Broker Check

August Newsletter-2023




July 27, 2023

“Dream Big. Invest Intelligently


Last month, I wrote about how the Artificial Intelligence (AI) Revolution has exploded across our entire economy and our everyday lives, and how our managed Domestic Equity portfolio has already benefited from the stock market upward surge in all thing’s “technology.”  The following weekend, Jeannie and I took in the latest addition of the Mission Impossible franchise on the big screen, and we were surprised by a representation of imagination of what could be the worst-case scenario of AI; potentially taking over the world as we now know it. It was not a “pretty picture”! The “good guys” will surely need to get in front of that potential disaster to protect us all. To that end, I saw that Congress is taking the first steps in that direction.

Our Domestic Equity portfolio has continued its upward trajectory as seemingly all investors have “seen the light” and do not want to be left behind (otherwise known as FOMO). With the surge in technology our managed portfolios were soon “out of balance” and we diligently “sold high” and moved the profits into high-interest bonds and the broader equity market positions for the benefits of diversification going forward. On a year-to-date basis, the large-cap tech fund in our portfolio surged over 41 percent; two large-cap diversified funds with significant technology holdings surged over 16 percent and over 20 percent. Also of note, the small-cap fund we highlighted in the Spring as being undervalued and optimal for Roth conversion has surged over 10 percent for the period.

With Jerome Powell’s announcements yesterday, the broad equity markets continued their upward surge as investors are optimistic that the Fed may have peaked in its plan to fight inflation by slowing down additional rate hikes. We still see several small increases in the cards, but there is light at the end of the tunnel. Despite the 22-year high interest rates, public companies are proving to be resilient, producing strong earnings as the economy continues to grow, resulting in reported GDP growth for both of the last two quarters. In fact, the Fed just released its GDP model estimate for the third quarter projecting growth of 3.5 percent for the quarter. Current indications are that a recession at home may be avoided entirely; or, if it materializes the pain will be minimal. Those expectations are driving our markets higher as consumers continue to spend, spend, spend.

As the saying goes, “A Picture is Worth a Thousand Words.” Laura has produced the following “green line” graph for our managed Domestic Equity portfolio looking back for ten years as of July 26, 2023. The graph depicts both the dramatic downturns from the Covid pandemic, the inflation scourge, followed by the Fed’s insistence to raise interest rates; as well as equally dramatic upturns from March 2020 to the peak in December 2021 (21-month climb of over 170%) and the current upturn from early this year to now. The green line upturns this year are incredibly steep, as current returns have not been experienced since 1987. There will certainly be some corrections along the way, but it is very conceivable that the highs of 2021 will again be achieved as the economy continues to grow out of the “Pandemic Era” and into the coming of the AI revolution.

The post-pandemic market returns reflected in the above graph have been driven by a combination of enthusiasm over the Fed’s apparent easing of its rate hikes and more importantly, corporate profits reflecting the many steps taken to “re-engineer” business models and strategies. As the runaway inflation caused all costs of doing business to skyrocket, companies have deftly raised prices to all consumers to reflect the inflationary cost increases. As companies are now reporting their second quarter profits, it appears that consumers have accepted the price increases and profits are growing as our economy is growing out of the pandemic era. As we know, growing profits result in growing equity valuations. As noted, we expect the growth to continue as the AI revolution takes a firm hold on “all things business”. Our business has also seen steep cost increases in all aspects of our business; from employee salaries and benefits to the cost of technology, and everything in between. We have held our fees at pandemic era levels; if, for no other reason than portfolio returns have been generally miserable as the economy and business profits have suffered during the downturn. We have now decided that our fees must be marginally increased to cover our increased costs of doing business. As an example, we have been forced to increase staff level salaries to give our people the additional amounts needed to just “buy groceries and gas”! So, beginning January 1, 2024, our fee schedule for all client portfolio balances over $1,000,000 will be increased by one-quarter of one percent on an annual basis (25 basis points). For example, a client with a $2,000,000 portfolio balance will see a $625 increase in fees each quarter (or, $2,500 annually on the billed balance between $1,000,000 and $2,000,000).

We know that you have many choices of firms to manage your investments. At one point, we were concerned about the trend toward using “robots” to manage portfolios. The industry reports are now in, and the “active management approach” has significantly outperformed the robots. Also, by not using index funds, our active management results continue to outperform the “index advisors”. And, most importantly, our clients continue to tell us that our personal service approach and regular communications and meetings has provided much needed comfort in these past “troubled times”. We have no plans to change what has worked so well for the last twenty-seven years. Our fees are neither the highest nor the lowest for our industry; but we firmly believe that our fees are “fair” and the bottom-line returns reflecting each client’s risk tolerance and goals are clearly respectable. And our clients are passing the “sleep at night test”!

With the Pandemic era seemingly in the rearview mirror, as inflation is taming and further interest rate increases are expected to come to an end, either this year, or next, we are much more optimistic about the future of the economy and our diversified portfolio of investments poised to participate in the expected growth. The black cloud that has been hanging over all of us, our economy and the US securities markets may very well be blowing away and leaving behind a bright blue sky. Occasional thunderstorms will be expected, but all-in-all we do see more smooth sailing on the horizon. We are now looking forward to once again being able to facilitate our clients’ dreams of financial security and goals beyond just surviving.

Just as the companies we invest in have re-engineered their business models to compete in the new world of the AI revolution, we are now embarking on our own facelift to reflect the many possibilities in front of us and our clients. Since I started this business over twenty seven years ago, we used as our tagline, “Investing for Tomorrow. Today.” After much consideration of this new world paradigm, we are adopting a new tag line: “Dream Big. Invest Intelligently.” Over the coming months you will see that put into motion.

Our marketing team will be redesigning our image to reflect this refreshing theme of “meeting our clients’ goals.” Here is our first image of “Dreaming Big…”

As always, all of us at Intelligent Investment Management, LLP thank each of you for your continued support and many referrals. Our continued growth allows us to maximize all the behind-the-scenes efforts that go into every decision that is made on a client-by-client basis as part of our Active Management approach to meet your investment goals.

Stay cool and enjoy the rest of your Summer!



Intelligent Investment Management, LLP