👋 Hello friend,
Prior to starting Ithaca Wealth Management, I was an investment analyst, trader, and voting member of an investment committee that managed more than $2 billion in assets for thousands of clients.
My primary responsibility was managing two distinct investment portfolios.
One portfolio was comprised of well-known blue chip stocks, while the other was an over-diversified mashup of different mutual funds and ETFs.
After countless stock market corrections, I observed that clients invested in the portfolio of individual stocks were less likely to panic sell compared to those invested in the portfolio of mutual funds and ETFs.
My takeaway is that investors who know what they own are more likely to stay committed to their long-term plan and remain invested, especially when the outlook turns negative.
That is why I'm launching Taking Stock, a newsletter that will highlight recent developments of the companies you are invested in, break down company business models, and review happenings in the stock market and economy.
Because when you know the what and why behind your investments, suddenly the average annual stock market decline of 14% will look less like a liability and more like an opportunity.
So without further ado, let's take stock!
Do you know someone who would benefit from a fiduciary wealth advisor that works in their best interests? If so, remind them why Ithaca Wealth might be a good fit.
Ithaca Wealth Management offers:
- $0 Account Minimums
- Low fees that start at 0.85% — fall to 0.50% over time
- Easy-to-use smartphone app to monitor your investments
- 5 trees planted for every opened account
- Investment Management & Financial Planning by a Fiduciary Advisor
Have them reach out today by calling/texting (607) 882-1434, or e-mail firstname.lastname@example.org
🗞️ IWM Stocks in the News
- Approvals for Merck's cancer immunotherapy drug Keytruda continue to roll in, with it receiving FDA clearance for stage IIb or IIc melanoma on Friday. The therapy is approved to treat 30 different cancers and is currently the second best selling drug of all time.
- Merck's antiviral drug for COVID-19 was granted emergency use authorization by the FDA last week. The US Government will buy 3.1 million doses of Merck's antiviral for $2.2 billion. Canada will purchase 500,000 doses.
- The Biden administration is now requiring private health insurers to cover 100% of the costs related to at-home COVID-19 tests. That's good news for Abbott Laboratories, which makes the accurate at-home BinaxNOW test.
- Netflix continues to dominate the streaming world, with Seinfeld helping the company sweep all 10 of the top 10 programs in minutes streamed, according to Nielsen's most recent data.
- Nvidia was sued by the FTC last week to block its proposed $40 billion acquisition of chip maker ARM Holdings. Chances of the merger happening are slim to none. Nvidia's stock jumped 2% following the news as investors stopped worrying about a precarious integration of the two firms.
- Merck raised its quarterly dividend by 6% to $0.69 per share.
- Mastercard raised its quarterly dividend by 11% to $0.49 per share. The company also announced a new $8 billion stock buyback program.
- Salesforce fell 9% last week after its quarterly earnings guidance fell short of analyst expectations. Still, the software provider expects annual growth of more than 20% and is known for giving conservative guidance.
- Costco reported monthly sales growth of 16% in November to $18.1 billion, with its e-commerce division growing 12%. The retailer has done a superb job in retaining the new customers it gained during the height of the pandemic.
📈 Stock Market Review
US stocks have been under pressure since Thanksgiving due to the spread of a new COVID-19 variant named Omicron, along with a pivot from Fed Chairman Jerome Powell last week.
While much is to be learned about the Omicron variant, the imminent release of COVID antiviral pills from Merck and Pfizer should help reduce hospitalizations considerably, which is viewed as the most essential goal to hit.
Meanwhile, the hawkish pivot from Powell caught investors off guard. Powell told Congress the Fed may end its monthly bond purchasing program sooner than expected, which would speed up its timeline to raise interest rates from rock bottom.
But long-term investors should have little fear of imminent interest rate hikes, as stocks on average jump 12.5% in the year preceding the first rate hike. That's because the Fed usually raises interest rates when the economy is strong. A strong economy = higher corporate profits = higher stock prices.
Powell seems to be shifting the Fed's focus to taming inflation over reaching full employment. That makes sense, given that inflation hit a 30-year high in October, while the unemployment rate fell from 14.8% in April 2020 to just 4.2% last month.
At the start of 2021, economists didn't expect the unemployment rate to hit 4.0% until around 2023/2024, so a lot of economic progress has been made in a very short period of time.
But last week's Fed pivot magnified the volatility in high-growth tech stocks that trade at lofty valuations and are barely profitable. Some examples include Docusign, Zoom, and Peloton, which are down 54%, 58%, and 74% from their recent highs.
But you probably wouldn't know that if you owned a well diversified portfolio, as the S&P 500 is down just 2.4% from its recent high.
That's why, in a world where meme-inspired cryptocurrencies are more valuable than 100+ year-old car companies that sell millions of cars annually, it's as important as ever to avoid the hype and stay vigilant by investing in garbage, water, and cans.
Yes, you read that right. Investing in boring companies that have reasonable valuations, are shareholder friendly via dividends and stock buybacks, and have a track record of growing in any economic environment should compound your wealth over time.
Waste Management, American Water Works, and Ball Corporation are just a few examples of boring IWM Core Equity stocks that consistently grow at an annual rate of at least 10% and enjoy a virtual monopoly in their fragmented industries.
And sustainability is at the core of all three companies. Waste Management continues to invest in its recycling infrastructure, American Water Works replaces leaking water pipes across the country, and Ball Corp is transitioning the beverage industry from single use plastics to easy to recycle aluminum cans.
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📉 It's Not As Easy As It Seems
As simple as buying and holding a portfolio of high quality stocks may sound, in practice it's not that easy.
The ability to see your investments fluctuate in value minute by minute exacerbates the emotional nature of making decisions with your money.
And while stocks have done little but go up since the March 2020 pandemic bottom, they do (and will) go down as well. In fact, since 1900, the Dow Jones Industrial Average has spent 33% of the time in a bear market, 41% of the time recovering from a loss, and only 26% of the time making new highs.
And when the eventual decline does materialize, whether its substantial and/or for an extended period of time, the news will be bad, compounding the difficulty of sticking to your long-term plan and remaining invested.
That's where Taking Stock comes in, offering perspective and helping you identify what matters and what doesn't, which is as important as ever in a world that is flooded with a lot of noise, but little signal.
🙏 Thank You For Reading
If you've made it this far, I want to sincerely thank you for reading!
So, what did you think? What would you like to read more about? Do you have any questions or thoughts on personal finance topics, investing strategies, or tax planning? General thoughts or feedback? Let me know! Your input is invaluable and will make future issues of this newsletter a success!
Matthew Fox, CMT, MBA
Founder & Wealth Advisor