Julius Wealth Advisors - Q4 2022 Quarterly Commentary

After the mess of a year that was 2022, this quarter has brought with it a much-needed period of celebration. For the rest of the world, there have new years celebrations, but for us here at Julius Wealth Advisors, we are celebrating the end of another successful quarter. 


However, financial success isn’t a word you hear too often these days. If you’ve read any of my recent blogs, or simply spoken to another person, you’ll be aware of the noise around the markets and inflation today when it comes to the S&P 500 or what is commonly referred to as “the market”, people think that they’re generic and constant. The problem with this line of thinking is that the market, and its components, are constantly changing. The things that make up the market today (more on this later) are different from what made up the market in prior years.  This can be seen when we look at the chart below:

S&P 500 Sector Weightings Over Time

Why does matter? For two reasons. 

  1. It paints a clearer picture of the “market” itself so that you can understand it better – as we look to lead with knowledge as a core value 
  2. It adds context to the naysayers and those panicking at present. When things go wrong, we often refer to history for an explanation. When bearish markets occur, the same happens. However, given that the market changes, you’re never really comparing apples to apples. In fact, it’s more like comparing apples to a sponge. 


When it comes to your portfolio, or simply trying to predict the S&P 500 (you wouldn’t be the first to try), from the chart above, we note it’s not your father's - or your grandfather's - S&P 500 anymore. The largest sector increases over time have been to Information Technology, and Healthcare, while the largest decreases have been to Energy and Industrials.


So, when looking at data, it's important to make like-for-like comparisons away from the noise to make accurate decisions - otherwise, you could be making your biggest financial decisions entirely on guesswork. To this point, the price-to-earnings (or, P/E) multiple on the S&P 500 today (a common barometer for valuation), SHOULD be higher than in decades past.  Why?  This is because technology and healthcare tend to trade at higher multiples than energy and industrial businesses due to their higher margin, lower cyclicality, lower capital intensity, and higher ROIC (return on invested capital) nature.


The herd typically isn't your friend

With this new knowledge, you can hopefully see through many of the sweeping declarations being made today about the market. The best answer to any financial question, in my opinion, always has been and always will remain the same - it depends. 


It’s been a year now since I wrote my first quarterly letter when the market started slowing down, but I remain in the camp that sees inflation falling. The cost of items is already starting to fall as inflation begins to ease. In fact, if you look at the S&P Goldman Sachs Commodity Index (chart below) we are close to the same place as they were a year ago. As I write this on 1/30/2023, the index is up only 6.9% from the start of 2022, down 3.3% on a one-year basis, and down 27% from its peak in March 2022.

If you had fallen asleep in January 2022, you’d wake up today looking at the prices and be left wondering what all this talk about inflation has been all about. 


This is why it’s so important to cut out the noise and not run in the direction of the herd. In today’s world of clicks, views, and impressions, it’s all about creating noise, generating hype, and getting as much attention as possible. Common sense - or simple measured advice - doesn’t sell papers anymore. Instead, panic, mayhem, and whatever else catches people's attention is the way forward in the daily fight for the eyes and ears of the world. 


The Intelligent Investor

This is my investment philosophy: block out the noise, understand the details, and take a slow and steady approach. This, in my opinion, is the tried and tested path to true sustainable wealth. The path has been walked by many successful investors before me (including Warren Buffett) and the same path that I seek to set all clients of Julius Wealth Advisors on. Unfortunately, this approach isn’t shared by many in today’s day and age of instant notifications and quick gratification. 


Just take a look at ARKK - not Noah’s, the ETF. This was hailed by many as the future. A fund that tracked and invested in innovation and the new wave of investing set to change the world!  While following a strategy like Mr. Buffett was the past.  In February of 2021, ARKK couldn’t lose if it tried, as more and more people jumped on the bandwagon and headed straight "to the moon!".  If you invested at the beginning of 2019, you would have been up a whopping 331%!  While Berkshire Hathaway (BRK.A), run by Mr. Buffett was up only 19%.


However, if you take a look at the ARKK chart today, you’ll see a very different story. By the end of 2022, you actually would have been down 13% if you invested in 2019, while BRK.A was up 53%.

ARKK vs. Berkshire Hathaway

This ETF it seems, like the outside hype that surrounded it, was mere speculation as opposed to a long-term sustainable path to wealth.


At the beginning of 2022, everyone was talking about investing in innovation but when inflation hit, and rates rose, those voices rang hollow as they watched their speculative bets backfire. Those who stuck to Buffett's philosophy, however, are still smiling as they came out on top. The growth from this method may appear small in the short term, especially when the world around you is partying like drunken sailors. However, when you’re playing the long game, it means more points on your side of the scoreboard. And, piling up the points, eventually wins you the game.


When everyone is confident that something is definitely going to happen, I’ve found it often pays to take a second and go against the grain. 


You typically find what you’re looking for


My regular readers will know that I love sports and that I have a love-hate relationship with the results of my favorite team - the Miami Dolphins (I love the team, but hate the results they produce). I recently went to the Dolphins v Bills playoff game with my 10-year-old son.  We were going into hostile territory, opponent’s territory in Buffalo, and I was understandably nervous for both myself and my son. 


However, I chose to keep an open mind, and it’s safe to say that my optimism was returned tenfold.  Firstly, the players were great - one of them even had a quick catch with my son.  Secondly, the fans were even better.  The Bills fans surrounding us were friendly, and one of them even told my son to stand on his seat so that he could see and not worry about those behind him. 


People love to search for the bad - it certainly feels that people do this now more than ever.  The thing is though, if you’re always on the lookout for the bad, you’ll find it.  The same also goes for the good. I recently watched a movie called American Underdog. For those who haven’t seen it, it’s about an unwanted quarterback, Kurt Warner, who after years of struggle, became a Hall of Famer and arguably one of history's greatest passers.  It was a great reminder that no matter how bad things may look now, if you put in the work and seek the good you should eventually find it.  It may not be as quick as you’d like, but in time it should come.  This goodwill and purpose that drives us all forward, this will for growth, is the same force that drives the market forward.  And, if you get out of the day-to-day, think decades, and control what you can control, I remain confident that it should power you forward as well.


Until next quarter, enjoy your time and own your decades!

Jason Blumstein, CFA®

CEO & Founder

Julius Wealth Advisors, LLC


This piece contains general information that is not suitable for everyone and was prepared for informational purposes only.  Nothing contained herein should be construed as a solicitation to buy or sell any security or as an offer to provide investment advice. Past performance does not guarantee any future results.  For additional information about Julius Wealth Advisors, including its services and fees, contact us or visit advisorinfo.sec.gov.