Second Verse, Same as the First

By: Aaron Anderson, CFP®, CFA, Managing Partner

September 29, 2023

A quote often attributed to Mark Twain says, “History doesn’t repeat itself but it often rhymes”[1]. Even though this year has different headlines, the third quarter was a rough one like it is in most years. August can be hit or miss as to whether the market is up and this year it was a miss. September is traditionally the worst month of the year and while it tried to hold up early in the month, selling pressure won out.

Historically strong gains like we saw early in the year typically are followed by a bit of a sideways or down period. Like eating a big meal and then feeling tired on the couch afterward, the market seems lethargic as it “digests” all the gains. Add to that the previously mentioned September malaise and it’s no surprise that that market is where it is.

Fortunately, the last quarter of the year tends to be a great one for the markets. The market usually starts picking back up sometime in October, November tends to be a strong month, and then the good tidings of the December holiday season tend to rub off on the market.

One headline risk that is still out there is an expected government shutdown which leads to the title of the article. A band named Herman’s Hermits sang a catchy tune called “I’m Henry VIII, I Am”[2]. They sing the first verse and say “Second verse, same as the first!” before repeating the first verse.

We were just dealing with this in May regarding the expected – and narrowly avoided – government shutdown around the debt ceiling. They kicked that can down the road by suspending the debt ceiling until January 2025 (conveniently after elections). Now we deal with the same thing regarding the budget. Congress is trying to work on a compromise budget that will keep the government going, but it’s looking grim as of the time of this writing.

Like last time, everyone knew this was coming but the politicians only earnestly started working on it at the last minute. One of the solutions floating around is to kick the can again by using a continuing resolution to fund the government through November. Maybe we’ll have to deal with the risk of a government shutdown for a third time this year.

Fortunately, as I said in my article about the debt ceiling issue, historically the market may have short-term volatility due to Congress’s self-inflicted issues, but over the long term, the market isn’t materially affected. I’m hoping history rhymes again this year with a good fourth quarter.

Before our quarterly holdings discussion, I’ll start with the disclosures:

While we tend to use a similar investment mix across all accounts held with us [3], you may not hold some of these positions mentioned here – maybe it’s not appropriate for your goals and risk tolerance or maybe you didn’t have funds available at the time and we didn’t want to sell any of your holdings to make some available.
This is NOT a recommendation to buy or sell. It is an “after the fact” report of why we hold what we do. There is neither enough information given here to make an informed decision nor anywhere near the amount of analysis we do on our holdings or prospective holdings. You can of course assume that we have positive expectations for any of our holdings, otherwise we would have sold them. Beyond that, what is stated here is a backward-looking report at what occurred, not a forward-looking prediction of expectations.
We are long-term investors and so what happens quarter to quarter is not something to focus on. Our best performer one quarter might be our worst performer the next, so again, you should not make investing decisions based on what’s discussed here.

Better Performers

GOOG: Google needs no introduction. The search and advertising giant had done well in recent years but had underperformed some of its peers like Microsoft and Amazon. They had a great earnings report in July which helped drive the performance this quarter. With AI integration just beginning, we see great things in the future for the company.
NTR: What was an underperformer last quarter outperformed this one. We believe that the sell-off of Nutrien in June was overdone and the market seems to have agreed. This one has struggled due to the price of fertilizer falling recently, but the price has recovered some as analysts expected. The stock performed well because of it.
ODFL: The trucking company Old Dominion Freight Line had a good earnings report and has done well despite a bit of a softening economy. The trucking company “Yellow” closed over the summer and so Old Dominion benefited from customers switching to their services as they said demand has remained constant for the industry.

Underperformers

MTTR: As I said last quarter when Matterport was an outperformer, the company is doing well and growing. Their 3D virtual reality recordings of interior spaces have many market uses and could revolutionize the industry. The earnings reports have been good recently, but the market hasn’t seemed to take notice. Also, smaller companies have not participated much in the market rally we’ve experienced this year. As I’ve said before, we have high expectations for the company and not enough capital would be created by selling our position.
SPCE: The discussion about Virgin Galactic is similar to Matterport. We bought this one as an investment in the future of space tourism. They have recently started making regular flights to space, but the revenue growth has been slow, especially relative to their costs. We are hopeful that like any new company in a new industry, the company will eventually work its way to profitability and the stock will reflect that.
ENPH: Enphase has been a disappointment for a few quarters now after being a great stock for the prior three years we’ve been investing in it. In the short term, the demand for solar power installations has decreased. However, we believe that solar power will continue being one of the best energy source alternatives as we shutdown dirtier power sources and we believe Enphase is well positioned in that market.

New Positions

None: We have not purchased any new positions this quarter. You may have a position in your portfolio that is new to you, but not a new holding for the overall firm.

Sold Positions

QCOM: Qualcomm was purchased as the leader in mobile chipsets, especially their 5G modem. The stock did well for us initially, but has been “stuck in the mud” so to speak over the last year and half or so. So, we’ve decided to sell it to reallocate to other investments that we expect to have better returns going forward.

[1] There is no evidence he said this. The first quote calling history a mystic rhyme dates to 1845 and a similar quote is found in a 1965 essay.

[2] For you music history buffs, although many know their version, the earliest known recording is a version from 1911. It had three separate verses and the chorus of his song became the verses of the Herman’s Hermits version.

[3] I say “similar” because we customize portfolios based on differing goals, risk tolerances, and timing of transactions. So, the size of positions and account performance, both in absolute and relative terms, will be different.

Content in this material is for informational purposes only and not intended to provide specific advice for recommendations for any individual. All performance referenced is historical and is no guarantee future results. All indices are unmanaged and may not be invested into directly.

The Standard & Poor's 500 Index is a capitalization weighed index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

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