A 2024 That Few Expected; 2025?
2024, though ending with a bit of a thud, was a strong year overall in the market. However, the strength was very narrowly focused and most stocks did not experience the same degree of tailwind. International, small cap, mid cap and large cap value stocks experienced a more modest rise than large cap growth stocks did. Nevertheless, it was generally a good year to be in stocks. As we move into 2025 we know we’ll have a new administration in Washington. With it comes boasts of large and uneven tariffs, immigration reversals and cuts to the Washington establishment.
The latter seems unlikely given how things are entrenched in Washington (for both better and worse) but reversals of immigration and added large tariffs are very possible. Interestingly, though both of these issues were popular topics during the election, if enacted they will likely bring economic trouble, including to those who voted for this platform.
Though most agree that immigration is in need of greater regulation and control, our country still needs immigrant labor (and future citizens) to keep our country growing and economically healthy. If jobs that traditionally are filled by immigrants go left unfilled, we’ll experience shortages and notable inflation.
If tariffs are enacted, we’ll need to prepare for much higher prices on gas, basic products and food. Just ask yourself: where do most of our avocados come from? Oranges? Products bought on Amazon?
To illustrate how we live in a world of head-scratching contrasts, consider that the majority of Tesla car owners do not like Elon Musk and those who do like Musk tend to dislike EV’s.
If you think that things will be predictable, either in Washington or Wall Street as we move through next year, you’ve likely got another thing coming.
In this investment environment (as with most) it makes sense to plan for a variety of scenarios playing out and having an invest ment plan that can reasonably navigate those various scenarios.
At some point the market will go down by an uncomfortable amount. It will do so not because the market is not a good place to invest your money long-term but because markets go down at times. This is why investors shouldn’t have all their money there. As Warren Buffett states: if you cannot stand the possibility of your investments going down 50% out of nowhere, then you shouldn’t be in the stock market. ls this scenario likely? No. Is it always possible? Absolutely. Did investors think the market was about to go down 50% in early 2000 or 2008? Of course not, but the market did just that. Be ready, just in case.
As we go into 2025, be ready for the ‘investment good times’ to perhaps keep going but also be ready for a possible reversal. You cannot know ahead of time, so proceed with both optimism and caution. Don’t let the good times of the past 2 years fool you, particularly with high-risk investments – they tend to go up dramatically, but also down dramatically and without warning. Recall that Amazon fell about 50% in 2022. It bounced back and was up 50% the next year, but that still made it a 25% loser over 2 years. In ’24 it went up another almost 40% and that finally put it up 5% over the past 3 years, a worse return than cash, even with great returns in ’23 and ’24. Timing is an important part of perspective in the investing world (and most other worlds!) and only the long-term is historically consistent enough to expect solid investment gains. Swim in those waters and you’ll be very likely rewarded. Otherwise, the proverbial coin-flip is likely your best predictive tool and a floatation device is recommended.
Poker v. Investing
Many Wall Street investment stars are drawn to poker, likely because it’s a game of probability, risk assessment and reward, all elements of investing.
That said, poker and investing are also very different – and the stakes are not the same. Poker is, in its best form, simply for recreation and whether you win or lose should be financially unimportant. Unless you are a professional poker player (and perhaps even if you are), you should not play poker for your financial well-being. There’s too much of a chance you’ll make reasonable decisions yet still lose because a card comes up at the end to trump your well-thought-out plan. Though investing has unpredictable shifts in sentiment, time typically is on your side where this isn’t true with poker. Further, investing is not a zero-sum game like poker is. In poker, for one person to win, others must lose. In investing, with time, most all investors can win to some degree or another.
It is true that the best investors, like good poker players, look for advantages by being strategic while others overreact. However, most of the best investors don’t look at odds the same way a poker player would and, instead, like Warren Buffett, they tend to hold their investments for a long time to increase their odds of success, something you cannot do in poker. To boil it down, you have a MUCH better chance of making money over time as a smart investor rather than a smart poker player.
How Hard Is It To Do The Right Thing?
Like a really, really bad mullet, luxury brand makers such as Armani and Gucci look pretty good ‘on the front’ (in the stores), but apparently not so good ‘in the back’. These luxury brands like to trumpet that their products are made in Italy for the prestige that comes with that and the image of well-treated craftsmen meticulously hand-making their product. However, it’s been recently reported that often the workers that make these fancy products are poorly paid immigrants working in Italy. They work very long hours in subpar conditions of cleanliness, hygiene and safety. The labor costs of these shockingly high-priced items are often less than 5%! Where do the outsized profits go? I guess that’s easy to figure. As with a mullet, this is not a good look.
Clearly it would be good if businesses thought of their employees as more important parts of their operation, treating them better and paying them more. This doesn’t have to be completely altruistic either. The better-run businesses (many held in the Stockboy such as Costco, Microsoft, UPS, Netflix and Berkshire Hathaway) often pay their employees well above average and, as a result, both have more loyal staff and also earn more profits.
Brian Weisman, CFA,CPA,CFP,CMA
(734)665 I454
brian@columbiaasset.com
The More Things Change, the More….