What I got right – and wrong – in my daily e-mails last year; Ukrainian art exhibition and auction this week
1) Today, I'll review some of the advice I gave to my readers over the 200-plus daily e-mails I wrote last year... and tomorrow I'll share my 2024 outlook.
By far, the most important thing I got right was turning bullish in late 2022, as the market bottomed, and staying bullish ever since.
Though it seems like a distant, bad memory, it was only a year ago that the market had wrapped up a truly terrible year. The Dow Jones Industrial Average, S&P 500 Index, and Nasdaq Composite Index tumbled 9%, 18%, and 33%, respectively, and the average retail investor's portfolio fell a shocking 44%.
Bonds weren't a good place to hide either... Due to soaring interest rates, the 10-year U.S. Treasury also fell 18%, such that a traditional 60/40 stock/bond portfolio had its worst year since 1937.
So what did I do?
Being the contrarian that I am – following the legendary Warren Buffett's famous maxim, be "fearful when others are greedy, and greedy when others are fearful" – I turned bullish!
In my October 12, 2022 e-mail, I noted that "though most people fail to understand this, declining stock prices are good news for long-term investors." I also shared an excerpt from Buffett's 1997 letter to Berkshire Hathaway (BRK-B) shareholders explaining why this is the case:
If you plan to eat hamburgers throughout your life and are not a cattle producer, should you wish for higher or lower prices for beef?
Likewise, if you are going to buy a car from time to time but are not an auto manufacturer, should you prefer higher or lower car prices?
These questions, of course, answer themselves. But now for the final exam: If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period?
Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall. In effect, they rejoice because prices have risen for the "hamburgers" they will soon be buying. This reaction makes no sense. Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices.
In particular, I recommended shares of the beaten-down tech giants – especially the most hated one of all, Facebook and Instagram owner Meta Platforms (META).
Meta has been my favorite stock ever since I pounded the table on it in six consecutive e-mails from October 31 through November 7, when it was around $90 per share (see the summary in my March 30 e-mail).
Even after stocks rallied in the first half of 2023, with the Nasdaq gaining 32% – its best first half in 40 years – I stayed bullish. As I wrote on July 5:
After such a big first half, I can't say I'm as bullish as I was coming into the year, but I'm still optimistic that stocks will finish higher by year-end.
My bullishness was rewarded, as the market had a fabulous year in 2023. It almost exactly reversed the losses of the prior year, as the Dow, S&P 500, and Nasdaq soared 14%, 24%, and 43%, respectively. Meanwhile, Meta nearly tripled – up 194%.
2) I also nailed the huge decline in inflation (after, in fairness, not seeing the big run-up). On August 11, 2022, with the previous month's inflation at 8.5%, having peaking in June at 9.1%, I wrote:
One of the main reasons I turned bullish – other than terrible market sentiment resulting in beaten-down stocks – is that I believed inflation had peaked and would decline sharply by the end of the year.
I didn't expect that inflation would get as bad as it did and, as with my market call, I was a couple of months early in nailing the turn.
But after yesterday's inflation report (and dozens of other indicators – for example, Gas Prices in the U.S. Fall Below $4 a Gallon), it's clear that inflation is on its way down. Here's a summary in the Wall Street Journal: U.S. Inflation Eased Slightly in July. While the headline number is still a shocking 8.5% year-over-year increase, only a slight decline from the previous month's 40-year high of 9.1%, this is the key part of the report:
Monthly, the CPI was flat in July after rising for 25 consecutive months, the result of falling energy prices such as gasoline. Core CPI, which excludes often-volatile energy and food prices, eased to 0.3% last month, down sharply from June's 0.7% gain.
Investors now expect that the U.S. Federal Reserve may soon ease up on raising interest rates, which is leading them to buy stocks, especially growth stocks, like crazy (see this WSJ article: Tech Stocks Are Back in the Market's Driver's Seat).
For the 17 months since then, I have pounded the table again and again that inflation is going to decline sharply, to the 3% to 4% range... which is exactly what it has done. Take a look at this chart:
I continue to believe that inflation will not be an issue going forward.
3) Regional banks were crushed in April, as Silicon Valley Bank, Signature Bank, and First Republic Bank all went under. This led to a panic that created some exceptional buying opportunities, which I handed to my readers on a platter. On May 3, I wrote:
I think these fears are way overblown and that yesterday's sell-off – and this hysterical, over-the-top, wrongheaded article – may mark a bottom for the sector...
If the banking sector truly does enter a crisis, the Fed can quickly cease or reverse its rate hikes, eliminating the bondholders' losses...
This is a fundamental difference between today's situation versus the global financial crisis, when banks had actual losses in their loan portfolios.
And as the sector tumbled again the next day, I quoted my friend, "the smartest bank analyst I know," who said:
This is simply false to say that 50% of the banks are insolvent. Yes, there are a big chunk that have seen their capital become thin on a mark-to-market basis, but there are very few that are truly insolvent.
I would agree though with all the commentary about the Fed having created a mess and being hell-bent on continuing to throw fuel into the fire by raising rates again today. The crazy thing is that they have really wounded the banking sector and the availability of credit is going to decline sharply, which will help calm inflation.
The other thing that the markets seem to have wrong is they don't realize that banks have reserved for loan losses and are still going to earn some money as we go through a potential credit cycle. Take Zions Bancorp for example: they have $618 million of loan loss reserves and are expected to earn another $800 million this year. Even if they only earn half of that they still have the power to cover a lot of credit losses.
Not that analysis seems to matter right now, as sentiment in the bank space is as bad as we can ever remember it...
The shorts are being very aggressive in some of the banks like MCB, WAL, ZION, etc. If there is even a hint of an improvement in deposit insurance, we could see a short squeeze for the ages that sends these stocks up 20%-plus in a matter of minutes, and many of them would still be dirt cheap.
