To Our Investors and Friends,
The market decline continued through the third quarter, resulting in the third down quarter in a row. The S&P 500 Index closed the month with a 9.3% decline, flipping an attempted rally into a 5.3% loss for the quarter. Oil continued to sink, falling 11.2% in the month to end at less than $80 per barrel. A hawkish Federal Reserve (Fed) continues to increase interest rates to drive inflation down. In turn, higher rates are slowing economic growth and could push the economy into recession. An aggressive Fed helped boost the 10-year Treasury bond up 69 basis points, ending the month at 3.83%. The two-year Treasury increased 77 basis points to 4.22% and remains higher than the 10-year by 39 basis points. All major indexes closed lower for the month. The Bloomberg 2000 Growth Index declined 9.1%, the Bloomberg 1000 Value Index fell 9.4%, Bloomberg 1000 Growth Index fell by 9.4% and the Bloomberg 2000 Value Index dropped 11.5%.
Investor frustration with the market is obvious and growing as the market failed to rebound from its June lows in the final days of the quarter. We believe what is most frustrating is witnessing investor attempts at predicting the market on a short-term basis, only to be proven wrong repeatedly. Market predictions of where interest rates, inflation and company earnings are headed continue to surprise investors, resulting in volatile moves in the market in both directions. Morgan Housel’s The Psychology of Money explains why simply stating, “We are very bad at market forecasts. Forecasts give the illusion of predictability in a world where unseen events control most outcomes.” He further explains that “investing is not a hard science; it is a massive group of people making imperfect decisions with limited information about things that will have a massive impact on their wellbeing.”
In short, fear and greed are overwhelming forces that shape market tops and bottoms during relatively brief periods. The most successful investors ignore the short-term vacillations of the market, instead focusing on the most durable driver of long-term returns – the magnification effects of compounding growth. As Housel explains, “Compounding only works if you give an asset years and years to grow.” He further states, “If something compounds, a small starting base can lead to results so extraordinary they seem to defy logic.” Our focus on best-of-breed growth companies leads to the discovery and purchase of these compounders. The market often has a love/hate relationship with growth companies. Many stocks are hated early in their lifecycle, such as Tesla (TSLA), but eventually, become the most loved stocks after years of compounding growth alters public opinion.
Instead of attempting and consistently failing at market timing, at Kingsland Investments, we believe our time is far better spent understanding why our investments may succeed or fail. By intently seeking what we believe are the best businesses, we think this will enable us to take advantage of market volatility and build positions in what may be tomorrow’s market leaders. It is a slow process accomplished over months, but a rewarding process when such work reveals insight as to why success is more likely than not. We believe that once market fear subsides, investor attention will quickly return to finding great potential investments, ultimately uncovering many discarded gems.
All the best to you,
Arthur K. Weise, CFA
*Effective January 12, 2022, the Kingsland Growth Advisors name changed to Kingsland Investments. The views expressed are those of Kingsland Investments as of October 1, 2022, and are not intended as investment advice or recommendation. For informational purposes only. Investments are subject to market risk, including the loss of principal. Past performance does not guarantee future results. The stocks mentioned are for illustrative purposes only and are not a recommendation to buy or sell. There can be no assurances that any of the trends described herein will continue or will not reverse. Past events and trends do not imply, predict, or guarantee, and are not necessarily indicative of future events or results. Investors cannot invest directly in an index.