Play Ball!

What is the fair value of a ticket to a championship basketball or soccer game? New York City recently hosted two NBA Finals games and, a few weeks later just across the Hudson River in East Rutherford, New Jersey, the World Cup championship game. Stories abounded about outrageous ticket prices; curious, I went to the “secondary market,” i.e., ticket sites such as StubHub and Ticketmaster, where ticket holders can sell their seats to willing buyers. Prices on StubHub for the NBA Finals at Madison Square Garden were well into the tens of thousands of dollars; a friend of mine with Knick tickets told me she sold her seats for more than $12,000! On game day for the World Cup championship game at Met Life Stadium, the cheapest seat on StubHub was $7,500 – for a rear row in the upper deck of an 82,000-seat arena! Good values? For some, no way. For others, absolutely: the buyers got their games, and the sellers got their cash.

Value is always in the eye of the beholder; the agreed-on price is the true value for the participants in any trade. The same goes for buyers and sellers in the stock market. Notwithstanding that fact, many investors are asking whether the stock market is currently “overvalued” given the following economic currents:

  • War in Iran, creating significantly higher gas and fertilizer prices;
  • Persistent inflation, especially in the cost of housing and food;
  • High interest rates making borrowing costs more expensive on everything from mortgages to car loans to credit card debt;
  • Recent drop in Gross Domestic Product, suggesting a slowing economy;
  • Volatility in the AI technology sector, as winners and losers begin to emerge;
  • Climate change, causing extreme and damaging weather events including flooding and wildfires.

Here too, value is in the eye of the beholder. Sellers see the potential for a market drop resulting from an economy dragged down by consumers tightening their belts, leading to reduced spending, lower corporate profits and lower valuations. Buyers look at the same landscape and see the potential for a rising market based on continuing talks to end the war in Iran that would lead to lower gas prices and lower inflation, allowing the Fed to reduce interest rates, all while energy firms report record profits from higher prices and money continues to flow into AI and technology stocks. The resultant trading back and forth has brought the market to its current level. Whether that is “over” or “under” valued, we let others decide for themselves. At MJB Asset Management we view the market as always properly valued, because its value is always freely determined by its participants. Our choice is whether to participate and if so, to what degree and in what area(s), i.e., are we buyers or sellers? Recently, we have been a bit of both. Our multi-factor statistical analysis of market movements and trading patterns indicates we remain in a long-term upward trend. For the past several weeks up to the date of this letter, we had been moving through a short-term bout of volatility that created a “buy the dip” market, i.e., the opportunity to add positions during temporary price drops while maintaining long-term strategic positions in the broad markets. We took advantage of that period to make successful short-term trades in a small cap stock ETF and a cybersecurity ETF. Now, with the markets again reaching all-time highs, for growth-oriented client portfolios we are maintaining our holdings in the broad US equity markets with positions in ETF’s that track the S&P 500, the Dow Jones Industrial Average and the technology-heavy NASDAQ market. For more moderate portfolios, we also continue to maintain our broad equity positions along with a short-term US Treasury ladder as short-term interest rates continue to hover close to 4%. For income-oriented portfolios, we continue to hold positions in broadly diversified sources of dividends and interest.

There is of course a difference between buying tickets on StubHub and buying stocks in the equity markets. Events such as games and concerts have finite expiration dates after which the tickets are worthless. Another difference is that if you are disappointed with a stock’s performance, you can sell it in the open market; if you are disappointed with the performance of your team or the concert or the show, you have no cash recourse, you only have (hopefully not bad) memories. For me, the most recent disappointment was a show by the comedian Seth Meyers, who we were very excited to see and who, compared to the enjoyable humor on his TV show and Netflix specials, was so unfunny that my wife and I left before the performance ended. On the flip side, we recently saw the Broadway musical Ragtime, which we enjoyed immensely and would gladly have paid more than the face value we were fortunate to get at the box office.

Thank you as always for investing with MJB Asset Management and for your continued trust and confidence; it is an honor and privilege to work with you. If you have any questions or comments about your portfolios, the contents of this letter or any other topics, or wish to share your worst/favorite live performances, please call or send me an e-mail. I always look forward to hearing from you.

Disclosure: Financial instruments discussed here may not be suitable for all investors. Before investing in any investment portfolio, Client and Financial Advisor should carefully consider the client’s investment objectives, time horizon, risk tolerance, and fees. The opinions expressed here are as of the date reflected and are subject to change. Diversification may not protect against market risk. There are risks involved in investing, including possible loss of principal. Past performance does not guarantee future results.