also part of the job and we expect it. But it’s especially disheartening when we have to say the same thing about someone we expected to represent the best in us, who, by our choice and our vote, is responsible for the welfare of others.

The good news is character flaws in our leaders do not necessarily jeopardize the American Dream for all of us. They contribute to uncertainty, however. Still, I am an optimist by nature. I want Lewis Rukeyser’s new year toast to be prescient today. I want 2024 to bring us another 20%, deservedly or not. But we also must respect that with investing, while things often work out better than we expect, few things work out exactly the way we think they will, and this year may be bumpier than the last.

~ Travis Raish, CFA