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1Q 2025: Best and Worst-Performing Assets
To say that the first quarter of 2025 has been turbulent would be understating the obvious. It's been testing, nerve-wracking, and filled with uncertainty.
Of utmost interest at this juncture is trying to understand or game out what comes next and maybe it's worth looking at what has and hasn't worked so far to get some ideas going forward.
Starting with everybody's favorite (because it's been so easy), stocks did not perform well at all. The major indices nosedived through the quarter, though the path down wasn't by any means a straightforward one, as it usually isn't.
Financial news outlets have been blaring about how the first quarter was the worst since 2022. Boo-hoo! Outside of the quick and ultimately painless COVID collapse of 2020, stocks have been on a straight line to Olympus since the GFC of 2008-09.
Buy and hold investors had such an easy time of it, any little disruption in the force that is Wall Street is seen as some kid of rude, unwarranted intrusion into their almost-perfect existence, where unicorns romp about on the lawns and returns from stock market investments provide for all the luxuries life can afford. Such is the attitude of the horde that has never experienced financial pain and suffering, the kind of dispirited detachment that has preceded almost every other major market correction or crash.
At the same time, those insufferable goldbugs have been making out like masked bandits at a train heist. Whether they're right or wrong about "honest money", de-dollarization, or the evils of fractional reserve banking, for the past three months - and for pretty much the past year, two years, and 5 years - they won. They beat the stock market. Get over it.
Rather than debating the finer points of Keynesian or Austrian economics, let's let the numbers do the talking with the biggest winners and losers of the first quarter of 2025.
The figures presented here represent gains or loss from December 31, 2024 through March 31, 2025. As such, some may be a little distorted or skewed due to the timing of the readings. In the case of the major indices, for instance, the end of December was near a low off late November - early December highs. Additionally, stocks rallied strongly in January before leveling off in February and falling in March.
Now, there you have it. Do you now sell the winners and buy the losers? Or vice versa, doubling down on success and/or failure. While catching falling knives is usually left to circus performers, it's equally dangerous to believe that some kind of bottom has been put in place and those stocks or assets that crashed and burned for the past three months are going to suddenly reverse course and rise majestically like the sun over Mount Fiji.
That kind of thing only happens in movies, and usually in bad ones.
A bit of nibbling might satisfy the animal spirits, but most professionals are urging a more cautious and patient approach. It would be prudent to keep an eye out for complete capitulation before attempting to go "all in." It's times like these that one needs to appreciate the difference between return on capital and return of capital.
One thing that wasn't useful to spend cash on was gasoline. Even though fuel is down from a year ago (thank God!) prices at the pump actually increased during the first three months of 2025, compared with November and December of 2024. Regional differences and urban/rural differentials vary, but overall, gas prices that seemed to be going down are actually going back up.
One might have been able to procure some savings at the supermarket, depending on whether or not you enjoy eggs for breakfast every morning. Prices have been sliding in most locales the past few months. Nothing great, but big chains like Krogers, Publix, Wegman's and others have been experiencing some oversupply in certain categories and have been marking down, often substantially. One thing Americans don't have to worry about is starvation. We have plenty of food, the trick being able to afford to buy it.
Cars, both used and new, have come down to more reasonable levels. How much of the reasonableness occurred in the first quarter is probably more a matter of how well your local dealer is doing and your skills of negotiation. America also has no shortage of cars, trucks, SUVs, motorcycles, RVs, and ATVs.
Looking both backwards and forwards, stock charts of the major averages from the first quarter appear eerily similar to those of the first quarter of 2022. That 2022 downturn didn't end until November. If stocks are headed on a similar trajectory, there are further declines ahead. If not, well, there are going to be a lot of speculators walking funny for being wrong-footed at the most opportune time. It's a tough call, but the bears seem to be having their way of late. There may be a bit of turbulence before Elon Musk's rocket reaches maximum thrust, headed for Trump's "golden age."
