August 2022

July 31, 2022

Welcome to August!  Yet another interesting, and I’m happy to say, positive month.  The simple investment advisors that adhere to the “Sell in May and go away” would find themselves missing out on an incredible rebound from the lows earlier this year.  In short, you cannot “go away”.  You must actively manage your investments, but you should also not over manage them either.  

So, this month we saw great returns across all funds with the VIGAX, USAAX, and FDVLX leading the way in each fund family.  All funds were positive for the month and represent the top 6 returns for most of these funds.    

However, I’m not thinking this is a recovery.  I think it is hope returning to the system.  For far too long, our economy has been divorced from real earnings and a true understanding of inflation.  The Federal Reserve has not been saving up for a rainy day (interested rates in the 2-2.5% range), and now that they are tightening, the US will be able to better withstand the coming (or current?) recession.  Yes, as I predicted in my last several posts, I knew we were in a recession, we just hadn’t declared it yet since it takes two successive quarters of negative GDP to be declared (this is the technical and widely agreed to definition, no matter what anyone says).  So, with hope returning to the system, investors will be able to use earnings, company performance, WACC (weighted average cost of capital), and other factors to more accurately value a company and its stock price.  We still have a long way to go before this becomes a reality, but this is what I am seeing in this market rebound in the face of a recession.

For the next 2-3 quarters, we are going to see a shift in the job market (less job openings), less borrowing, and the effects of negative growth.  Companies will be trimming the fat where they can, and companies that relied upon easy capital for internal projects or from consumers will find those wells have dried up.  This points to a flatter market as a whole with the S&P 500 companies on the plus side and the Small Cap companies closer to flat (despite this month’s performance).  I’m still long on the funds invested in the S&P 500 companies (for the most part-USIFX is international and has stronger perfomance than the USAA S&P 500 based fund) and think the benefits of returning the economy to a level of less exuberance will benefit these funds more than the Small Caps.  Keep investing!