Let’s take a look back at some of the predictions from late 2018 before we jump into some of the trends of 2019 and whether or not we think those will continue. Our 2020 Predictions (I know you’re waiting on pins and needles) will be coming in another week or so.
- “The China Trade War Will End Quickly” – Well, we’re not starting this post out too well. Even though a “phase one” trade deal appears to be finalized, the market was left with uncertainty for most of 2019. Even as we showed signals late in 2018 that a rebound could occur, our feeling was that in order to get a significant move back toward all-time highs, we were going to have to have more clarity on BOTH interest rates and the trade war. We only got clarity on interest rates, and to our surprise, that was more than enough to boost the market. Repeat it slowly…”Don’t Fight the Fed”. Crystal Ball Grade = C-.
- Brazil will be a standout emerging market performer – Early in 2019, Brazil came out to a hot start having gained 18.8% in January alone. But over the last 11 months, we’ve gone nowhere. While no one is going to complain about the 19% return this year, I expected it to outperform the S&P 500 and it hasn’t. While things continue to improve here in the U.S., the rest of world merely stabilized. Perhaps this will be a trade that proves itself in 2020, but we shall see. Crystal Ball Grade = B-.
- Long Semiconductors – Finally we got one right! The semiconductor index is the best performing sector of the entire market, up more than 50% this year. Specifically AMD is the best performing stock in the S&P 500 up more than 130% over the last 12 months. Crystal Ball Grade = A+.
- Long Crude Oil – With all the media attention surrounding how terrible energy stocks have been this year (and decade), when I look back at the actual price of oil, it’s up more than the S&P 500! Exploration and production companies declined 16% this year, while the price of the commodity they are exploring for increased by more than 30%. It’s tough to believe that price of oil on December 28th last year was $44.59, while the current price is $60.89. We continue to believe this is a classic value opportunity, and one that will be interesting to watch in 2020. But remember, just because something is cheap, doesn’t mean it can’t get cheaper, although building a position in this sector is not the worst idea in the world. The massive debt overhang in the oil and gas industry is sure to provide more pain, so patience will be key. It might be one that takes 3-5 years, instead of 6-12 months, but we believe the possible payoff to be worth it. Crystal Ball Grade = B.
- Short (bet against) the US Dollar – While recent dollar weakness is making this trade seem closer than it really is, most of 2019 saw the US dollar in a clear uptrend. FX volatility was nearly non-existent and in a few currencies it was the lowest on record…EVER. Money continues to flow into the United States as we remain the shining star on the hill. The US consumer remains confident and ready to spend, although the spending habits of the largest age group (millennials) is causing many retailers to adapt or die. Crystal Ball Grade – D+ (it’s not a grade they like to give out).
So what did this mean for you in 2019? It means that if you ignored the steep decline in 2018 and did nothing, you had a great year. If you were silly enough to take some of the suggestions above, you did fine too. But as one of my favorite writers, Morgan Housel, said recently in a podcast, investing is one of the only endeavors I know of where devoting more time to it, doesn’t necessarily make you any better (in terms of performance). What I really mean is that I don’t want you to get mad at me when I don’t pick a stock that’s up 130% next year.
As we close out the decade, the 2010s will be the first ever in which we did not have a recession. That’s really amazing. But instead of trusting the trend, one that’s now a decade in the making, the inevitable thought remains, “Well there’s going to be a recession eventually“. To that end, I would quote Peter Lynch, “More people have lost money waiting for corrections and anticipating corrections than in the actual corrections.”
We remain optimistic over the next 12 months, but will expand more in our outlook for 2020 (coming soon).
Happy Holidays Everyone!
– Adam