VOO - Bill Nygren's U.S. Equity Market Commentary Q1 2024

2024-04-09 03:45:00 ET

Summary

• We are value investors. In constructing portfolios for our clients, we seek out companies that we believe are trading in the market at significant discounts to their underlying value. These businesses must offer significant profit potential and be run by managers who think and act as owners.
• We believe in the importance of intensive, fundamental research. Our research process is based on a disciplined quantitative and qualitative screening process.
• Today’s market is giving us ample opportunity to find stocks we believe are inexpensive, despite the elevated P/E ratio of the S&P 500.
• While 2022 was a relatively good year for value, dodging much of the S&P’s decline, that entirely reversed in 2023.

Navigating market highs and (avoiding) value traps

Last quarter, the S&P 500 Index hit a new high every month, as did each of our U.S. Funds. In March, I wrote a piece for our website discussing why new highs are important to us. On one of the recent new high days, I heard a portfolio manager on TV urging caution because it is "dangerous" to invest after new highs.

In the past 50 years, selling after the S&P 500 reached a new high would have allowed an investor to avoid four very painful declines: 44% after the dot-com bubble popped in 2000, 38% entering the great financial crisis in 2007, 19% in the 2020 Covid-19 shutdown, and 25% in 2022 when inflation and interest rates sharply increased. As with many market-timing schemes, the positive result from those correct calls has made selling after a new high a popular strategy....

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