To Our Investors and Friends,
The S&P 500 Index declined in February, dropping another 3.1% during the month. Oil moved higher by 8.6% to $96 a barrel as Russia’s invasion of Ukraine led to fear of a global oil shortage. The 10-year Treasury bond increased four basis points in February to 1.83%, while short-term rates jumped much higher, narrowing the 2-year to 10-year bond spread to 39 basis points (from 61 basis points a month ago). Most of the popular indexes have been drifting lower over the last four months, and growth is firmly in correction territory. Small capitalization stocks, which began their correction a few weeks before the rest of the market corrected, appear to be finding some strength as the Bloomberg 2000 Value Index appreciated 2.5% in the month and the Bloomberg 2000 Growth Index gained a minuscule 0.4% for the month. This was better than popular large cap indexes which are now getting hit by the ongoing correction. The Bloomberg 1000 Value Index fell 0.8% and the Bloomberg 1000 Growth Index dropped 4.1% in the month.
Over the last several months, the markets have been tumultuous and trending lower as investors sell stocks on such concerns as inflation, anticipated interest rate hikes, and most recently, the prospects of a European war that extends beyond Ukraine. At the center of much of the chaos are the conflict entrepreneurs, those market commentators and participants that attempt to breed fear into markets to bring attention to themselves or scare others into selling their holdings at depressed levels. Amanda Ripley introduces the concept of the conflict entrepreneur in her book High Conflict, Why We Get Trapped and How We Get Out to describe the many politicians that try to gain influence through instilling fear. Wall Street has more than its fair share of conflict entrepreneurs within its ranks, and they excel during times like what we have experienced over the last few months.
The conflict entrepreneur takes advantage of others by convincing them of fictions that get people riled up, leading to much more aggressive behavior than they would otherwise conduct. In her book, Ripley explains that conflict entrepreneurs use “grandiose language…to manipulate our emotions…it clarifies everything, washing away important details, energizing us to…ignore the costs.” How does this happen? Ripley discusses that during high conflict, “the brain behaves differently. We feel increasingly certain of our own superiority and more and more mystified by the other side.” “We lose access to that part of our brain that generates wonder…high conflict degrades full life for fleeting satisfaction.” It is the perfect method to get investors to ignore the benefits of long-term investing for the fleeting satisfaction of a quick sale that they regret not long afterward.
Kingsland Investments takes a long-term approach to avoid the traps created by conflict entrepreneurs. We carefully examine every company for business opportunity, leadership, profitability and competitive moat. We are especially aggressive in our search during times of market dislocation because we believe that the market will heavily discount these prospects, often for terrible reasons such as those developed by the conflict entrepreneurs. After the last few months, growth is trading at an unusually attractive level and we think the time to invest is now!
All the best to you,
Arthur K. Weise, CFA
*Effective January 12, 2022, the Kingsland Growth Advisors name changed to Kingsland Investments. The views expressed are those of Kingsland Investments as of March 1, 2022, and are not intended as investment advice or recommendation. For informational purposes only. Investments are subject to market risk, including the loss of principal. Past performance does not guarantee future results. The stocks mentioned are for illustrative purposes only and are not a recommendation to buy or sell. There can be no assurances that any of the trends described herein will continue or will not reverse. Past events and trends do not imply, predict or guarantee, and are not necessarily indicative of future events or results. Investors cannot invest directly in an index.