A Department Update from John Ackerly

January 2022

Wow. Who Could Have Predicted 2021? Nobody!

At times the year felt like “whack a mole” as slivers of optimism were pounded down by a slew of concerns that included recurring spikes in Covid cases, slowing economic growth, rising inflation, and geopolitical saber rattling. The concerns never lasted long though and the market marched higher. In 2021 alone, the S&P 500® Index hit 69 new daily highs and finished the year with a 28.7% return, including an 11% return just in the fourth quarter! Most historical studies show that stocks increase about 75% of the time and that being an optimist is rewarded over the long term. As such, we think that stocks can continue to rise, but are tempering our expectations for 2022 returns given the dramatic run up in stocks over the past three years.

My Life has been a Series of Tragedies, None of which Actually Happened

The market’s new focus at year end was the new Covid variant (as if the original was not enough), Omicron, whose name must have been intended to produce more pleasant but perhaps hazy images of college Greek life. We’re hoping that memories of captive children at home, family games, and the Zoom bloopers of participants forgetting to mute their phones or turn off their cameras become nostalgic and not the new normal as we continue to recover from this pandemic. But if not, we are reminded of the Mark Twain quote “My life has been a series of tragedies, none of which actually happened.” Sage advice to remember considering the market has shaken off the doomsday scenarios and climbed the so called “wall of worry” by increasing 31.5%, 18.4%, and 28.7% in the last three calendar years.

Fear of Missing Out (FOMO) Rallies

The list of outperforming stocks has been narrow with just a handful of companies (namely Apple, Alphabet, Meta Platforms, and Microsoft) driving much of the S&P 500 return again this year. Right after the year-end buzzer, Apple became the first $3 trillion company. For much of the year, investors seemed to suffer from FOMO and piled into growth/technology companies. However they abruptly did a 180 and began gobbling up value-oriented reopening plays like energy and financial companies. Then as Covid reared its head in the summertime, the market shifted back towards “stay at home” technology and e-commerce companies. Meme investing (companies that have gained a cult-like following online and through social media platforms) captured the attention of a new flock of investors on platforms like Robinhood. Several stocks like AMC Entertainment and Gamestop fall in this category and have fallen dramatically (60%) from their meteoric highs, but remain up hundreds of percent for the year. The investment industry often creates an alphabet soup of new words for investors to keep track of like Meme, FOMO, crypto currency, BTD (buy the dip). Some of the more relevant and weird ones that we came across in 2021 are:

• Digital Nomad – Individuals who work remotely, anywhere they want (today’s Where’s Waldo)
• NFT – “Non-Fungible Tokens” are a special kind of crypto asset in which each token is unique (got that?). Examples include digital artwork, unique images, or original sound bites
• Adulting – Behaving in a way characteristic of a responsible adult (is this word really necessary?)
• Metaverse – A collection of virtual experiences (ask someone under 30)
• Doomscroller – A person always searching for bad news

Our team believes some of the strange market activity is creating opportunities in many stocks that have been previously overlooked. We look forward to updating you with some of our recent purchases and discussing our strategy whether in person or via Zoom.

New System, New Advisors and New Offices

One of Davenport’s biggest undertakings in 2021 was successfully completing our systems conversion this summer and we are pleased to have a number of new capabilities. As with any conversion, there were some hiccups and we appreciate your patience and look forward to sharing some of our enhanced reporting with you. We are proud of the Davenport team that made the conversion a success. Only Davenport could complete a conversion (of what we hope will be a once in a lifetime event) remotely during the Covid pandemic.

Davenport also expanded its footprint with new offices in Staunton, Harrisonburg and Abingdon (late in 2020) and the doubling of our Virginia Beach office. Recruiting new advisors and team members is competitive, but having a firm established 158 years ago with a culture of hard work, investment expertise and putting the client first were undoubtable factors in attracting the new teams. With the new advisors onboarding we added 25 new external managers to our stable of available investment options and have plans for adding additional strategies in 2022.

Staying in Touch

We had numerous Zoom calls in 2021 including: George Smith, Head of the Davenport Investment Policy Committee, Federated, Nuveen, David Charlton and Catherine Whitney, but 2022 is going to be bigger and better. We already have the following calls set up for the first part of the year:

• January 13th at 10:00 a.m. – 2022 Fixed Income Outlook call with Kevin Hopkins, Chris Kelley and Will Cleland
• January 25th at 4:00 p.m. – Virtual Investor Summit Series with Scott Andrews-Weckerly of Community Foundation for a greater Richmond and Beth Vann-Turnbull of Housing Families First
• Late January – Davenport Asset Management Zoom call with George Smith, Head of the Investment Policy Committee
• Early Spring – Virtual Investor Summit series Public Relations for Not for Profits – Alliance Group

We also hope to have clients in for due diligence meetings with our investment team. If you would like to set up a meeting please let us know or reach out to your financial advisor.

We thank you for your continued trust and confidence in what has been some very trying times, but also rewarding for investors. We look forward to working alongside you throughout 2022. We welcome your questions, suggestions and comments.

Happy New Year!

Sincerely,

John P. Ackerly IV, CFA
Director of Asset Management

Important Disclosures:
Past performance is not indicative of future results. Diversification and asset allocation does not ensure a profit or guarantee protection against a loss. There is no guarantee that a company will continue to pay dividends. The statements and opinions expressed in this article are those of Davenport Asset Management as of the date of the article, are subject to rapid change as economic and market conditions dictate, and do not necessarily represent the views of Davenport & Company LLC. This article does not constitute investment advice, is not predictive of future performance, and should not be construed as an offer to sell or a solicitation to buy any security or make an offer where otherwise unlawful. Investing in securities carries risk including the possible loss of principal. Individual circumstances vary.

Important Definitions:
The S&P 500 Index is comprised of 500 U.S. stocks and is an indicator of the performance of the overall U.S. stock market. Standard & Poor’s Financial Services LLC, a division of S&P Global, is the source and owner of the registered trademarks related to the S&P 500 Index.