Wayman Value Investing November 2024 Portfolio
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November 2024 Outlook
October brought a sobering reminder that even in bull markets, gravity exists. Despite spending most of the month in positive territory, the S&P 500 ultimately posted its second monthly decline of the year (-0.99%), with Halloween delivering a particularly stark reminder about market vulnerability. The Magnificent Seven, which have been the market's primary engine throughout 2024, finally showed signs of mortality, giving back most of their October gains in a single session. Yet perspective is crucial here - even after this pullback, the broader market remains up an impressive 25% year-to-date, with the Magnificent Seven accounting for nearly half of these returns.
The recent presidential election has injected a new dynamic into market sentiment, with Donald Trump's victory catalyzing significant moves across various sectors. Financials, traditional energy and small-caps have shown renewed vigor. This sector rotation reflects investors' anticipation of potential policy shifts, including deregulation and corporate tax reforms. However, as we've learned repeatedly, the market's initial reaction to political events often proves an unreliable predictor of longer-term performance.
The earnings picture provides a foundation for cautious optimism. With over 72% of companies reported, Q3 earnings and sales are both tracking toward new quarterly records. More importantly, current projections suggest this trend could continue through 2025. The market's forward-looking mechanism appears to be pricing in this optimism, with the S&P 500's consensus target price rising for the eleventh consecutive month to 6,394 - suggesting potential upside of 12.1% from current levels.
However, several caution flags deserve attention. The concentration of returns in a handful of mega-cap stocks remains a concern, as does the potential impact of sustained higher interest rates. The broader market's dependence on the Magnificent Seven - while less pronounced in October - continues to represent a structural vulnerability that prudent investors cannot ignore.
Looking ahead, market participants face a complex landscape where optimism about corporate earnings collides with concerns about valuation levels and policy uncertainty. While the post-election rally suggests confidence in pro-business policies, history teaches us that markets rarely move in straight lines. The key to navigating this environment lies not in trying to predict short-term moves, but in maintaining a balanced approach that acknowledges both the opportunities and risks inherent in current market conditions. As always, the greatest opportunities often emerge when others are focusing solely on either the positive or negative narrative, rather than considering both sides of the equation.
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.