As we Reflect on 2024

As we reflect on 2024 I have put down a few reminders and things we probably won’t do in 2025:

1. The first thing is we probably won’t like something about the economy or politics

• In the US, people were upset during the Great Financial Crisis because housing prices crashed and wouldn’t go up. People are upset now that housing prices are too high.
• In the 2010s inflation and wage growth were too low. In the 2020s inflation and wage growth are too high.
• There is no such thing as a perfect economic environment for everyone. It’s important to remind ourselves that we can’t draw a straight line from what happens in the economy to what happens in the stock market.
• The economy is backward-looking (GDP numbers) and the stock market is forward-looking and a clear example of that would be our local market; none of us expected the extraordinary 2024 returns we saw given the poor economic backdrop but that is how the stock market works.

2. Secondly you probably won’t pick the best-performing fund or stock

• These are the five best-performing US stocks in 2024: AppLovin, MicroStrategy, Palantir Technologies, Vistra Energy and Robinhood. We follow the stock market pretty closely. And I’m not ashamed to admit I’ve never heard of most of these companies. The only way we’ll ever own the best-performing stock is in a diversified portfolio. And we should be okay with that.
• What I found interesting is some stats about MicroStrategy that I thought I would share with you:
• Markets are just more susceptible to bouts of insanity these days. MicroStrategy, is a company described by the Wall Street Journal as “an unprofitable software company that has become one of the market’s hottest stocks,” and this serves as a prime example. The market’s interest lies not in its software business but in its status as a Bitcoin proxy. The company has acquired more than 330,000 Bitcoins, funding these purchases partially through debt. While many would likely be correct to argue that buying Bitcoin is more of a hobby than a business model, MicroStrategy reserves the last laugh—if only for now—as their stock price has increased nearly 600% over the past year.
• But what’s more notable is that MicroStrategy has a market cap of $81 billion despite holding a Bitcoin reserve that’s only worth $36 billion, meaning its market cap is more than double the value of its Bitcoin holdings. Put simply, the stock price has become completely decoupled from reality and the business fundamentals. For example, in November last year, MicroStrategy was one of the most actively traded US stocks, with an average daily trading volume higher than Microsoft—a company 39 times larger and one of the largest constituents in equity indexes. Considering that, it’s fair to ask: Are we living in a bout of insanity? It sure feels that way at times. This may not mean much over the short term, as markets often sustain periods of exuberance longer than we expect. There’s no iron rule that says a bull market must stop because people might be doing not-so-smart things. A reminder that it’s okay to own a well-diversified portfolio, it might not be as exciting as holding a MicroStrategy but it has the benefit of solid returns that compound over time.

3. The third thing we probably won’t do in 2025 is predict what the best-performing asset class will be.

• Since 2007 there were only 2 years that local bonds ended in negative territory once in 2009, and once in 2015.
• Small caps outperformed the ALSI in 10 out of the 18 calendar years and are the top performer in 2024.
• And no single asset class was the top performer two years in a row.
• So having exposure to a range of asset classes and being mindful of the mandate for clients is important.

4. The next point is you probably won’t time the market perfectly.

• In 2022 most investors that had some cash to invest would have dumped a lump sum into stocks. In hindsight it would have been pretty bad timing.
• In 2023 most investors with some cash following the sell-off in 2022 would probably have decided to dollar cost average in over the course of a year or so. In hindsight it was the wrong strategy in a market that went straight up.
• Timing the market is mostly luck. No one ever does it perfectly.
• The good news is a long time horizon is the ultimate equalizer. The timing of your purchases doesn’t matter that much if you think in terms of decades.

5. And lastly, 2025 probably won’t work out according to expert forecasts.

• Stock market forecasting should come with disclaimers like you would see in a pharmaceutical ad: “Side effects may include being misled, misinformed, and create the potential for poor decision-making.”
• Last year offers a clear example. In January, the average year-end S&P 500 target from 20 Wall Street strategists was 4,861, with the most optimistic forecast at 5,400. Where is the S&P now? At 6,062—12% higher than the most bullish estimate, 25% above the average, and 44% higher than the most bearish prediction.
• Many Wall Street strategists would probably admit that one-year price targets are more symbolic than substantive—useful for articulating views on earnings, valuations, or policy items but not for predicting actual outcomes.
• In short, forecasting is a game to be played. And we encourage advisors and investors to avoid playing it. Instead, put more energy into putting together a financial plan and marrying it to a disciplined investment process.

• Consider this: Nobody knows for certain what will happen this year. US stocks might rise, which most forecasts predict, and the historical evidence confirms that US stocks go up in nearly 75% of all years. But there’s also the possibility that stocks go down. A good investment process aims to keep investors in their seats regardless. One way to achieve this is by creating offsets in a portfolio to ensure no single event can deliver a knockout punch.
• Take tariffs, for example. A hot topic with debates raging over their potential impact. Businesses with supply chains in the eye of the storm, like Mexico, are under question. AutoZone, which operates 800 stores in Mexico, was recently asked about the potential impact of tariffs. Their response? “We really don’t know what’s going to happen.” While that answer won’t impress anybody, it reflects a humility that goes a long way when managing uncertainty. Acknowledging what you don’t know prepares you for a range of outcomes. This mindset equally applies to investing.
• For instance, if the worst tariff scenario materializes, Chinese stocks might suffer, while US small caps could benefit. While that’s an oversimplification, the point is that diversifying portfolios with offsets has the potential to smooth volatility and position them for long-term success, regardless of short-term disruptions.
• The future will always come enveloped in clouds of uncertainty—2025 will be no exception. Being dogmatic about predictions and price targets likely won’t take you where you want to go. Instead, ensure clients define their investment goals, invest along a time horizon that fits those goals, and tie this into a disciplined process—this will likely be a much more effective path forward. It also has the added benefit of not requiring a crystal ball.