In that same e-mail, I also noted that my friend Doug Kass of hedge fund Seabreeze Partners saw an opportunity in two of the most bombed-out regional bank stocks:
Off the WAL: Two Bets on Two Banks
I am taking a very small speculative buy of both PacWest ($2.65) and Western Alliance Bancorp ($18.90).
Since May 3, shares of Metropolitan Bank (MCB), Western Alliance Bancorp (WAL), and Zions Bancorp (ZION) shares are up 161%, 122%, and 94%, respectively. Meanwhile, PacWest (PACW) was acquired by Banc of California (BANC) at the end of November – good for a gain of 208% since early May.
4) Lastly, while I don't recommend that most investors short stocks, nearly all of the dozen that I told them to avoid did poorly if not outright collapsed: Tingo (delisted), Ebix (EBIX), India's Adani Group, EHang (EH), VinFast Auto (VFS), AMTD Digital (HKD), Icahn Enterprises (IEP) – the list goes on and on.
As for my "Dirty Dozen" stocks to avoid that I named in my January 4, 2022 e-mail, below is a table showing the performance of every stock I named.
Note that I removed GameStop (GME) on March 23 at $22.58 per share and Digital World Acquisition (DWAC) on April 14 at $13.12 per share, so those prices are listed in the table.
Also note that AMC issued shareholders one share of APE preferred stock for each AMC share they owned in August 2022, each of which eventually converted to 0.909 AMC shares at ($1.42 x 0.909 = $1.291)... and then the company did a 10:1 reverse split. As such, you have to add $12.91 to the recent share price of $6.12 (equal to $19.03) for an apples-to-apples comparison.
Here's the full Dirty Dozen table:
As you can see, 11 of the 12 stocks have fallen between 39% and 93%, with an average decline of 74% versus a flat S&P 500.
I continue to recommend avoiding the remaining 10 stocks on this list.
5) So what did I get wrong?
Most notably, in my September 18 e-mail, I finally exited one of my worst stock picks ever: the AdvisorShares Pure U.S. Cannabis Fund (MSOS).
Nearly three ago, in my May 11, 2021 e-mail, I disclosed that I had purchased MSOS, and even listed it as my favorite stock for 2022 in my December 29 e-mail that year.
I apologize to any of my readers who lost money on this dog. I'm right there with you, as I bought the shares at $43.95 and added on the way down. The only mitigating factor is that I always knew it was highly speculative and sized it appropriately, so it was never more than 3% of my portfolio...
After hitting an all-time low of $4.78 per share at the end of August, MSOS had a huge rally on optimism that the legal limbo plaguing the sector might ease (see this NBC News article: Republicans soften on federal marijuana reform in a shift that could make it a reality), causing MSOS to nearly double to $8.87 per share, so I wrote on September 18:
I think it's time to take advantage of this bounce and exit, for reasons my friend Doug Kass of Seabreeze Partners outlined in [a] missive he published this morning...
Exiting has been a good call so far, as MSOS ended the year at $7.01 per share – down 21% from my exit price.
6) Lastly, I'm sorry to report that I was wrong about how the war in Ukraine would play out this past summer.
After visiting the country twice in February and March, I became convinced that Ukrainian forces would pick up where they left off in 2022 and to push the Russian invaders off their land.
Because I of course wasn't able to see what was happening on the opposing side, I failed to appreciate how well dug in and refortified Russians had become, and thus the war has turned into a bloody stalemate.
I'm optimistic that the Ukrainians will make more progress in 2024 as attacks on Russian forces and supply lines continue – aided by the introduction of more advanced weaponry like ATACMS and F-16 fighter jets – but I don't say this with a huge degree of confidence.
Much will depend on the level of support from the U.S. and Europe... and the big level of support the Ukrainians need going forward isn't a guarantee.
7) Speaking of Ukraine, as part of my humanitarian mission I've organized another Ukrainian art exhibition and auction to benefit the children's Visual Art Center in Kryvyi Rih and other charities supporting the country's fight for freedom.
Thanks to many of my readers, June's auction of 93 pieces of art was a huge success – raising nearly $30,000. Now, we have an even more diverse collection of 122 pieces.
The auction will take place online and there will also be two in-person showings/cocktail receptions in New York City, free and open to all, from 5:30 p.m. to 7:30 p.m. this coming Thursday and Friday, January 4 and 5, in a conference room donated by the Kirkland & Ellis law firm. It's located at 601 Lexington Avenue, with the entrance between 53rd Street and 54th Street.
If you would like to attend in person, please click here to RSVP for Thursday and here for Friday. It's a large room and I would like to pack it, so please share this invitation with anyone you think might be interested in attending.
If you can't make it in person, you can see the pieces of art and bid on them here (the auction items are here). The minimum bid is only $100.
The auction will end at 7:30 p.m. on Friday, January 5. If you don't want to wait until then, or fall in love with a particular piece, or simply want to make a fixed donation, I've established "Buy It Now" prices for many pieces.
Here are pictures of some of the children's art that I had seen at the Visual Art Center:
And here are four impressionist-style pieces:
I also brought some additional amazing Ukrainian art home with me after I visited the Ukrainian church and cultural center in Tallinn, Estonia in August. While there, I met three Ukrainian artists: a father, Anatoly (here's a short video about him), son, Bogdan, and an intern, Olha – below is a picture of us, and in this 10-minute video I describe their art:
I posted more pictures and details on Facebook here.
I hope to see you this week!
And as I said earlier, I'll shift gears in tomorrow's e-mail and share my 2024 outlook... Stay tuned!
Best regards,
Whitney
P.S. I welcome your feedback – send me an e-mail by clicking here.