Our latest market commentary has just been released. Here’s an excerpt from the report:
“Mimicking the herd invites regression to the mean.” Charlie Munger
This quarter marked the passing of an investment great, Charlie Munger, who died aged 99 on 28 November. Munger was famed with changing Buffett’s cigar butt investment approach, which consisted of buying fair companies at wonderful prices to a far more sustainable and scalable model of buying wonderful companies at fair prices. Munger was an unapologetic contrarian widely regarded as one of the best investors of his generation.
The end of the year witnessed the first signs of optimism in the markets as implied yields shifted significantly and equity markets rallied on the potentially precarious perception that the Fed is considering cutting rates earlier than previously forecast. In what could be described as the year of the Fed, 2023 presented challenges for those focussed on fundamentals as they were largely overshadowed by macro movements. But as rate cuts are now being priced in, fundamentals should play a bigger role in investment performance in 2024.
Despite negative forecasts throughout the first half of the year, ours included, the UK looks to have fared better than expected in 2023. Likely having narrowly escaped a recession, the economy was buoyed by a resilient consumer, in spite of a disappointing Christmas retail trading period. Despite this, the height of inflation appears to have been overcome and now markets and the real economy will have to adjust to higher but manageable price levels.
The real estate market finished the year just as it began, with a lack of transactional activity. Albeit Q4 provided a greater insight into the potential timeline for rate cuts, the risk premium offered by most sectors failed to entice large volumes of capital. Green shoots appeared in retail and logistics with yields beginning to stabilise and opportunistic investors becoming more comfortable with asset and market risk.
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