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Quotidian Investments Monthly Commentary – December 2021

January 5, 2022

The typical ebb and flow of equity-market pricing was much more pronounced than normal in the final two months of the year as market makers sought to construct flimsy excuses to cover relentlessly negative and ruthless interpretations of anodyne economic issues. Sadly, deviousness and self-interest posing as rational commentary and analysis seems to be more frequent in market-making circles nowadays.

However, despite that and taking the 2021 year as a whole, Quotidian achieved eleven individual months of positive investment performance and suffered only one month with a negative return. Our overall investment performance was therefore pleasingly above average and nicely ahead of our benchmarks.

On 31st December 2021 the FTSE100 index closed the month at 7384.54 (a rise of +4.61% in the month of December itself) and it now stands at up +14.30% for the 2021 calendar year in full. By comparison the Quotidian Fund’s valuation at the 31st December shows a rise of +0.89% for the final month and so the Fund finished up +17.54% for the 2021 year in total.

The challenges that face us in 2022 include the economic impact of inflation, the possible negative effect of any potentially associated increases in interest rates and the likely damper of rising energy costs.

We anticipate that inflation (particularly in the USA, in Europe and in the United Kingdom) will continue at its recent higher levels (or even move marginally higher over the next five months or so) but we expect it to fall back again thereafter. Economic history conclusively shows that accepting stock-market risk in the medium to long term has always beaten the absolute certainty of losing the real value of money through the erosive effect of inflation by ‘investing’ in cash, in deposit-based investments or by simply using tracker funds (which are the investment equivalent of “painting by numbers”).

At the moment and for the foreseeable future the yield on stock-market investments still outperforms the returns available on typical savings accounts. We see that position continuing. More-so than ever, successful investment performance in 2022 will require consistent and intelligent stock selection combined with a reliable and proven decision-making process.

Politics and political posturing will continue to have a strong bearing on economic performance and stock-market valuations and the lack of intelligence hand-in-glove with financial incontinence, decision-making weakness and economic incompetence that has been so evident as the hallmark of the current regime in the USA will likely linger until the mid-term elections later this year correct the balance of power in both houses of the US Congress.

Meanwhile, in Europe (and, more particularly, in the UK) we would welcome less use of the terms “emergency” and “catastrophe” in describing the measures and outcomes of some misguided economic policies. What is required in replacement of Boris’s seeming addiction to spendthrift policies is a focus on stronger economic growth.

This would require lower taxation, lowering interest rates again and lower consumer price inflation. That would lead to increasing discretionary income in the hands of consumers which, in turn, would increase consumer confidence and fuel an increase in demand for goods and services. The commensurate effect would kick-start an uptick in supply which would (or should) generate an uplift in corporate profits and, ultimately, in share prices.

The question, quite simply, is whether the Chancellor is brave enough to support growth in the UK economy by reversing some of the unhelpful policies he has already announced (inter alia, increases in National Insurance, freezing personal tax allowances, substantial increases in energy costs) and going for growth.

As we head into a New Year, therefore, all of us at Quotidian wish you and yours a joyful, healthy and prosperous 2022.

In conclusion, I would like to take this opportunity to thank you for your continued support without which, quite simply, we wouldn’t have a business.

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