Horizon Kinetics LLC’s Q2 2019 Market Commentary

Horizon Kinetics LLC, a New York-based investment advisory firm founded in 1994, released its Q2 2019 Commentary – a copy of which is available for download below. The company’s investment strategy is based on research and long-term absolute return outlook. It has over 70 employees and is led by Murray Stahl. Stahl, who has over three decades of investing experience, oversees Horizon Kinetics’ proprietary research and is responsible for portfolio management decision making. He is also the Chairman and CEO of FRMO Corp, the Chairman of the Board of Directors of the Minneapolis Grain Exchange, and a member of the Board of Directors of Winland Electronics, Inc., IL&FS Securities Services Limited, and Bermuda Stock Exchange. Before co-founding Horizon Kinetics, Stahl worked at Bankers Trust Company as Research Analyst and Senior Portfolio Manager for 16 years. He holds a Bachelor’s and a Master’s degrees from Brooklyn College and an MBA from Pace University.

In its recent market commentary, Horizon Kinetics discussed the Internet bubble, its risks, outcomes, displacement mechanisms, and more.

“A Conversation that Must Be Had

What if the Internet Bubble Never Ended?

A) The stock market is up 21% this year. It’s up 14.7% a year over the past 10 years. It just hit a new all-time high. Rewarding, is it not? May we say that is reassuring?

B) The stock market returned only 5.9% a year over the past 20 years. Is that reassuring?

Which is the better number? Which is the one you should lean on for planning your future?

What if, on December 31st, 1999, prospective investors were told that the annual return of the S&P 500 for the upcoming 19 ½ years would be 5.9%? Hardly anyone would have put their money into stocks. That can be said with confidence because the 20-year U.S. Treasury Bond yielded 6.8%. Obviously, anyone could have purchased the much higher-return Treasury and held it all this time.

One can also say with confidence that if the government had not forced interest rates far below the levels of 1999, the S&P 500 would not even have earned as much as that 5.9%. And that if corporate tax rates hadn’t been reduced, the return would likewise have been lower.

During these nearly 20 years since 1999, the Federal Reserve’s highly engineered gauge of inflation, the Consumer Price Index, measures the inflation rate at 2.1%. Reassuring? The U.S. money supply (M2), a more transparent measure of currency or purchasing power dilution, rose by a 6.1% rate. What do we make of that? Which is the better number? Because if your stock portfolio wealth increased by 5.9% a year, but your cost of living rose by 6.1%…

Of the S&P 500’s 14.7% annual return these last 10 years, more than 10% of it, came from just five companies, from just 1% of the names in the index. These are Microsoft, Apple, Amazon.com, Facebook, and Google. And Facebook has only been public since 2013. That’s astounding, for sure. But is it reassuring?”

You can download a copy of Horizon Kinetics LLC’s Q2 2019 Commentary here:

Horizon Kinetics LLC’s Q2 2019 Commentary

You can also see the list of our 2019 Q2 investor letters and download them on this page.