Nobody Knows Anything* -- Arrival Capital's Q2 Investment Outlook

*but a diversified, value-based portfolio will win over time

April18, 2024

Commenting on the movie business more than four decades ago, screenwriter William Goldman famously wrote, "nobody knows anything." He meant that even the most experienced, smartest Hollywood types could not predict with any certainty what movies would be successful as opposed to bombing spectacularly. But investors certainly have cause to believe that "Wall Street" is even further behind on the nobody knowing anything spectrum. In the last three years, economists have been baffled in their predictions of the lasting economic effects of COVID, the speed of recovery, the persistence of "transitory inflation", the likelihood of a recession from unprecedented interest rate increases, and, finally, the inevitability of a "soft landing." If these "macro" calls are not enough to put you in the know nothing camp, how about conventional wisdom about specific stocks and industries? Many technology and "stay at home" stocks went from market highs in 2020-2021 to crash and burn in 2022, only to be revitalized as AI came to the fore in 2023. The roller coaster of expectations was even more pronounced for individual stocks. For example, Nvidia (NVDA) went from $60 a share at the end of 2019, to $330 a share in 2012, back down to $120 a share in 2022, and now up to around $850 today. Similar patterns hold true for some of the largest tech stocks in the world, including Meta (META), Netflix (NFLX) and Microsoft (MSFT). It is not only tech stocks, of course, even the biggest bank in the country, JP Morgan Chase (JPM), has careened from $160 to $104 to $200 in the space of three years.

If the best economists consistently miss economic forecasts and the best stock analysts consistently miss earnings and valuation forecasts, any investor may be tempted to throw up their hands on pursuing any kind of sustained, disciplined approach to investing. This is before even considering the possibility of any sort of "black swan" event in the geo-political world or, as shown with COVID, the health/natural disaster area. These "unknown unknowns," a phrase famously coined by former US Defense Secretary Donald Rumsfeld, can be a bane to even the most disciplined and system-based investors.

But, despite everything -- the weaknesses inherent in economic forecasting, profit estimating and strategic thinking -- investing still works, over time, in building wealth. Over the past 75 years, stocks have returned, on average, more than 10% annually in nominal terms, and almost 7.5% in real, inflation adjusted returns. Of course, many stocks have retuned many times that 10% annual rate. In some years, and even decades, annual returns have averaged more than 10%. At other times, typically sharp, vicious downturns can take stock markets down 20% or more in less than a year.

Despite the volatility of returns, and the uncertainty of our economic world, investing in stocks generates wealth as the years and decades fly by. This happens because the best stocks are inevitably, over time, the best businesses, that, by the magic of compounding, generate returns on a growing asset base each year. As profit margins rise, and revenues increase, these businesses become unquestionably more valuable based simply on the cash they can generate at present and for years into the future.

Investors are thus faced with two conflicting ideas: (1) the economy and stock market defy prediction and can be messy, volatile, and unforgiving; and (2) investing in a diversified portfolio of solid businesses generates wealth reliably over time. In psychology, the uncomfortable tension between two conflicting thoughts is known as cognitive dissonance. For investors, the physical manifestation of that is the sinking feeling you get in the pit of your stomach as stock prices fall because of one or another short-term concerns. You are tempted to sell and ease the pain even as you know it is probably not in your best long-term financial interest to do so. If there is a single reason for even the most knowledgeable investor to have a trusted financial advisor, it is to avoid this trap.

Already in 2024, as last autumn's melancholy market mood gave way to unbridled optimism about the future of AI and about how falling inflation would allow the Federal Reserve to cut interest rates in 2024 and usher in a stronger economy and higher stock prices, we saw stocks in many companies take off in a way that could not be sustained as inflation stayed persistent and taxes came due. It did not make sense to chase stocks that had, at least temporarily, come unmoored from quantitative analysis of their current value. But not "chasing" does not mean selling portfolio mainstays, particularly when taking into account paying taxes on capital gains, not to mention the inherent difficulty on timing macro-economic changes that will somehow signal it is safe to trade back into the types of wealth creating businesses we should aspire to stay invested in, unless adverse, company specific factors make themselves clear.

We are now squarely in what can be termed a stock market consolidation that should test near-term optimism as interest rates climb closer to October 2023's uncomfortable level of 5% for the 10-year Treasury Bond. Stocks will no doubt wobble and become more volatile, on the downside as well as the upside. Incidentally, up and down are both called "risk" even though we know that an investor only truly frets when the direction is downward. In the coming weeks, there will be stock swings that will not only create angst but also opportunities for the long-term investor in technology companies with invaluable products and services, but also in retail and industrial companies with the brands, logistics and products that are either indispensable or irresistible to an evolving US and global economy.

At Arrival Capital, we like to think we do know some important things about investing. It's true, we don't know exactly what interest rates or inflation will be next month. We'll pass on guessing where the S&P 500 index will close at in June. But we can have a view on the direction of the economy and important underlying trends that will drive profitability for some businesses and concerns for some others. We also can develop an individualized client assessment of how personal financial characteristics should meet the world of business and investing possibilities, creating durable, wealth-creating portfolios made up of diversified businesses that are poised to deliver sustainable, if not always linear, investment returns. Arrival Capital is able to be your trusted advisor to take advantage of what we know and not fear what cannot be known. Contact us today at or visit our website at

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