Founder and Investment Advisor, GreenRock Advisory LLC

Happy New Year! I hope this finds you rested and recharged after an enjoyable holiday season. As we step into the new year, I want to wish you and your family nothing but the best of health and happiness—because nothing is more important than our well-being. 

I am grateful for your trust and support over the years. It is truly a privilege to work with you, allowing me to pursue the work I’m most passionate about. A heartfelt thank you to those of you who have extended your trust to your close friends and family. This is truly the greatest compliment I can receive.

What’s new at GreenRock? 

We’re excited to share some updates! GreenRock Advisory is now part of the Schwab Advisor Network for Independent Advisors. This is part of Schwab’s efforts to educate sophisticated investors about the strategic advantages of working with independent advisors.

We’ve also updated our website to include informational tools and resources, along with a free client portal where you can manage your entire financial picture and stay on track with your goals. If you have not yet set-up your portal, let’s connect to get started on it! 

Our services continue to grow, offering solutions such as low interest pledged asset lines of credit, 529 plan through Schwab, small business 401k plans, unique investment alternatives, and more. Additionally, you can look forward to regular updates and commentary on market trends, economic developments, and personal finance topics.

This year, GreenRock has also prioritized giving back to the community. We’ve proudly sponsored local organizations and schools and hosted in-person financial education events, including sessions with local high schoolers and support for kids’ camps. The positive feedback has been heartwarming, and I truly enjoy being a part of these initiatives.

Extraordinary Popular Delusions and Madness of Crowds:  

A recent Wall Street Journal article More Men Are Addicted to the ‘Crack Cocaine’ of the Stock Market – WSJ caught my attention as I see this everywhere speaking with investors. It focuses on folks (mostly men) that have become addicted to short-term trading.  This new type of addict is showing up at Gamblers Anonymous meetings across the country: investors hooked on the market’s riskiest trades (like same day options that now make up over 50% of SP 500 options trades and the rise of Fartcoin). One man called options “the crack cocaine” of the stock market… people shared their struggle with addiction—not on sports-betting apps or at casinos—but using trading apps like Robinhood…overconfident twenty-somethings speculating on stocks to make a quick buck is as old as the stock market itself.  As Jesse Livermore said in Reminiscences of a Stock Operator, “There is nothing new on Wall Street.  Whatever happens in the stock market today has happened before and will happen again.”  

Given our current environment, I thought it was a good reminder of the stories of our past, as outlined in the book, “Extraordinary Popular Delusions and Madness of Crowds”, originally written in 1841. 

2024 Market Recap & Outlook: 

There was large dispersion across asset classes this year with few patterns across markets. Gold led all major asset classes, up 27% (silver up 22%) as we had projected in last year’s letter. The two key themes of the markets for 2024 are the rise of AI (which everyone is talking about) and the rise of gold (which nobody is). From an equity perspective, US markets led in somewhat of a frantic move (above every analyst projection on the street by a wide margin) but did so in a narrow fashion by the large cap tech names, leaving broader stocks, especially small cap and value behind. Historical extremes have become more so. International developed stocks were basically flat for the year, emerging market stocks were up slightly in aggregate, and bonds were negative (again) for the year, impacting typical 60/40 stock bond portfolios. As I write this, the markets have fallen for the last four days of the year—something that hasn’t happened since 1966, given what is typically a strong seasonal period. As a fun fact, the market following that year entered a 16-year bear phase. 

Overall, the first thing that comes to mind is the concept of “margin of safety”, the title of this year’s letter.  While we always have an eye for growth, risk management seems prudent to also be top of mind. Markets seem to be providing rarely seen divergences and extremes that do not come along often – presenting both risks and opportunities that we want to take advantage of.  I discuss this in detail and do recommend a watch of this video if you have not already done so (https://youtu.be/mwFSpMfBoAo).  If you have any changes to your risk tolerance or situation, please let me know so we can discuss. 

Let’s dig in a bit deeper…    

Key Themes to Consider

At the NYSE with the Family this past week

• US markets moving to a riskier spot, even over a longer term horizon:  While visiting the iconic NYSE and the world’s financial capital is always inspiring, current market expectations are lofty, offering little margin of safety from a historical view. 

