2023 Q4 Client Letter

Christopher D. Flis |
To the Clients of Resilient Asset Management:
Greetings from World HQ in Memphis.  I hope all of you enjoyed the holiday season that will soon come to a close.  While it was not a white Christmas in Memphis, there was no shortage of Christmas Spirit, especially for my 7 year old son Emerson.
Charlie Munger Post-Mortem
Most of you are likely aware of Charlie Munger's passing.  Others are probably aware of the impact Berkshire Hathaway and Warren Buffett have had on my life.  On that same impact list is Charlie Munger - Berkshire's former Vice Chairman.  Mr. Munger's passing was so important to me that I published a separate BLOG post about it, which you can read here:  MUNGER BLOG POST
I will miss Mr. Munger's wit and wisdom...the world lost one of its greats with his passing.
2023 Market Review
Wow, We entered 2023 with a hopelessly gloomy outlook - markets were whipsawed in 2022, inflation was "spiking", and uncertainty was at a fever pitch with a recession "looming".  Despite all the dourness, the sun kept rising each morning, the world went about its business, and capital markets caught a spark, which ignited into something much more than a flicker.  As for that recession....
Off 2022's truly awful performance (S&P 500 down 19.64%), as I type this with 1 trading day to go in 2023, the same index is up just over 24% for the year.  Indeed, few predicted such a turnaround.  Yet again, this is a testament to maintaining confidence in equity markets and not giving-in to the ubiquitous naysayers.  Doom predictors abound....curiously, not only are their predictions demonstrably wrong, but on a more personal note, who wants to live a life thinking calamity is right around the corner?
The Magnificent 7
One critical aspect of 2023's aggregate market performance was the performance concentration in the "Magnificent 7" companies we know so well:  Apple, Microsoft, Google (Alphabet), Nvidia, Amazon, Facebook (Meta Platforms), and Tesla.  In 2023, the market further recognized the dominance each of these companies enjoys in their respective industry.  
Whether these companies will continue their market and performance dominance is an open question. I would point out that at different times in our past companies such as IBM, Intel, and Cisco Systems were in the "Magnificent 7" of their day.  No one of whom I am aware is predicting those companies' return to their glory days.  
Please don't read that as any sort of prediction.  Rather, understand that no company to date has remained dominant in perpetuity...for better or worse, capitalism has an ever-expanding corporate graveyard - and retirement community.  As for market performance, like my grandfather told me WAY back when: "The sun doesn't shine on one dog's [behind] all the time".
Long-Term Thinking
Another critical lesson to glean from 2023 is the importance of thinking long-term.  I cannot overstate how essential long-term thinking is in all parts of our lives, particularly investing.  I have 2 examples for you:
The St. Louis Spirits of the American Basketball Association
This tale comes from an article forwarded to me by a good friend and Client.  The story deals with the American Basketball Association (ABA), a rival league, albeit back in the 1970s, to today's NBA, the professional basketball league we all know - the one with, among other teams, the Los Angeles Lakers and Memphis Grizzlies.  
Summarizing a good bit:  In 1976, the writing was on the wall that the ABA was about to fold.  2 member teams applied and were accepted for membership to the NBA.  Among the remaining ABA teams, 4 went belly-up, leaving just 6 teams.  4 of the 6 remaining teams - The Nets, Pacers, Nuggets, and Spurs we know today - were admitted to the NBA, leaving 2 ABA orphans.  
One ABA orphan team, Kentucky, accepted $3.3 Million from the NBA to go out of business - a short-term focused decision by both the Kentucky owners and the NBA.  And this is where the story starts gaining steam.  
The other team, the St. Louis Spirits, took a longer-term view.  Feeling jilted by the NBA and realizing the 4 ABA teams REALLY wanted to move to the NBA, St. Louis' owners took a very hard negotiating position.  
In addition to upfront cash, the St. Louis owners demanded a share of each former ABA teams' "media rights" in perpetuity.  At the time, television networks did not broadcast professional basketball live....and the internet wasn't even email-capable yet - repeat yet.  
Skipping over some further details and cutting to the chase, those "media rights" netted the St. Louis owners $180 Million between 1979-2007 - thank you Larry Bird, Magic Johnson, and Michael Jordan.  Of note, those were residual payments against which there were NO operating expenses.
Ultimately, with the various media revenue streams ever-growing, the NBA wanted out of the deal and agreed to a lump sum payment of $500 Million to the former St. Louis ABA owners in January 2014 in exchange for most (not all) of the media rights going forward.  
Therefore, there are STILL residuals accruing to the St. Louis owners' heirs to this day.  Somewhere someone descended from the Kentucky ABA team's owners, the ones who took $3.3 Million in 1976, have to wonder what might have been.  Simple Lesson:  think long-term.
You can read a detailed account of the story here:  ST LOUIS ABA STORY
Running Marathons
My second dose of long-term thinking is my beloved Marathon.  As most of you are aware, I completed #4 in December.  While the Marathon journey started in 2018, I was unaware of it at the time.  
In December of 2018 I was out of breath after walking up the stairs in my house one day...boy was I ever out of shape.  I had no inkling of starting, let alone finishing, even one Marathon...I just wanted to walk up the stairs without having to catch my breath!!!!  Soon thereafter, I purchased an Apple Watch and went to the local YMCA and ran on the treadmill.  
First run actual data (December 22, 2018):  4.39 miles, 48 minute 4 second run - 10:57 Pace....pedestrian by ANY objective standard.  I decided that day to keep putting one foot in front of the other.  Those initial steps led to 1 mile and then another and even more after that.  
My initial Marathon in 2019 was a "respectable" 4 hours and 57 minutes...it took so long that I ran out of power on my Apple Watch!!!  Undaunted and thinking long-term, I continued my Marathon pursuits.
In 2023, "just" four years after being out of breath walking up the stairs in my own house, I ran just under 1,700 miles in preparation for the Marathon.  
On December 2, 2023, my journey came full circle as I FINALLY pierced the 4-hour bubble.  And just quietly, my 4.39 mile runs are a tad faster than my 2018 10:57 per mile pace.  None of this could have ever happened with ANYTHING other than a long-term focus.
One final note about thinking long-term - there is precious little competition.  Short-term thinking pervades the landscape despite that ethos' shortcomings.  I could go on for many more paragraphs about the benefits of long-term thinking.  For me, results in all areas of my life are better because of my long-term thinking.
As with every other year, I look forward to 2024 with great optimism.  I have absolutely no clue regarding forthcoming Fed Policy decisions, recession likelihood, or market direction.  What I do have a clue about are those things about which I can control - my professional performance, my spending, my savings, my Estate Plan, my risk mitigation, and of course taxes.
Resilient Asset Management readily assists you with overseeing those same things in your financial lives...we CANNOT, however, assist with market or economic predictions.  Recessions and Market Corrections will come and go - your personal finances should ALWAYS stay in order.
Conference Presentation
Lastly, I was fortunate to speak at a conference in November.  I have attended this conference - the Restaurant Finance and Development Conference (RFDC) - pretty much every year since 2007, so speaking was indeed an honor.  The organizers of the conference record each session.  Since I was one of the first presenters, I had to negotiate some Audio/Video and lighting issues.  Nevertheless, here is the video and slides if you want to follow along:
In closing, I want to reiterate how special each of you are to Resilient Asset Management.  Without our remarkable set of Clients, the Firm would quickly dissolve.  Indeed, we want to continue to earn your business every year.  We look forward to our work with you in 2024 and the decades to come.
Thank you for choosing Resilient Asset Management to assist with achieving your financial goals.