To Our Investors and Friends,
The market recovery that began in July took a step back in August as investor concerns again resurfaced. The S&P 500 Index closed the month down 4.2%. Unlike the first six months of the year, oil prices staged a second monthly decline in August, closing at slightly less than $90 a barrel as both oil supply and demand appear to have stabilized into a new range. The Federal Reserve’s message continues to be one of significant tightening ahead, causing the 10-year Treasury bond to rise 48 basis points, ending the month at 3.15%. The two-year Treasury increased 56 basis points to 3.45%, higher than the 10-year by 30 basis points. All major indexes closed the month lower. The Bloomberg 2000 Growth Index declined 1.9%, the Bloomberg 1000 Value Index fell 2.4%, the Bloomberg 2000 Value Index dropped 2.8% and the Bloomberg 1000 Growth Index had the worst performance, down 4.9%.
The market’s chaotic behavior during the summer as it tries to build upon the June low, is not surprising. On a recent trip to Greece to celebrate my 25th wedding anniversary, I was again reminded of how gradual, but persistent, change has been throughout human history. The ancient Minoans had working toilets, indoor plumbing and a variety of food, clothing and even entertainment. More than 5,000 years ago, humans sought similar comforts as today. Although we are unable to decipher their writing, by the human ingenuity we can see, I am sure this ancient civilization had its version of Elon Musk.
As we enter the fall, we believe many changes to the economy accelerated during COVID-19 (COVID) will prove resilient in the post-COVID world, the most persistent being the migration to the cloud. Work-from-home increased the need for employees to securely access company data and last quarter revealed the trend continues. We believe with a few more quarters of strong cloud software growth, many of these companies will be back to their old highs. We also expect the shortage of workers to persist, due to competition for labor between the old brick and mortar world and the new digital economy, including examples of flexible work such as UBER driver, ETSY seller, AirBNB host, DoorDash deliverer and many other positions that came to the forefront during COVID.
As the stoic philosopher, Seneca stated, “it is a rough road that leads to the heights of greatness.” Those words are worth keeping in mind as we manage through a complex and volatile market, often driven by algorithms that quickly pile into one stock and out of another on such little information as a stock breaking through an arbitrary moving average.
At Kingsland Investments, we focus on understanding the drivers of persistent change and seek to exploit stocks where investors fail to appreciate or understand the great business opportunities in front of them. We believe this effort has the potential to deliver positive returns during the market recovery. Although the past few months have been rough, we think patience and good stock selection have the potential to 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 September 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.