Arithmetic
“Buy not on optimism but on arithmetic.” —Ben Graham
It was an interesting end to the week in the land of the stock market. On Thursday, we saw a big one-day swing away from the big technology names toward…. well, just about everything else. For example, on Thursday alone, the Nasdaq fell about 2%, and the Russell 2000 rose over 3.5%. We then saw strong gains across the board on Friday.
For the week as a whole, the S&P 500 was up a bit, and the Nasdaq was down a bit. And, for comparison, the Russell 2000, which has been a big laggard and gone nowhere for about three years, was up about 6% during the week.
Is this finally the beginning of a rotation away from the big technology names back to the rest of the stock market? It’s hard to say. As we’ve stressed so many times during the last few years: predictions are hard.
We know the S&P 500 looks highly valued based on historical standards. And we know that doesn’t say much about what will happen in the near future. At another time when technology and high valuations ruled the day and the headlines, Warren Buffett said this during the 1999 Berkshire Hathaway Annual Meeting:
Charlie and I don’t think about the market. And Ben [Graham] didn’t very much. I think he made a mistake to occasionally try and place a value on it. We look at individual businesses. And we don’t think of stocks as little items that wiggle around on the paper and that have charts attached to them. We think of them as parts of businesses.... I know of no one that has been successful at...[making] a lot of money predicting the actions of the market itself. I know a lot of people who have done well picking businesses and buying them at sensible prices. And that’s what we’re hoping to do.
Technology has been driving market returns for the last 18 months or so. However, there has been a major lack of breadth in the stock market—especially in 2024—as the big have gotten bigger. This has left plenty of opportunity elsewhere for those with the skill and desire to look for it.
Tweets of the Week
In Case You Missed it…
Finding Ideas Before Others - by Ian Cassel
Walter Schloss, Nifty Fifty, Current Market Valuations and Opportunities - by John Huber
Oakmark’s U.S. equity market commentary: 2Q 2024
The E.U. Goes Too Far - by Ben Thompson
Excess Returns Podcast: Passive Investing, Inflation and the Bifurcated Economy with Mike Green
Business Breakdowns Podcast: Cintas: Rags to Riches
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