The worst thing that can happen to a man who gambles is to win.
Charles Spurgeon
Not three years ago, in the fall of 2022, the stock market was responding to rising inflation, global recession concerns, the continuing impact of COVID-19 on global supply chains, and Russia attempting to conquer Ukraine. The Federal Reserve and other central banks were responding only to the first concern, rising inflation, by raising rates, but all factors contributed to heightened market volatility. This should sound familiar.
Today, treasury yields have been moving higher, the U.S. dollar has staged a material decline, gold has reached record highs, volatility has soared, and the stock market recorded the seventh fastest correction in history, taking sixteen days to fall an initial ten percent. Despite there being differences with the events of 2022, as we have stated but cannot take credit for, history may not repeat itself, but it rhymes. For example, supply chains are being affected not by COVID-19, but tariffs. The Federal Reserve is not raising interest rates, but given the market and President signaling, if not demanding, to see rates lowered, they might as well be.
On September 30, 2022, the Dow Jones Industrial Average closed at 28,725; a contraction of almost fifteen percent from the August 12 close six weeks prior and, at the time, the lowest closing price in almost two years. A month later, on October 28, 2022, the market regained almost all the decline, closing over fourteen percent higher to 32,861. If people are going to panic sell, it’s usually not within the first few percentage points of a downturn, but the last. Had one wanted to sell the market during the depths of what was a common downturn on September 30, with the Dow now over 40,000, one would still be waiting for a lower entry point. This is a textbook example of why market timing does not work. Market pullbacks typically occur over time horizons defined in days, weeks and months. Political and corporate news stories, and associated market movements over such short periods, are typically considered mere noise that fades and eventually vanishes, allowing good, well managed companies to overcome short-term gyrations on the way to providing years of growing long-term wealth.
Regarding the opening quote above, what do the words from the Prince of Preachers have to do with investing? For many folks, markets are viewed as a glorified casino. When one considers zero-day options trading, the day-trading of stocks, and any trading in cryptocurrency, one can see why. To the latter, MicroStrategy, now simply Strategy, pivoted itself from being a second-rate software company to going all in to buy bitcoin. Over the past five years, the company has cumulatively recorded $51 million in operating income, $110 million in operating cash flow and earnings per share of -$21.82, yes, negative. The share count has risen from 101 million shares outstanding on December 31, 2019, to 245 million as of December 31, 2024. During the same period, debt has exploded from $103 million to $7.25 billion, all to buy bitcoin. The market value of its 538,200 coins stands today at $48 billion, yet the company’s market capitalization exceeds $100 billion. This values Strategy more highly than 410 companies within the S&P 500 Index, despite inking only 463 million in revenue last year. Trading at 225 times revenue, is this a company or an overpriced repository?
In fairness, Strategy is no longer an income statement story, but a balance sheet one. Still, people are willing to pay the recent equivalent of $193,957 per bitcoin, despite the current “value” of actual bitcoin closer to $93,000. Sound investing is nowhere to be found here, only the fear of missing out on a speculative bet for a scheme brilliantly concocted by an unknown author for a susceptible public. Perhaps P.T. Barnum should have been quoted instead.
We pick on bitcoin, but many investment “products” created by wire houses and insurance companies are not based on fundamental/qualitative work, but emotion and greed. Media outlets are no different. Why does CNBC report the glass as half empty? Because pessimism breeds more eyeballs, and more eyeballs increase advertising dollars.
Except for those of us fortunate to make a living out of it, investing is often unexciting for folks. Most folks don’t want to hear that Honeywell is going to spin off its quantum computing unit next year (it is by the way); they want to see charts for bitcoin or XYZ stock so they can determine, i.e. gamble, on the next movement in price. If that consistently worked even over a relatively brief amount of time, it would not only be overpaid actors buying Montana acreage, but speculators in Strategy and other get rich quick trading schemes.
For over fifty years, John Houseman was a prolific icon in theatre, film and television who wrote, acted, directed and produced various projects. Something of a Renaissance man, Houseman mentored Orson Wells, was a director of Voice of America, traded grains in London and Argentina and became a member of the Chicago Board of Trade. His acting career spanned decades but is likely most well known in America for his television role as Professor Kingsfield in The Paper Chase and his commercials for Smith Barney during the late 1970s and early 1980s.
From a particular 1981 commercial. Houseman is seated at a prestigious restaurant. Gazing at the camera with his trademark look of authority and wisdom, he begins to speak in his long-recognized and distinguished voice:
Investments don’t walk up and bite you on the bottom saying we’re here. Finding them takes old-fashioned hard work. Research; the kind they do at Smith Barney. Smith Barney is among a handful of top investment firms singled out for their work in research. Smith Barney, they make money the old-fashioned way, they earn it.
By name, Smith Barney no longer exists, having been bought and sold several times over, but we find the words from forty years ago resonating with us just as much today as they did over a generation ago. We believe part of our value comes from our market and company research, asking, among other things, if what is on page ten of today’s Wall Street journal going to make it to page one. Apparently, others agree. Removing our humility for a moment, we are proud to be recognized a fifth time by Forbes/Shook Research as one of Mississippi’s Best-In-State Wealth Advisors.1 While honored by the selection, we are immensely more grateful for your trust in us, especially given the noise we find ourselves forced to listen to today. Thankfully, this noise will fade; it always has.
- Forbes Best-in-State Wealth Advisors ranking was developed by SHOOK Research and is based on in-person, virtual, and telephone due diligence meetings to evaluate each advisor qualitatively, a major component of a ranking algorithm that includes: client impact, industry experience, credentials, review of compliance records, firm nominations; and quantitative criteria, such as: assets under management and revenue generated for their firms. Investment performance is not a criterion because client objectives and risk tolerances vary, and advisors rarely have audited performance reports. SHOOK’s research and rankings provide opinions intended to help investors choose the right financial advisor and are not indicative of future performance or representative of any one client’s experience. Past performance is not an indication of future results. Neither Forbes nor SHOOK Research receive compensation in exchange for placement on the ranking. For more information, please see www.SHOOKresearch.com. SHOOK is a registered trademark of SHOOK Research, LLC. ↩︎