EisnerAmper’s Trends Watch is a weekly entry to our Alternative Investments Intelligence blog, featuring the views and insights of executives from alternative investment firms. If you’re interested in being featured, please contact Elana Margulies-Snyderman.
This week, Elana talks with Robert Zuccaro, Founder & CIO, Golden Eagle Strategies.
What is your outlook for investing?
First off, the economy should do a lot better this year than last year. We are currently in the middle of an inflationary cycle. In the 1970s, a historic period of high inflation, businesses raised prices to protect margins. This time around, businesses are taking action to raise prices not only to protect, but also to expand profit margins. That means we are looking at a good year for overall profit growth, despite inflation which has been baked into our economic system. We are estimating that corporate profits will grow at a double-digit rate in 2022. The stock market should follow the rise in corporate profits with a low double-digit return.
Where do you see the greatest opportunities and why?
We are a specialized money manager and have always invested in aggressive growth stocks, which is regarded as the riskiest, but also the most rewarding investment style in the stock market. If you go back historically to 1958, a $100 investment in this style would have grown to $167,000 at the end of last year compared to just $54,000 from the same $100 investment in the S&P 500. Thus, we have continued to stay in this style which has proven to be the most rewarding over the past 60 years. With the sharp selloff in high P/E stocks in the past two months, we view the aggressive style as offering the best potential both in the short and long term.
What are the greatest challenges you face and why?
As a money manager, we are expected to produce good absolute returns. We are measured against the S&P 500 return which is the litmus test for all money managers. Having said this, our goal is to generate both good absolute and relative returns over time. This may sound easy, but it’s not. It requires a lot of work and much innovative thinking. This is why I spend 95% of my time doing research. And why, the vast majority of money managers have failed to keep up with the S&P 500 over both 10- and 15-year periods.
What keeps you up at night?
My mind is always at work. I sometimes wake up in the middle of the night thinking about a new study that I want to start right then or as soon as I get up in the morning. I am always looking for an edge that no one else has, so my research is never-ending. There is always more to learn to improve our investment results.
What advice do you have for investors?
Inflation has been baked into the U.S. economy because of irresponsible monetary and fiscal policies over the past two years in dealing with COVID-19. Stocks have always been regarded as a hedge against inflation, so own stocks. We are in the midst of the worst environment for fixed income securities in history. The government is underreporting the rate of inflation. The real inflation rate is running at 12-15% per year according to our research. The ten-year T-bond is currently yielding 1.6% which means that bond investors have lost 10% of their capital in real terms in one year. During the inflationary 1970s, ten-year T-bond yields peaked at 15.1%, which gave some protection to bond investors. Not this time around, however, as bond investors are being eaten alive. Stocks are a better bet than commodities or gold because dividend payments tend to increase in most years. It goes without saying that fixed income investors will continue to suffer in this inflationary environment.
The views and opinions expressed above are of the interviewee only, and do not/are not intended to reflect the views of EisnerAmper.