To Our Business Partners

PRICE=VALUE?

This topic often prompts interesting conversations.  Too often these days, when asking what something is worth (its value), the answer comes back, “Well, it’s what it’s selling for – the price.”  While that may sometimes be correct, there can be significant differences between the two. 
 
Two quotes come to mind on this topic.  Irish writer Oscar Wilde probably wasn’t referring to investors when he said, “A cynic is one who knows the price of everything, but the value of nothing.”  But it applies to investors as well.  And Warren Buffett has said, “Price is what you pay, value is what you get.”  While we don’t think the Wilde quote should be confined to cynics, both clearly believed there was a distinction between price and value.  
 
We spend a lot of time comparing prices to what we think a company is worth, its “intrinsic value.”  As Ben Graham related in the Intelligent Investor, “’Mr. Market’ often displays manic-depressive tendencies, being unusually optimistic at times, while being pessimistic at other times.”  These bouts of emotional instability often present opportunities for the prepared investor.  Without a reasonable estimate of a company’s value, it is very difficult to make rational, intelligent investment decisions without falling victim to “Mr. Market’s” emotional roller-coaster.  But relying on price as an indicator of value may do just that.

PORTFOLIO VALUATION 

Stocks are generally still too expensive to buy at today’s prices.  Our portfolio group* sells at 98% of estimated intrinsic value. 

RECENT RESULTS

Stock market indexes rose in January, generally within a range of 2-5%, with no clear leadership among the various indexes.  Over the last 12 months, there has been a large gap in the performance of the various indexes.  The large cap indexes continue to dominate – up about 30% – while the smaller company indexes have advanced 16-20%.  To further emphasize the dichotomy occurring in the stock market, in 2024 the median stock in the S&P 500 rose 10%, while fully one-third of the companies in the index were down in price.  Also, in aggregate, the 497 stocks in the S&P 500 that are not among the so-called “Magnificent Seven” (Apple, Amazon, Alphabet (Google), Meta (Facebook), Microsoft, Nvdia, and Tesla) experienced a decline in earnings.  Markets with such extreme concentration are a cause for concern, as returns going forward tend to be below normal, sometimes significantly.  Our group* of portfolio stocks has performed in line with the broader market. 

*The group of “portfolio stocks” — our Equity Composite for the purpose of evaluating investment performance — consists of 19 stocks that are held in our clients’ accounts. Portfolios might hold some or all of these stocks, depending on investment guidelines unique to each client, the timing of purchases and sales, and start dates of accounts. The performance of this group of stocks is a good proxy for our equity performance but might vary widely among accounts. Of course, past performance is not necessarily indicative of future results.

We hereby offer to deliver to you without charge a copy of our current Form ADV Part 2, in accordance with the U.S. Securities and Exchange Commission’s “Brochure Rule.” Please contact us if you would like us to send you a copy.