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Hard Day’s Night

On a recent business flight, I watched The Beatles documentary (Eight Days a Week) which featured the song “A Hard Day’s Night.” The movie chronicled, via previously unseen footage, the early years of The Beatles and the mania surrounding their tours and albums. This documentary and song could teach us about how to navigate the stock market in the U.S. and what demographics mean to American culture and economic trends.

It’s been a hard day’s night, and I been working like a dog
It’s been a hard day’s night, I should be sleeping like a log
But when I get home to you I find the things that you do
Will make me feel alright1

For anyone expecting to satisfy their long-duration return needs in the S&P 500 Index, the next ten years could be a “hard day’s night.” Prices in relation to earnings (P/E ratios) are elevated and popular tech favorites are extremely expensive, effectively have overloaded the index and private equity portfolios. This has occurred while cyclical energy holdings are asking for a Hail Mary from higher oil prices. In our view, realistic expectations in returns of the S&P 500 for the next ten-years might be in the range of 5% per year (counting dividends/before expenses) from a historical standpoint.

When we “get home” to our concentrated and high-active-share portfolio, based on our eight criteria for stock selection, it makes us “feel alright.” Our portfolio trades at a significant discount to both the S&P 500 and the Russell 1000 Value Index and over the next ten years could provide us a favorable time arbitrage spread. Add in the fact that our companies are qualitatively superior on average (better balance sheets, free-cash flow, longer histories of success, more shareholder friendly and stronger insider...


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