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April 28, 2025
To the friends and clients of the Harvey Investment Company:
It was an interesting first quarter in the stock market. The S&P 500 entered correction territory on March 13, 2025, when it closed 10.1% below its all-time high. The move amounted to a rapid sell-off, and the index remained in correction territory for several days. The index ultimately settled down 4.3% to end the quarter. Changes in market sentiment often occur without warning. Warren Buffett once said, “the light can at any time go from green to red without pausing at yellow.” The first quarter certainly played out in this manner. Q1 was a stark contrast from much of 2023 and 2024 where mega-cap technology stocks fueled by generative AI optimism soared. The once untouchable Mag 7 was down 15% on the quarter.
At the time of this writing, markets have recaptured some of the losses but whether it’s a brief rally or a more durable recovery remains to be seen. A concerning feature of this market is that the relief gains seen over the past few weeks were not fueled by optimism but more that worst-case scenarios were temporarily avoided. Nearly all of the major issues regarding tariffs are still unresolved. There are a host of other concerns that could potentially rattle markets including: a weakening labor market, higher inflation, higher interest rates, a weakening dollar, dampening consumer and corporate spending, a feud between the President and Fed Chair and geopolitical tensions. In short, prepare for a period of prolonged uncertainty.
Over the past few weeks, along with tariff concerns, uncertainty is the most prevalent word we’ve encountered in market commentary and quarterly earnings reports. It’s important to differentiate risk from uncertainty. Risk refers to the likelihood of an outcome occurring along with its consequences. Risks are known, can be estimated and are regularly encountered. Uncertainty, on the other hand, refers to events that you won’t see coming. An apparel manufacturer, for instance, is comfortable accepting the risk that an unfavorable weather season could affect its sales of winter coats. It’s part of the business. However, the uncertainty of a pending trade war or sweeping policy changes makes decision making much harder and activity halts. Under uncertain conditions, management teams delay investment for future projects and consumers tighten their spending, bracing for the worst and waiting for clarity on what may unfold.
Good decision makers are comfortable in unpredictable and uncertain environments. They understand that they never know exactly how something will turn out. They spend their time not trying to be sure of something, but trying to ascertain how unsure they are about something. Remember the old Mark Twain adage, “It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.” Even if you could accurately predict future events, it’s extremely unlikely that you could also predict the second-order and third-order events that accompany them. Would you have guessed that Covid-19 would lead to the most rounds of golf played at courses across the U.S. at any time in history or that a pandemic would lead to more informal workwear fashion?
Harvey Investment Company doesn’t have a motto, but if we did it would be “nothing is written.” While we don’t know what lies in the future, we’re confident that things will always change. Your portfolios are composed of businesses that have dominant market positions with long-term competitive advantages. In our experience, companies with these characteristics tend to perform well when faced with challenging macroeconomic uncertainties. As it turns out, owning high quality companies is an effective hedge against not knowing the future.
When you find yourself unnerved about market news remember the lines from Rudyard Kipling’s famous poem “If,” written in 1895. “If you can keep your head when all about you are losing theirs…If you can trust yourself when all men doubt you…If you can wait and not be tired by waiting…Yours is the Earth and everything that’s in it…” We’re not offering the Earth and everything in it, but our hope is that if we heed these lines in uncertain times, we can accomplish a satisfactory investment result on your behalf.
We’re grateful for your support of our firm and continued confidence in us.
Sincerely,
Hunter Noble
Every year, we file an annual update amendment to our Form ADV with the Securities and Exchange Commission, our chief regulator. This disclosure document contains information about the business practices and procedures of Harvey Investment Company, LLC. There were no material changes this year. We are pleased to offer you upon request and without charge a copy of Part 2A of our Form ADV. This document is available through our website (www.harveyinvestment.com) in the “Legal and Regulatory Disclosures” section or you can call us at (502) 339-8270, if you would like a copy.