1st Quarter Client Note – Nvidia, Bitcoin and the Loss of Another Giant

For the most part, 2024’s first quarter markets performed exceptionally well. The S&P 500 (Total Return) Index gained 10.56% — on the heels of 2023’s stellar gain of 26.29%

The market continues to be led by high tech growth stocks; contributing further to concentration and overweight in highly valued companies. But not by as wide a margin as in the recent past. Large Growth stocks gained 11.41%. While Large Value gained 8.99%. The S&P 500 now has 46% in growth stocks and 21% in value stocks, compared with the more typical balanced weighting of around 32% in each.

Fixed Income

While inflation has come down a great deal over the past year, the exceptionally strong economy is making it difficult for the Fed to declare victory.

This back and forth in the bond market left the Bloomberg US Aggregate Bond Index down .78% for the quarter. Although it’s still up 1.7% year-over year.

At the beginning of the year, many analysts were predicting that the Fed would cut rates up to six times in 2024. Now it is possible that there will be no rate cuts at all. It is a fool’s errand to try and predict what the Fed is going to do. Far better to have a strategy that depends neither on the Fed’s activities nor on anyone forecast of what they might be.


Middle East tensions and OPEC production cuts have driven oil to a six-month high. The price of cocoa has doubled in just the past two months amid a record supply deficit. And gold is at all-time highs as inflation remains stubborn.  The Bloomberg Commodity Total Return Index returned +2.19% for the first quarter.

Once again, our friends at Dimensional Funds provide all the details in their Quarterly Market Review.

Nvidia, Nvidia, have you met Nvidia? (With Props to Groucho)

Nvidia, the AI chipmaker, remains the leader of what used to be the Magnificent Seven. Both Apple and Tesla have dropped out; being in negative territory so far in 2023. I view this as potentially positive for the overall market with the possibility of a broadening out of leadership.

Why Not Just More Nvidia?

For one, other chip makers have a target on Nvidia’s back. For another, people far smarter than me have opinions on AI. Here’s one that suggests that while AI is unquestionably the wave of the future, “inference” — a technology different than Nvidia’s may dominate.

And who knows? Maybe Nvidia turns out to be the next Blackberry.

A Helping of Granolas?

While the US market overall is highly valued, looking overseas may provide a reasonable opportunity to enhance portfolio performance with a little less risk.

Another Investing Hero Passes On

It seems like every quarter I have to report the passing of another one of the great minds in investments or in personal finance. Recently we lost Harry Markowitz. and then Charlie Munger. And now, we learn of the passing of Nobel Prize winning Daniel Kahneman, one of the godfathers of behavioral economics, a discipline without which we advisors would be working with one hand tied behind our backs.

Kahneman learned – and taught — that we humans, because of the way we are inherently wired, often don’t make the best economic decisions. We often rush to judgment using mental shortcuts. His best seller book on the subject, Thinking Fast and Slow brought these concepts into the mainstream to help advisors and clients make better decisions.

The tension between rational markets (Nobel Prize to Fama) and irrational people (Nobel Prize to Kahneman) is one the most interesting aspect of this profession. While markets in the aggregate may be rational overall, we individuals aren’t necessarily. Which is one of the reasons we need to keep our emotions in check when it comes to managing our finances.

Should you Bite on Bitcoin?

FTX has crashed and SBF has gone to jail. But that hasn’t stopped the crypto frenzy.

It has become nearly futile to debate the fundamental investment thesis of Bitcoin. Is it a currency? A store of value? Merely speculation based on the law of supply and demand?  I don’t have an answer.

The supply of Bitcoin has a hard limit of 21 million coins. Plus, every four years the reward to miners for creating coins is cut in half.

With the approval and rollout of spot Bitcoin ETFs, the industry has made it easier (and probably safer, from a custodial perspective) to get exposure if you choose to take the plunge.

There are no lifeguards. Swim at your own risk.

Uncertainty is Underrated

One of the aforementioned Dr. Kahneman’s discoveries was “recency bias.” We tend to overrate and overemphasize experiences of the recent past. Combined with FOMO (Fear of Missing Out), this phenomenon encourages us to jump on the latest investment fad, trying to catch the rising star, rather than calmly incorporating what we have learned from studying the history of markets over longer periods.

On the flip side, we tend to fear losses more than we value equivalent gains. This contradiction sometimes causes us to be overly cautious, not taking enough risk to meet our goals over the longer horizons we face. Resolving this contradiction is one of the secrets to investment success.

Bear markets are inevitable. We just have no idea when they will occur and how long they will last. Dimensional founder, David Booth, has a great suggestion for dealing with this. Embrace the uncertainty! The best medicine is to have a portfolio whose gyrations you can tolerate — aggressive enough to meet your return objectives, but moderate enough to allow you to sleep at night.

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