KDM Capital 2024’Q1 Market Letter
BACK TO THE FUTURE
2022 was a challenging year for KDM and its clients. 2023 was exactly the opposite. (Well, not exactly the opposite, but a vast improvement!) We experienced vastly different markets, emotions, outlooks, and outcomes. The emotional toll was the worst I ever experienced in 2022. It was not matched to the upside in 2023. Nonetheless, the suffering created by the downturn in 2022 and the exuberance of 2023 nicely illustrates the manic behavior of investors, expressed via the markets and the constant search for stable ground. Much of the pain associated with sell-offs results from grasping for stability. Stability that doesn't exist.
But stability is something we are hard-wired to strive for. It's not a desire we can overcome but diminish. Focusing on owning businesses and managing portfolios for the next ten years and not ten months is a valuable tool in handling the constant volatility we face today. All this is to express gratitude to my clients for being like-minded, long-term, and patient. KDM is fortunate to have many excellent, committed, and thoughtful investors. But I still have to make you money! To that point, I'd like to share a few thoughts. If I may, a quote from my market letter on Sept 9, 2022;
"We've seen this before…. hopefully.
In 1994, the Federal Reserve raised interest rates five times. Three twenty-five basis point increases, two 50-point raises, and one 75 basis point increase. It was an aggressive, jarring cycle that deflated risk assets and created negative sentiment on Wall Street. It also caused declines in the S&P 500 and Nasdaq of 9% and 16%, respectively. But another development was simultaneously occurring, and investors needed to figure out what to make of it: the Internet. The 1994 Fed hiking cycle and the rise of new, dominant technology are analogous to our current environment. Once the Fed completed its rate hike cycle, markets began focusing on the potential and opportunity of what the Internet could produce. As a result, from 1995-1999, the Nasdaq 100 returns were as follows: 42.54%, 42.54%, 20.93%, 85.30%, and 101%. $1,000 invested on 12/31/1993 in the Nasdaq 100 would have grown to $9,332 on 12/31/1999. That's a roughly 55% annualized rate of return! Today, the AI economy is sure to supplant the mobile economy (internet 2.0), which superseded the first iteration of the Internet. Eventually, investors will begin looking past CPI data, rising rates, and all things Fed. They'll start to focus on the growth opportunities of the AI economy. And once that happens, stocks could surge, like the mid-90s. To be sure, companies are more cautious as the Fed slows the economy, which will weigh on stocks and keep prices depressed in the short term. But the relentless advancement of technology continues unabated."
Much in the world has changed since I wrote that on 9/8/2022. But my outlook on the path ahead has not. We are positioned for a mid-to-late-nineties-type stock market move over the next several years. But, it will not be without challenges, naysayers, second-guessing, and ruminations of 'what can go wrong, will go wrong.' As I said, there is no stable ground!
I look forward to our continued journey together.
Andre
President
M: 917.825.1536