While meaningless in the short term, we think it is important to look at things through a wide-angle lens. For instance, as of May 2017, the total market capitalization of all U.S. stocks combined was 131% of total U.S. GDP. It has only been higher one other time, the early 2000 peak.
Is that particularly informative or useful? Not really.
On the one hand, one could easily suggest that it marks a peak. On the other hand, one could have also arrived at that same conclusion in the mid 1990’s when the same metric reached its then prior peak of around 90% (on its way to 140%).
Perhaps one agreeable conclusion is that being a passive long-only investor in U.S. stocks has been a home run over the last 8 years. The question always then comes down to expected future returns versus risk.
This is not to suggest that U.S. stocks are going to experience a broad and meaningful decline. They may or may not. However, if we observe the context of the previous 8 years, the multitude of influencing factors are unlikely to repeat over the next several years. Moreover, if you consider that this is simply a measure of aggregate market capitalization versus GDP, you must also consider the largest market cap constituents. On that note, we found the following data quite fascinating.
As we look forward at Goodwood Capital Management, we are optimistic and constructive on the domestic and global economies. Anything better than being stuck in the mud for the better part of the last decade would be a welcome relief. We simply think that the investment opportunities today are generally narrower. Thus, we believe that it is the time to consider active long short managers, and as we’ve discussed previously, we certainly think that small and mid-cap value stocks can generate attractive absolute and risk-adjusted returns going forward.
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ABOUT THE AUTHOR
Ryan Thibodeaux is President / Portfolio Manager of Goodwood Capital Management.
Ryan founded Goodwood Capital Management, LLC in March, 2012 and serves as a Portfolio Manager. Prior to starting Goodwood, Ryan was a Partner and Senior Equity Research Analyst with Maple Leaf Partners, LP. Maple Leaf Partners is a long short equity hedge fund started in New York by Dane Andreeff in 1996. In 2003, Julian Robertson’s Tiger Management seeded Maple Leaf and it became what is commonly referred to as a “Tiger Seed.” The firm eventually grew to over $2 billion in assets under management.
To read Ryan Thibodeaux's full bio or other Goodwood team members, click here.