To Our Investors and Friends,
After one of the worst six-month declines on record, the S&P 500 Index staged a significant rally in July, rebounding by 9.1%. Oil prices fell 6.8% in the month, closing at less than $99 a barrel as fears of a recession continue to impact the commodity. The Federal Reserve increased rates by another75 basis point hike this month, causing the 10-year Treasury bond to fall 31 basis points on heightened recessionary fears, ending the month at 2.67%. The two-year Treasury fell three basis points to 2.89%, now higher than the 10-year, creating an interest rate inversion that often indicates a recession is on its way. After significant underperformance for most of the year, growth stocks performed better than value stocks in the July rally. In July, the Bloomberg 1000 Growth Index advanced 11.8%, the Bloomberg 2000 Growth Index increased 10.7%, the Bloomberg 2000 Value Index grew 10.1% and the Bloomberg 1000 Value Index expanded by a less robust 5.1%.
Leadership is not just important on the world stage but also in corporate America, particularly during difficult times as we have experienced over the last several quarters. Teddy Roosevelt’s famous 1910 speech “Citizenship in a Republic,” more commonly known as the “Man in the Arena,” (April 23, 2010; Paris) highlights this well.
It is not the critic who counts; not the man who points out how strong the man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat, and blood; who strives valiantly; who errs, who comes short again and again, because there is no effort without error and shortcoming; but who does actually strive to do the deeds; who knows great enthusiasms, the great devotions; who spends himself in a worthy cause; who at the best knows in the end the triumph of high achievement, and who at worst, if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who neither know victory or defeat.
The last several months have been especially challenging for company management teams that need to navigate significant fluctuations in the economy, unlike anything they have experienced in the past. We have always focused on finding what we believe are great leaders because they tend to make better decisions under stress than weaker leaders that often either don’t do enough or change course at the wrong time. David Gergen’s book Hearts Touched with Fire: How Great Leaders are Made examines the backgrounds and characteristics of great leaders. The book is a great reminder of how important leadership is in creating the next-generation blue chip companies that we seek.
In his book, Gergen identifies three important elements of leaders, traits that are as important now as in Roman times. These include character, courage and purpose – a focus on finding one’s true north. The most important characteristic of all is “grit - a combination of passion and perseverance” that is necessary in staying the course, especially during challenging times. It is difficult if not impossible to get others to commit to a cause if these traits are not present in leadership and are especially important during times in which difficult decisions need to be made. One example of inspiring corporate leadership comes from Josh Silverman at ETSY who successfully navigated both the expansion of business that came with COVID-19 and the slowdown that occurred as consumer spending slowed. We believe the best leaders are rallying their employees right now, which should lead to a separation of the best from the rest in the coming months and quarters.
Former President Dwight Eisenhower famously said, “plans are useless, but planning is indispensable.” We couldn’t agree more, and at Kingsland Investments, we have spent time during this downturn examining management’s planning and decision-making to best capitalize on the market opportunities they are seeking. We focus on understanding the drivers of these “best-in-class” businesses and determining where the market has failed to appreciate or understand these opportunities. We believe this effort has the potential for return during the market recovery. Unlike many of our peers that are abandoning these next-generation growth leaders to find safety in mature businesses, we’ve stepped up our hunt for the hidden gems thrown out by the market. Although it has been a rough couple of months, we think patience and good planning will be well-rewarded when the next bull market begins.
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 June 30, 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.