Weekly (distribution list)
Let’s begin with some simple math. If you invest $100,000 and lose 10% in the first year, you’re down to $90,000. If you then gain 10% in year two, you don’t break even. You end up with $99,000. That’s a net loss of $1,000—despite an average return of zero percent. How is this possible? It’s because averages lie. What matters in the real world is not average return but compound return. The number that shows up on your statement at the end. Now consider a more extreme case. You lose 50% in year one, then gain 50% in year two….
Over the years, the investing thesis of Washington Crossing Advisors has endured; namely, buying quality companies at reasonable valuations. Through market peaks and troughs, unpredictable inflation and interest rate swings, and periods of volatile growth, WCA remains committed to owning predictable businesses with low debt and profitable assets. In doing so, we construct our equity portfolios with a keen focus on volatility, aiming to achieve a strong risk-adjusted return over time. The following commentaries dive deeper into our quality thematic while addressing commonly misunderstood investing conceptsthat could present hidden dangers in portfolios.
President Trump’s April 2 tariff announcement marks a pivotal moment in global economic policy, reflecting a broader shift from globalization toward protectionism and nationalism. While globalization delivered real benefits—lower inflation, expanded trade, and economic growth—its effects have become more contested. Events such as 9/11, the financial crisis, and the COVID-19 pandemic exposed vulnerabilities, contributing to rising skepticism about global integration. A growing number of voters and policymakers, across party lines, now question whether globalization serves their long-term interests. The result is a changing policy landscape marked by tariff actions, tax debates, and strategic repositioning. In this uncertain environment, we believe…
President Trump’s April 2nd announcement of a new “reciprocal” tariff policy comes on the heels of a volatile quarter—bonds outpaced stocks, growth stocks lost their edge, and haven assets gained favor. These new tariffs mark a pivotal shift in the trade, growth, and inflation outlook for the United States and the global economy. A growing consensus now assumes slower trade, economic growth, and a temporary rise in inflation pressures. From Globalization to Nationalism This shift should not be surprising. The once-dominant rallying cry for “globalization and free trade” is being replaced by calls for “protection and nationalism.” A widening gap…
Recently, market volatility has surged as economic uncertainty grips financial markets. Growth expectations have collapsed, stock market volatility is spiking, and credit spreads are widening. This environment has placed renewed focus on how different stocks respond to macroeconomic pressures — and, crucially, why quality matters more than ever. Traditionally, market downturns and economic stress trigger debates over whether value stocks or growth stocks will fare better. However, an underappreciated factor in this discussion is quality. High-quality stocks — characterized by low leverage, profitable assets, and consistent results — have historically outperformed their lower-quality counterparts in periods of macroeconomic stress. For…
Investing is about understanding risk. If you don’t understand risk, you don’t understand investing. And yet, for decades, the industry has relied on flawed tools — outdated beta models and rigid sector classifications — to measure it. Some managers, particularly those obsessed with tracking benchmarks, force their portfolios into pre-defined sector categories designed decades ago, long before modern data and real-world market behavior could be fully understood. They do this because they are fearful of performing too differently from pre-defined, legacy benchmarks that were never constructed with investors’ interest or risk in mind. These legacy benchmarks and sector classifications, assigned…
At Washington Crossing Advisors, we adhere strictly to a “quality at a reasonable price” philosophy. We do not pursue “growth at a reasonable price,” nor do we chase “yield at a reasonable price.” Our foremost principle is quality, as we firmly believe that quality endures better than growth over time. In our view, companies with less debt, more profitable assets, and consistent business performance exemplify high quality. To systematically assess quality, we employ a rigorous quantitative process, grading the 1,000 largest U.S. stocks from “A” (highest quality) to “F” (lowest quality). These two groups —”A” Quality (up 12% in the…
Diversification is often regarded as the bedrock of sound investing. It is widely believed to reduce risk, smooth out returns, and provide stability in uncertain markets. However, this assumption deserves scrutiny, especially when considering the realities of bear markets. Markets Have Two Environments: Bull And Bear Investors must remember that markets operate in two distinct environments: bull markets and bear markets. While bull markets can be enjoyable—lifting nearly all stocks and creating an illusion of stability—bear markets expose vulnerabilities. This reality is particularly important for: A portfolio that thrives in a bull market but collapses in a bear market is…
There has been much discussion recently about growth. Artificial intelligence and other emerging technologies are fueling expectations for high returns, pushing stock values to record highs. While analysts forecast uninterrupted growth, we question whether some of these expectations are realistic. Markets appear to be pricing in very high growth assumptions, which may prove difficult to meet over time. The Three Pillars of Valuation Three key factors drive valuations: opportunity cost, risk, and growth. Opportunity cost reflects the need for returns that exceed what can be earned in risk-free assets, such as U.S. Treasury bonds. Riskier assets demand a premium to…
The U.S. economy in 2024 showed remarkable resilience against inflation, rising interest rates, and global uncertainties. GDP expanded, consumer confidence stayed strong, and household wealth hit $155 trillion. This reflects America’s economic strength, driven by innovation and industrial capacity, though vulnerabilities remain. Fiscal shifts in 2025 offer potential gains but will test the economy’s ability to sustain momentum. The S&P 500’s rise highlights earnings growth and multiple expansion but reveals risks tied to the dominance of the “Magnificent 7.” Concentration risks persist, even as diversification provides balance. With returns likely to moderate, strategic positioning will be critical to navigating the…
U.S. stock market valuations have reached a historic $60 trillion, with GDP and household net worth doubling since 2009. Employment has grown by 30 million jobs, and S&P 500 profit margins have expanded significantly. However, declining earnings yields suggest stretched valuations, indicating potential risks ahead. Despite differing methods, as the election approaches, both major candidates share goals for developing the labor force, improving housing, and regaining energy leadership. Given these conditions, diversification is prudent; bonds, gold, and emerging markets offer viable alternatives as the Federal Reserve’s (Fed) policies weaken the dollar. Tactical adjustments are needed to balance growth opportunities and…
We agree with the Federal Reserve’s (Fed) decision to cut rates by 50 basis points. As we will explain, our own analysis of data throughout the past few months confirms the necessity of the Fed’s September rate cut but also highlights a potential underestimation of the economy’s weakening momentum since spring. In reviewing the Federal Reserve’s monetary policy actions throughout 2024, it’s essential to juxtapose their observations with our own insights derived from the WCA Barometer. The Barometer, a diffusion index measuring various economic inputs, provides a nuanced perspective on the evolving economic conditions. We use the WCA Barometer to…
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