In the first quarter of 2024, the Global Markets, as defined by the MSCI All Country World Index, appreciated 7.84%* in U.S dollar terms. In particular, on a regional basis, equities were led by the U.S, Japan and Europe, while the emerging markets, specifically Southeast Asia-ex-Japan, Mexico and Brazil were the laggards.

For the S&P 500 Index, all major sectors posted positive returns, led by the Energy, Communication Services and Financial Services sectors. Lagging the Index were the Consumer Discretionary and Utilities sectors.

Currently, market consensus is that the U.S. Federal Reserve will cut interest rates some time later this year and orchestrate an economic soft landing, employment will remain robust, and artificial intelligence will aid in a productivity surge.

At present, media buzz surrounds the “Magnificent Seven” - or is it now “The Fab Four”? Nvidia, Artificial Intelligence, Bitcoin ETFs, Truth Social, Alternative Investments, Private Equity, Private Credit, and Venture Capital. If you are curious about any of these, please call me directly.

Here at Velikonja Financial, our goal for the equity portfolio remains simple: We want to accumulate, at attractive entry prices, and own, over an extended period of time, a diversified Global portfolio of quality, enduring businesses.

Why is an attractive entry price important? Because how much you initially pay to own a quality company will determine your future return. Even the greatest companies can be bad investments if you overpay.

Diversification, not Diworsification (too many stock holdings), as a risk management tool, reduces the volatility of your portfolio.

Lastly, why own quality businesses? When you buy a stock, you own a piece of the underlying business. It’s important to understand the quality of the business you own and why it is high quality, for the same reason you would test drive a new car before buying it. Over time, high-quality companies tend to be worth much more than they are today. Having a stake in these high-quality companies will put you in a far better position than chasing market movements or the brief boom of low-quality businesses.

What are we looking for in these companies? We’re looking for businesses that are leaders in industries that have barriers to entry. They have a substantial competitive advantage having successfully carved out a wide moat between them and their industry competitors. They’re run by management teams that have a history of making smart capital-allocation decisions and have a fortress-like balance sheet.

These companies should also produce high returns on invested capital and high operating margins while generating strong free cash flow.

Once we find a company with the above characteristics, we determine an attractive entry price, which we determine to be a discount to it’s intrinsic value.  The discount provides us with a margin of safety, and the entry price is the determinant of our future return. Rinse and repeat.

Simple, but not easy. But who ever said investing was easy?

Ted Velikonja, CIM®, FCSI

Velikonja Financial 

We can be reached at 

Email: connor.velikonja@cibc.com

Phone: 519 660-3759