Boundlessly Creative
“Creativity is intelligence having fun.” – Albert Einstein
As we close 2024 and look ahead to this new year, our team is immensely grateful for your trust and engagement in this partnership journey as we work to cultivate and fulfill your unique intentions for wealth. Thank you.
We’re also happy to report another strong year of portfolio results, with positive returns for 2024 across all our investment strategies. Stocks once again contributed the lion’s share of investment gains, with impressive broad market returns still driven by a small handful of technology companies laying the foundation for this new(ish) transition to generative artificial intelligence (Gen AI). This theme is now two years old and we’ve highlighted it numerous times in our recent letters. (World Keeps Spinning; Forty Thousand; Bold & Humble)
The last time the broad U.S. stock market had back-to-back annual performance in the same ballpark as 2023 and 2024 was in the late 1990s. The 90s were a particularly strong decade for stocks, with the latter half defined by the emergence of the internet and a surge in stocks related to a TMT (tech-media-telecom) boom. As Mark Twain purportedly said, “History doesn’t repeat, but it often rhymes.” We see similarities between the fervor around TMT and Gen AI; and we note that fun and memorable acronyms usually show up to mark such occasions. For a deeper dive, we recommend this recent piece by one of our favorite investors, Howard Marks. Thankfully, we own enough of the companies driving this trend to meaningfully participate in the gains, though wisdom gained through experience keeps us from irrational exuberance and overindulgence.
It feels timely to share three steadfast commitments we hold in making investments for you:
- Relentlessly fulfill your intentions: Build portfolios designed to achieve your goals.
- Maintain an ownership mindset: Know what we own and pay attention to the price we pay.
- Be bold in our convictions: Be willing to think differently than the crowd.
The wisdom of the crowd is evident in the current narrow leadership of the stock market. The top seven stocks in the S&P 500 now represent 35% of the index’s market value! A bounty of valuation and sentiment indicators we track, plus hard-earned experience managing equity portfolios through multiple market cycles, give us pause about blindly following the crowd.
While we continue to own reasonable exposure to the Gen AI theme, as we are a long-term believer in the persistence of this breakthrough, the majority of our core equity strategy—roughly 70%, excluding cash—is trading at more historically reasonable valuations of about 15x next twelve months’ estimated earnings, compared to 22x for the S&P 500. We believe maintaining our valuation discipline should help protect against downside if and when the air comes out of highflying valuations.
Of course, stocks aren’t the only game in town. Our relentless pursuit of fulfilling a wide array of client intentions requires diverse tools in the investment toolkit. In recent years, we’ve expanded client access to private market investments and anticipate we’ll continue to complement public stocks and bonds with attractive opportunities in ownership of businesses, real estate, and credit offered through private markets. Though total returns in bonds, private credit, and core income-producing real estate were more modest in 2024 when compared to stocks, these assets produced consistent income and serve an important diversification role in portfolios—a role that we believe becomes even more apparent and appreciated during inevitable down years for the stock market.
Rest assured, we have our eye on the ball and are taking action to respond to the opportunities and challenges we see ahead. We welcome and eagerly anticipate the continued partnership with you in 2025, and we recognize that our commitment to helping you fulfill your intentions and achieve your goals is unfocused if we don’t have a good grasp of where you want to go.
We’ve been in this game for a while and remain amazed, challenged, and inspired by the boundless possibilities for creativity in humanity (that’s you!) and markets.
Cheers to you and the possibilities in 2025 and beyond!
With Optimism,
Dustin Brumbaugh, CFA®, ADVISOR | CEO/CIO
Sources: Tschetter Group, FactSet, Oaktree Capital, and J.P. Morgan
Important Disclosures
The content of this article is provided for general information purposes only and is presented solely as our opinion. The information was compiled from sources that we believe to be reliable, however, we cannot guarantee its accuracy, completeness, or timeliness. This article is based on the information available to us as of the date of this article and may change at any time. Tschetter Group does not provide tax and legal advice. Please consult your legal and tax professional for specific information.
Tschetter Group (“TG”) is a registered investment adviser with the Securities and Exchange Commission. The information provided by TG (or any portion thereof) may not be copied or distributed without TG’s prior written approval. All statements are current as of the date written and does not constitute an offer or solicitation to any person in any jurisdiction in which such offer or solicitation is not authorized or to any person to whom it would be unlawful to make such offer or solicitation. Different types of investments involve varying degrees of risk. Risk Disclosure Statement: All investments include a risk of loss that clients should be prepared to bear.