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Quarterly Letter to Clients

April, 2025

Indices at quarter-end (March 31, 2025):

Dow Jones Industrials: 42,001.76 1Q'25 -1.28% YTD -1.28%

Standard & Poor's 500: 5,611.85 1Q'25 -4.59% YTD -4.59%

Every year in January, the financial publication Barron's holds a panel of Wall Street's best and brightest money managers. They expound on their views of the coming year and proffer their best stock selections. At that same time, Barron's reviews their prior picks. Here is what happened:

Todd Ahlsten of Parnassus Investors chose 6 stocks, which returned, on average, 4.2% during the year 2024

Scott Black of Delphi Management picked 4 stocks, and they returned minus 9.1%

Abby Joseph Cohen of Columbia University, late of Goldman, 6 stocks for minus 9.95%

Sonal Desai of Franklin Templeton, 8 stocks, plus 6.975%

Henry Ellenbogen of Durable Capital, 6 stocks, plus 22.9%

Mario Gabelli of GAMCO, 9 stocks, plus 3.35%

David Giroux of T. Rowe Price, 5 stocks, plus 3.54%

Rajiv Jain of GQG Partners, 10 stocks, plus 28.52%

William Priest of TD Epoch, 5 stocks, plus 10.72%

John W. Rogers of Ariel Investments, 5 stocks, plus 5.16%

And Meryl Witmer of Eagle Capital, 2 stocks, plus 33.65%

To sum up, eleven Wall Street titans selected a total of 66 of their favorite stocks, which returned 9.09%. In a normal year, not too bad, but nowhere close to the averages--the S&P was up 23%. And dig just a little deeper: of Rajiv Jain's selections, two stocks, Nvidia and Arm Holdings, returned, respectively, 175.5% and 144%. Remove those two choices and Jain's other stocks returned minus 3.24%. That would change the overall list return to 6.2%. Take out one stock (Toast) that Ellenbogen selected and the overall return drops further to 5.12%.

Out of 66 selections, three carried the ball, and not very far down the field. I won't be buying any of their 2025 choices.

It doesn't get better. Barron's itself makes selections during the year, and then rates it's own picks in January. For the year 2024, the publication, which has a "value" bias, selected 52 stocks to buy and two to sell short, giving a total return of 1.8%. (Remember, the S&P was up 23%.)

Well, no one ever said that this was an easy business.

The Greeks have a word for it: kaos. I try not to talk about politics; after all, no matter what you say, you are going to offend half of your audience. But if we are to discuss markets today we cannot avoid the subject. If the current administration knows what they are doing, it remains a mystery to pretty much everyone else. The mercurial proclamations coming seemingly daily from the Oval Office have left businesses and analysts dizzy. Markets have responded by falling. If you are not sure what a company is going to earn, then you have to put a lower price on it's stock.

If the cost of imported materials goes up, then the price that the end consumers (you and I) pay must go up. Is that not logical? How long will companies absorb the higher costs? And with the threat of tariffs changing almost daily, it cannot be said to be an effective bargaining ploy.

Last year's markets were bulled up by a handful of stocks (see my opening comments and previous letters). Those companies have now fallen out of favor, and without their underpinning, stock averages seem to have little support. Interest rates are not helping, and inflation will be the end result of tariffs. One would rightly expect this scenario to be negative for stocks.

Markets thrive in a predictable, orderly setting, where all we have to think about is trying to forecast things like earnings, interest rates, price-to-earnings ratios and business conditions. That is not the current backdrop. I know that this, too, shall pass, but prepare for a bumpy ride.

Jim Pappas