If there’s one word that encapsulated the stock market this year, it would be “unpredictable.”

In a way, “awful” would also work.

The 20% year-to-date collapse in the S&P 500 Index is the worst year since 2008.

Happy holidays, indeed.

I wrote at the end of last year that I would not be surprised if investors took a more pessimistic approach to valuations.

It was not a prediction, but rather a statement that it could happen, and we should not be surprised if that were to come to pass.

It is wise to accept that valuations are opinions, expressed by many, and the mood of a crowd can change.

If there is a constant about investing, it is that the balance between fear and greed ebb and flow with each other.

Accepting that fact should reduce the stress when the mood inevitably changes.

I also wrote at the end of last year, ‘that we felt confident that the companies in your portfolio would continue to make good progress in their long-term growth paths’.

In other words, opinions about valuations may adjust, but the companies remained best in class with very bright futures.

Nothing about the past year has changed our conviction about the quality of the businesses you own.

None the less, with a few exceptions, the valuations of the companies you own are lower.

Interestingly, the profitability and financial stability of all the companies you own are higher.

At the end of last year everyone was happy. This year everyone is sad.

Last year everyone admired Elon Musk and he was buying Bitcoin.

Today Elon is more controversial than Mark Zuckerberg and Sam Bankman-Fried is in jail.

Things change.

If you see a pattern here, you would be right.

Happy is bad and sad is good.

Carrying on with this happy/sad theme, the economy just printed its strongest quarter of the year:

  • if you want a job, you get one,
  • everyone is shopping,
  • the prices of things are moderating,
  • interest rates are peaking.

This is happy stuff!

Result = sad… if only things could get worse it would be happy?

Investors are in a dour mood because things are pretty good; valuations are down, and we are told that the combination of these two things will lead to bad times (which would be good?).

The bad mood and projection of doom to come have been all the rage this year and it is tiring.

While I am not making a projection, I would not be surprised if next year at this time investors are a bit more upbeat.


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