The choice is yours as to which ways your financial well-being should proceed. Choose wisely. Or, like most people with passive investment accounts, let a "professional" choose for you. After all, they know best, don't they?
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For Your Consideration: Three Stock Strategies
Editor's Note: While cleaning out old files, the following came to attention. The file was created in 2017, but there's no reference of who wrote it and no link to whatever website it was copied from. The following text has been modified from the original for style and grammar. Not wanting to be accused of plagiarism, should the original writer be found, he/she will be credited. -FR
Lou Simpson: How an Investor Should Act
Simpson ran GEICO's investment portfolio from 1979 to 2010. His record was extraordinary: 20% annually, compared with 13.5% for the market. His five key strategies are these:
On the last one, Simpson writes: "Companies that meet our criteria are difficult to find. When we think we have found one, we make a large commitment."
Simpson's focus increased over time. In 1982, he had 33 stocks in a $280 million portfolio. He kept cutting back the number of stocks he owned, even as the size of his portfolio grew. By 1995, he had just 10 stocks in a $1.1 billion portfolio.
But he did not just buy and hold. Simpson would add to a holding if it fell (and thus became more attractive). He would trim it back if it got pricey. A good example is how he handled his stake in Nike.
Over a 20-year stretch, there was never a time Simpson did not own Nike. When the price reached over 20 times earnings and there were good alternatives, he'd pare it back. When it got down to 13 times earnings, he'd add to it. At one point, it was 16% of his portfolio. Simpson didn't sell because the stock price fell. He based his buy and sell decisions on valuation.
Another important aspect of Simpson's record: He did not trade much. There was very little turnover. He said you only need one, two, or three good ideas a year once you're fully vested. "We do a lot of thinking and not a lot of acting. A lot of investors do a lot of acting and not a lot of thinking."
Keynes is famous as an economist, but early in his career, he speculated on currencies and commodities. This risky approach cost him all of his money in the early 1920s. And he nearly lost it all again after the Great Crash of 1929.
Undaunted, he modified his approach. He began to think about stocks as businesses with an underlying value apart from the quoted stock price. He began to hold on to stocks longer. Typically, five years. He often continued to buy them if they fell lower.
He also came to love focusing his portfolio on fewer names:
"As time goes on, I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one's risks by spreading too much between enterprises about which one knows little and has no reason for special confidence..."
He made his reputation as a money manager running King's College endowment. His Chest Fund sometimes had half of its money in just five stocks. In 1933, he had two-thirds of his portfolio in South African mining stocks.
His results were spectacular. The Chest Fund (1927-1945) grew fivefold while the UK market fell 15% and the U.S. market fell 21%.
He offered up the best summary of his own approach in 1938:
Claude Shannon: The Power of Rebalancing
Shannon was a brilliant mathematician who made breakthroughs in a number of fields. He might also be the greatest investor of whom you've never heard.
From the late 1950s to 1986, he earned 28% annually. That record is good enough to turn every $1,000 into $1.6 million. Highlighted here is an investing method he wrote about later called "Shannon's Demon."
It goes like this: Imagine a portfolio of $10,000 with 50% in cash and 50% in one stock. The idea is that you will always keep this portfolio at 50/50 by rebalancing every day.
So, let's say the stock falls in half after the first day. Now you have $7,500. You have the $5,000 in cash and $2,500 in the stock. You re-balance. Now you have $3,750 in cash and $3,750 in that stock.
Next day, the stock doubles. Now you have $11,250. Your portfolio is up $1,250, even though the stock has gone nowhere. You rebalance again. The stock gets cut in half... If you repeat this pattern, the portfolio will be worth $1.1 million at the end of 80 days.
The assumptions are not realistic, but they make an important point. As the authors of Concentrated Investing point out:
"[The gain] occurs even though the stock hasn't budged - it's still at its starting price - and a buy-and-hold investor in the stock would have no gain... The rebalancing forces the investor to buy stock at the low, and sell at the high.
Most investors do the opposite.
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