Wayman Value Investing January 2025 Portfolio
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January 2025 Outlook
As we close the books on December and reflect on 2024, we're reminded that markets rarely move in straight lines. The S&P 500's December decline of 2.50% came as a sobering reminder of this truth, even as the index posted an impressive 23.31% gain for the full year. One can't help but notice the increasing concentration of market gains – a theme that deserves our attention and, perhaps, some concern.
The much-discussed "Magnificent 7" stocks continued to demonstrate their outsized influence on market returns. Consider this: without these seven companies, the S&P 500's total return for 2024 would have been a much more modest 11.75%. While still above the long-term average, this disparity raises important questions about market breadth and concentration risk. We've seen similar patterns before, and they often serve as warning signs for careful investors.
December's market activity was particularly telling. Despite the S&P 500 setting four new closing highs early in the month (reaching 6,090.27), the subsequent decline reflected a combination of year-end reallocation, profit-taking, and growing uncertainty about the Federal Reserve's future rate decisions. The Fed's announcement of a 0.25% rate cut to 4.25%-4.50%, coupled with projections of only two additional cuts in 2025, triggered a notable market reassessment, culminating in a sharp 2.95% single-day decline.
Looking ahead, January brings several significant events that warrant our attention. The presidential transition on January 20th marks a pivotal moment for markets, as Trump prepares to return to office following his electoral victory. The FOMC meeting scheduled for January 28-29 will be closely watched, particularly given the recent shift in rate cut expectations. Additionally, the stop-gap budget extending government funding until March 14th provides temporary relief, though the unresolved debt ceiling issue looms as a potential source of market volatility.
As we enter 2025, it's worth remembering that successful investing isn't about predicting the future – it's about recognizing patterns, understanding risk, and maintaining discipline when others lose theirs. The current market environment, characterized by high concentration in a few stocks and significant policy uncertainties, suggests that thoughtful positioning and careful risk management will be more important than ever. As always, the key is not to outsmart the market, but to avoid being outsmarted by it.
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.