As we reflect on another year together, I’m delighted to share that our journey toward your most important financial aspirations continues to thrive. Our steadfast approach—anchored in your personal goals rather than market predictions—remains our guiding principle now and for the future.

As we do at the beginning of every year, we offer insights into our guiding principles and beliefs. These statements serve as a reminder to us and to you. We’ve been blessed with growing portfolios and know that a time will come when this momentum will reverse, albeit only temporarily, and it will cause many to capitulate on their plans. When this time comes, we will be here to encourage you and to remind you of the unique opportunities that irrational markets offer to the patient, long-term, goal-focused investor.

Core Beliefs:

Long-Term, Goal-Focused Investing: We prioritize patience and discipline, investing in a diversified portfolio of high-quality businesses to support your unique objectives.

Embracing Market Uncertainty: Recognizing that economic forecasts and market timing are unpredictable, we focus on enduring the market’s natural fluctuations, understanding that downturns are temporary and part of the growth journey.

Commitment to Your Plan: As long as your long-term goals remain unchanged, so will our strategy to achieve them, ensuring consistency and reliability in our approach.

The often quoted phrase, “This to shall pass,” was attributed to Sir John Templeton. Templeton, was a pioneer in the field of International Investing. Like us, he sought out opportunities where other investors would not go, for fear of looking different. However, it is a core belief of ours (and Templeton) that in order to achieve different results, you must behave differently than others.

Much of our work is rooted in the behavioral components of investing. It is why our approach begins first with your goals, then a plan to achieve those goals, and only then a portfolio to support those plans. We have the advantage of taking a long-term view of the markets and are not swayed by their temporary bouts of irrationality. While we are not certain of anything, it seems wise to begin preparing for the next round of uncertainty. 

Current Insights:

The past year has been notably strong for equity investors, largely driven by significant advancements in the technology sector. As the year concluded, we are still faced with the extreme concentration of wealth being added to the Technology Sector. At year end, technology stocks represented over 30% of the S&P 500 index – more than double that of any other sector. Yet, gains were enjoyed by investors across all sectors of the index.

While technology represents a healthy percentage of our own portfolio, we are motivated by the incorporation of artificial intelligence in non-technology businesses. Financial companies, Industrial firms, Health Care organizations, and many others all stand to benefit from the hyper-efficiency that today’s AI world has to offer. As we screen our portfolio or current and prospective investments, we are looking for managers who share the enthusiasm we have for advancing their businesses by incorporating new technologies.

The results of the recent presidential election have provided investors with some element of stability for the next four years – although it would be hard to convince anyone that the next four years will be “stable.” Knowing the political backdrop provides investors with a baseline for their assumptions about the economy, business environment, and taxes. Today, the economy is in a favorable condition. The job market remains robust, though there’s a slight cooling due to current monetary policies. Corporate earnings and dividends have reached record highs, with projections indicating further growth in 2025. And, given the new administration and the composition of Congress, it seems likely that the favorable tax environment we’ve enjoyed for the past decade will continue.

While some investors express concerns about potential overvaluation in the equity market, historical data shows that valuations are not reliable timing tools. We encourage you to stay the course with your personalized plan, focusing on long-term objectives rather than short-term market sentiments.

Inflation persists as a consideration, and recent statements from Federal Reserve Chair Powell have reinforced its ongoing presence. Despite fiscal challenges, it’s noteworthy that consumers are in a strong position, with household debt service ratios near 40-year lows. We also recognize that the impact of inflation is not evenly distributed across all members of society. Young families and the elderly shoulder the burden of inflation to a much greater extent. This problem poses some serious concerns for us, as I’m sure it does for you. Progress needs to be made to create sustainable social programs that support and improve the lives of our fellow countrymen.

It’s important to set realistic expectations; the exceptional market returns since the 2009 Global Financial Crisis are unlikely to continue indefinitely. Our long-term plans are based on the historical average return of the S&P 500, around 10%, aligning with a prudent and sustainable growth outlook. With this goal in mind, we’ve taken what we consider to be a prudent path forward. We are keeping cash reserves available for those who need liquidity in the next two to three years. Short-term goals should not be funded by long-term assets. The rest of our client’s wealth resides in high-quality businesses, whose price at the time of purchase seems reasonable or even discounted due to some type of uncertainty about the near-term future. Our goal is always to buy these great businesses when they are unloved and unwanted by others. And it is our patient outlook that provides us with the necessary behavioral edge to see these companies return into favor. This approach provides us with a margin of safety and continues to yield favorable results for like-minded, long-term investors.

We remain optimistic about the future. We wish each of you a healthy, happy, and prosperous 2025. Remember, we’re always here to answer your questions or address any concerns. Thank you for entrusting us on your financial journey; it’s a privilege to serve you.

Disclaimer

Investment advisory services are offered through O’Keefe Stevens Advisory, Inc., an SEC Registered Investment Advisor. © 2024 O’Keefe Stevens Advisory, Inc. All rights reserved. This content cannot be copied without the express written consent of O’Keefe Stevens Advisory, Inc.