Tuesday, January 16, 2024

Morning Note: A Resonating Quote, New-Year's Breadth (or lack thereof), And Your Weekly Results Update

The title of value investor Gautam Baid's book, The Joys of Compounding: The Passionate Pursuit of Lifelong Learning, has crossed my radar a couple of times lately, in highly-touted fashion -- so I figured I'd give it a read... Having just cracked it over the weekend, I can so far see why it's garnered such attention!  The number of dogeared pages and underlines already in my copy means it'll likely be quoted plenty herein over the next few days.

Having been steeped in markets since 1984, the following, for example, very much resonated with me:   emphasis mine...

"Having the ability to focus on what is "important and knowable" is valuable in a world in which we are constantly bombarded with distracting and disparate ideas, information, and opinion. This has important implications for investors.
Focus on those investment for which the macroeconomics are going to dominate the outcome. This approach will allow you to call upon your accumulated experience in analyzing companies and industries and to utilize the same to your advantage.
Fifty years ago, the best investors were the ones with an informational edge. Today, the best investors are the ones with a behavioral edge. As the speed of information dissemination in the markets and competition for short-term performance among money managers increased over the years, time horizons and patience levels significantly decreased.
Today, an investor's edge is less about knowing more than others about a specific stock, and more about the mind-set, discipline, and willingness to take a long-term view..."

"Achievement is so engrained in our culture that we often ignore the fact that gunning to maximize short-term productivity usually comes at the expense of slower but more consistent and durable long-term progress.

"...our focus should be not just on doing but also on deeply understanding the parameters of what we need to do, now and in the future." 

Now, speaking of behavior (although, in the aggregate sense), last week I touched on the importance of our read on bullishness vs bearishness toward the equity market... One can also argue that overall market breadth represents another key element in determining the prevailing sentiment underlying markets.


While the November/December rally in stocks was characterized by a very nice, and encouraging, broadening of breadth (i.e., not merely the "Magnificent 7" stocks that dominated [in historic fashion] during the bulk of last year), 2024, alas, has kicked off with a look that, well, let's just say is not befitting that of a healthy new bull market.

Have a look:

White = SP500 Cap-Weight Index, Green = SP500 Equal-Weight Index (a healthy advance would have the green at least as well as the white):

White = SP500, Blue = SP500 Advance/Decline Line (a healthy advance would have the blue line moving with the white):

And the number of SP500 members trading above their 50-day moving averages (yellow) -- while still plenty right here -- would not be diverging as notably from price (white):

Nor would the members trading above their 200-day moving average (orange):

And the one that continues to capture our very close attention -- the Nasdaq Comp Advance/Decline Line (bottom panel) -- remains the most precarious-looking breadth reading (diverging markedly from price [top panel]) we track.

Follow the lines in this 5-year view and you'll see why this one's so troublesome:

Now, all of the above said, the year is very very young! So we'll keep you updated...

Here's your weekly sector, regional, and asset class update:

Asian equities got hammered overnight, with 14 of the 16 markets we track closing lower.

Same for Europe so far this morning, with 15 of the 19 bourses we follow trading down as I type.

US equity averages are down as well to start the session: Dow by 252 points (0.67%), SP500 down 0.65%, SP500 Equal Weight down 0.87%, Nasdaq 100 down 0.60%, Nasdaq Comp down 0.68%, Russell 2000 down 1.28%.

This morning the VIX sits at 14.06.

Oil futures are down 0.27%, nat gas futures are down 11.92%, gold's down 0.84%, silver's down 1.04%, copper futures are up 0.70% and the ag complex (DBA) is up 0.97%.

The 10-year treasury is down (yield up) and the dollar is up 0.86%.

Among our 32 core positions (excluding options hedges, cash and money market funds), 4 -- Dutch Bros, DBA (ag futures), URNM (uranium miners) and AT&T -- are in the green so far this morning... The losers are being led lower by Range Resources, REMX (rare earth miners), EWW (Mexico equities), FEZ (Eurozone equities) and EWZ (Brazil equities).

"Every piece of financial news you read should be filtered by asking the question, "Will I still care about this in a year? Five years? Ten years?" The goal of information should be to help you make better decisions between now and the end of your ultimate goals. Read old news and you'll quickly see that the life expectancy of your goals is higher than that of the vast majority of headlines."

--Morgan Housel

Have a great day!

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