• US equity prices reflect continued growth, low recession risk, more rate cuts, softening inflation, and are at some of the highest valuations we’ve ever seen.  Markets reflect more of a momentum/valuation push higher. 
• Corporate profits as a % of GDP is at ~12%.  Buffet has previously said that holding this number above 6% is “wildly optimistic” and we agree. Buffet has the highest holdings of cash he has ever had market cap to GDP at ATH’s. 
• 10 stocks make up ~40% of the SP 500. The last time this happened was 1929.
• SP 500 has traded above the 200 DMA all year, a rare occurrence. 
• AI stocks may face a digestion period as the ROI catches up with the hype on capital spending. Mega cap winners today may not be the winners tomorrow. 

• Emerging Markets becoming more attractive on a relative longer term basis:  
  • Valuations, expectations, and sentiment are all at the low end, making this a potentially historic set-up especially relative to US stocks. 
  • By estimates, emerging markets make up ~50% of global GDP and only  ~15% of global market cap (overall value of their stock markets)!
  • In 2024, these markets were led by Taiwan, Canada, and China while Brazil, Mexico and South Korea performed weakest. 
  • Risks of emerging markets (and all markets) include war, China/Taiwan, Russia/Ukraine, US isolation, among other factors…but not much seems to be priced in if things go right or even don’t go wrong. 

• The chart below points out the areas of highest and lowest valuation around the globe. 

• Bonds have been crushed, challenging returns in 60/40 stock bond portfolios.  
  • Given the rise in interest rates, bonds continue in a bear market after a multi-decade run of lower rates.  
  • Conditions are extremely oversold and a bounce next year would not be surprising but the long term picture is cloudy due to the debt and inflation. 
  • The 20 year treasury bond is down almost 40% over the past 5 years! 

• Value stocks have underperformed growth for many years. 

• Gold beat all major asset classes, including the SP 500, as a historic and generational breakout occurred in 2024. We projected this in last year’s letter but interestingly, not many are aware or even care about this performance by the yellow metal. 

• Gold patiently battled around the $2000 level for the past few years… and recently broke out in a major way led by foreign central bank buying. 
• Goldman Sachs and others are now projecting $3k+ gold in 2025 (lol).   
• Free cash flows for the gold producers are soaring even while the share prices lag the metal, causing a major distortion / potential opportunity. 
• Recall in the decade of the 70’s, gold was the only major asset that did well. 
• While mostly up, junior gold miners lagged significantly, creating an unusual and asymmetric opportunity.  
  • Note: In 2010-2011, gold at $1400-1900/oz was valued at between $100-$150/oz in the ground.  Today, with gold over $2600/oz, there are quality deposits that are valued at less than $10/oz!  Crazy. 

• • The chart below shows that even after this major move in gold, western investors could care less given essentially no relative flows into gold ETF.  This data point seems to indicate that there may be much more to run as flows have not started yet. 

• The new political regime allows for the potential for significant change, across areas such as illegal immigration, trade (reducing the trade deficit through tariffs), war (reduce conflict, foreign participation, have countries pay their “fair share”), and other areas.

• Given mid-term elections in 2 years, change may be front loaded and cause higher disruption and political/economic turmoil.  This may alter the Fed’s path to lean towards cutting rates more than expected to offset weakness from the economy and unemployment rises… and they don’t seem to be overly concerned with inflation even as it is higher than their target. 
• This sets up well for a potentially weaker dollar, supporting gold (and foreign currencies) as foreign central banks continue to accumulate en masse to protect against the dollar sword that hangs over them from sanctions, etc… 
• If rates get cut due to economic weakness and inflation stays higher than Fed’s target, the conditions for stagflation could rise. 

• Bitcoin had everything going for it in 2024 and it more than doubled.  
  • Overall crypto value is now over $3T, with Bitcoin ~ 57% of total share. 
  • In last year’s letter, we noted that Bitcoin was positively gaining strength with the introduction of Bitcoin ETF’s, the halving, and institutional activity. Now, Trump is bringing in a pro-crypto administration.
  • Bitcoin’s main value proposition is as a store of value, similar to gold’s thesis. 

• Other cryptos have zero productive use cases or value proposition, in our view, other than price speculation. Maybe I need to research Fartcoin more :). 
• The main risk with Bitcoin is still the asymmetric set-up. It may continue to soar, while also having existential risk issues.  For example, quantum computing challenges to cryptography, investors leaning away from bitcoin to other crypto(s) with better technologies, the 21M cap being broken, and/or governments outlawing later down the road (after issues arise). 
• While we are not currently proactively recommending Bitcoin, feel free to reach out if you have questions or interest and we can discuss. 

If you have any questions, please feel free to reach out anytime.  Looking forward to working with you in the years ahead! 

Cheers!