Thoughts on the Current Market

I usually don’t spend much time or energy trying to understand the market, but I did throw out a brief analysis in the May issue of 2 for 1. Quoting from the article of May 12th:

“In 2 for 1’s twenty year run there have been several times when it seemed our strategy was failing us. Early on for example, for an extended period in 1998 and 1999, 2 for 1 fell behind the market for months at a stretch and, by the end of 1999, was over 20% behind the S&P 500 for the year. This was the dot-com bubble and our “under the radar”, value investing style was definitely not in sync with the market. Similarly, this style seems to be out of sync with the market now and we are suffering, but for somewhat different reasons.

Compare year-to-date numbers for the Russell 3000, a total market index, up 6.6%, with the Russell 2000, a small cap index, up 2.7%. This is telling us there is a tilt toward the large cap end of the spectrum, particularly the bluest of the blue chips. My guess is this is a search for stability in a very unstable political and economic environment resulting in the overvaluation of the “popular” stocks and inflation of the major indexes. I believe reversion to the mean will eventually bring rational pricing back to the majority of the market and the stock split advantage will propel our portfolio ahead of the crowd as it has in the past.”