Wayman Value Investing August 2024 Portfolio
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August 2024 Outlook
July 2024 marked a tale of two halves for the U.S. stock market. The month began with continued momentum from the first half of the year, with the S&P 500 reaching new closing highs and posting gains of 3.79% by mid-month. However, the narrative shifted dramatically in the latter half as investors recalibrated their expectations and reallocated funds, leading to a significant pullback. Despite this volatility, the S&P 500 managed to close the month up 1.13%, bringing its year-to-date return to an impressive 15.78%.
The Dow Jones Industrial Average emerged as a standout performer in July, gaining 4.41% and breaking through the 41,000 mark for the first time in its history. This outperformance can be attributed to its price-weighted methodology and limited exposure to "Magnificent 7" tech stocks, which faced increased scrutiny as the month progressed. The Dow's resilience in the face of market rotation highlights the potential benefits of its more diversified composition in periods of sector-specific volatility.
Perhaps the most notable development in July was the remarkable performance of small-cap stocks. The S&P SmallCap 600 index surged 10.71% for the month, dramatically outpacing its large-cap counterparts. This rotation was driven by a combination of factors, including expectations of Federal Reserve interest rate cuts, strong consumer spending data, and the perception that smaller companies may benefit disproportionately from an improving economic environment. The small-cap rally serves as a reminder of the importance of maintaining a diversified portfolio across market capitalizations.
Looking ahead to August, all eyes will be on the Federal Reserve and its next policy meeting in September. Market expectations have coalesced around a high probability of an interest rate cut, with some analysts even predicting multiple cuts before year-end. This shift in monetary policy outlook could continue to drive market dynamics, potentially supporting further gains in small-cap and value-oriented stocks while putting pressure on the high-flying growth names that have dominated in recent years.
While the market has shown remarkable resilience in 2024, the recent volatility serves as a reminder that the path forward may not be linear. Maintaining a long-term perspective and staying true to one's investment strategy will be crucial as we navigate the remainder of what has already been an eventful year in the markets.
User Guide - Tracking the Spreads
What are spreads, and why should you care? I believe that tracking spreads is essential for making informed investment decisions. Each month I categorize stocks into tiers based on the spread between their calculated value and market value.
Here’s how it works:
STASH: This tier includes stocks with the largest spreads. These are the hidden gems that offer significant potential upside. Based on my valuation, now is the perfect time to capitalize on their undervalued status.
GATHER: Stocks in this tier have a substantial spread, but not as significant as those in the Stash tier. They still offer attractive opportunities for investment, and I recommend considering them for your portfolio.
STORE: The Store tier consists of stocks with modest or tightening spreads. While they may not have as much potential for immediate growth, they still hold value and can contribute to a balanced portfolio. Wayman holds these stocks, but I am not actively buying additional shares this month.
CACHE: In this tier, stocks have narrow or no spreads, indicating that their market value aligns closely with Wayman’s calculated value. It may be time to consider exiting positions in these stocks and reallocating your resources.
Categorizing stocks based on spreads helps you identify stocks with the greatest potential for growth. I believe in capturing maximum upside while minimizing potential losses, and Wayman’s tiered system allows you to prioritize your investment decisions.
Model Allocation
For the purpose of third-party portfolio tracking and validation we use the following model portfolio allocation:
65% invested in Stash tier stocks
30% invested in Gather tier stocks
5% invested in Store tier stocks
The Wayman portfolio is tracked and audited by Hulbert Ratings, which has been rigorously tracking the real-world performance of investment advisory newsletters for over 40 years. You can follow our performance here.