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Year In Review

I am pleased to report a very solid year for my clients. Of course, the market’s rebound from the depths of last year’s Christmas “flash crash” makes everyone look good, especially when it conveniently fits the calendar so neatly, but I think our particular mix of investment yielded great results with reduced risk, which is what this firm is about.

Investors who own bonds purchased in the past 5 years are sitting on results that cannot be duplicated in today’s market. Confounding everyone, interest rates stayed depressed while bond prices took off. There’s a reason I’m not sending out too many recommendations on corporate bonds. I don’t want to step into an overpriced market. There is little reward for even a modicum of risk as yields have fallen.

For a brief shining moment, yields rose enough to make Collateralized Mortgage Obligations attractive again. (note the sharp spike in yield on the right side of the chart.) However, as the chart shows, this was short lived, and a lot of it got called before the year was out. A good deal of it was bought at discount, so in yield terms, this was a pretty good play for government supported paper!

So, a lot of you folks got while the getting was good. For the municipal market, I have no idea how anyone who sells them to retail can survive in this market. New issuance is usually six times oversubscribed, and the 10 year muni yield for AA paper is 1.49%. I see no point in committing funds in a market like that. I hear people talking their book on Bloomberg at what a great hedge they are after losing their SALT deductions. Locking in at 1.5% for a decade doesn’t seem like a good way out of this. But they HAVE to sell them. I don’t. More amazing is that even if you plumb the depths of single “B” rated paper, the yields aren’t compelling either.

Our heavy bias towards REITs once again powered double digit dividend revenue for retirees who rely on it, along with growth for those who just want to grow their assets. There were some shaky moments when the bond market was so rattled at the beginning of the year, but the portfolio managers did a very good job of finessing it. Avoiding retail real estate was also a smart play. In fact, avoiding certain sectors of the market and stock fads paid off. Last year it was Bitcoin. This year, cannabis stocks shriveled. The farce that was WeWork was something I would have avoided too, but this time, someone actually LOOKED at the disclosures before it was fobbed off on Mom and Pop. Naturally, management cashed out with hundreds of millions, and a trail of bagholders in their wake.

Speaking of which, this man pictured below is a media darling, whose wisdom is sought by Presidents and Kings, but unfortunately, the return on his portfolio can’t even match the fee he charges. In today’s world, this doesn’t seem to mean anything. Media capital is everything.

A couple of stock selections helped spike portfolios. Many of you bought ROKU when I recommended it, and we’re sitting on a handsome gain. I would expect even more from the firm in the coming years based on its growth metrics.

An unusual play for more aggressive accounts was an investment in a gene editing company. I learned of gene editing from a few sources I follow, and although I never invest in companies like these (especially seeing how the hype over stem cells fizzled) the science has already proved effective: the technique of gene modification is effective for cystic fibrosis, and is now in regular use. A cure for sickle cell anemia looks promising as well from early tests. The ability to modify a cancer cell to prevent it from metastasizing by gene modification is a real possibility, and the science, at this point, seems to have open ended possibilities.

Not all new technology yields results, however. An investment in 3D printing has faded, but we’ll see if it can find its feet in the next couple of quarters.

People who held on to their Apple shares confounded the consensus of dozens of naysayers. It’s up over 80% this year, and they are managing their transition from phones to services very well.

I've been nibbling at brick and mortar retail. My feeling is this: whatever damage private equity and Amazon have done to retail, the worst is behind them, the weak hands have been swept away, leaving those firms with strong balance sheets and low leverage alive, with little competition left. The real merchants will survive.

As always at this time of year, a parade of sell side analysts come on TV and radio and attempt to predict “What To Expect In 2020,” and the fact is, you can’t. Sentiment can change very quickly in any market, and after all these years, the best thing to do is keep your ear to the ground and watch for emerging trends. I don’t try to be a fortune teller. I just try to find value when I can.

Thank you once again for your continued patronage and trust. May the New Year continue to bring us blessings.

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