The First Successful Re-Test

Jim’s Note - We decided it was time for a second opinion here on the investment commentary section of the JKS Foundation website. Just below this posting are the latest thoughts expressed by our Executive Director, Landon Schumer. Landon has been an investment student of mine for more than two years, and he is a very quick study. He has significant experience as an investor, particularly in equities, and equally important, he is nearly 50 years younger than I am. This means he brings invaluable fresh perspectives to the discussion table that A GUY WHO WAS BORN WHEN Dwight Eisenhower was president doesn’t have. After reading a draft of his first commentary, each board member agreed his comments should be posted for the benefit of those who visit this site regularly for our investment insights. What Landon has to say in his first post is amazingly timeless. We encourage you to read it.

From time to time, stock prices take a severe beating. And when this happens the biggest winners of recent months/years are spared no mercy and often are hit even harder than more mediocre holdings. We have been through such a period in early 2025. It has happened many times before, and it will happen many times again.

We invest in common stocks in the hope of finding shares of extraordinary companies. Over my investing career, which is still ongoing, my best ever result involves owning a considerable number of shares of Mastercard Inc. We purchased Mastercard in July of 2006 and we still own shares today with no plans to sell them. In fact, both our Charitable Remainder Trust and the JKS Foundation hold stakes in Mastercard. Since the fateful day when we decided to take a position in Mastercard shares, the value of our investments in those shares have grown 100-fold. This means for every $1,000 we invested in them, the current value is over $100,000.

The saying goes, “Rome wasn’t built in a day.” 100-fold returns are rarely built in 18 years 9 months if ever. But Mastercard is not an ordinary company. I’ll save all the reasons why we feel the shares have done so well for another post, as this topic has been many times over the years.

As we survey the damage done to stock prices in the first quarter of 2025, which was one of the worst performance quarters in recent memory, we have received many inquiries from former clients, family members, colleagues, and friends. All tend to ask us a similar version of the same question. When do we think the market will “turn around.”

While admittedly the nature of these inquiries is short term, as my 69th birthday looms next month, my “relative” life expectancy is also relatively short-term. So, I will address with my best guess, the answer to the, “when will the market turn around,” question.

In my most recent commentary post, which is right below Landon Schumer’s inaugural commentary on this page, I suggested, “Those positioned with investments producing more than enough income, plus ample cash reserves for the unexpected, should prepare to take advantage, once market lows appear to have been established via a couple of successful re-tests.”

What exactly does that mean? If you look at the behavior of the S & P 500, which reflects the sentiment of the market, the gloomy mood within the masses seems to have peaked on March 13th. The FIRST successful test of that most recently established “gloom standard,” was successfully completed fifteen days later on March 28, 2025. On that day, the equity markets got off to a horrific start, only to reverse course by the end of the morning. Modest gains were held for the balance of the day. That was the FIRST successful re-test.

Now mind you, these short and intermediate-term prognostications are easily the most difficult to offer with any accuracy whatsoever. However, since the volume of inquires is so high, coupled with my having seen literally a dozen or more harrowing market sell-offs since the end of the 1970’s, I’ll hazard to offer my observations on how these situations often play out.

My terminology in the previous post, “A couple of successful re-tests,” means we need to challenge and hold those low index valuation levels established on March 13, 2025. This should be done at least one more time. Once this sort of market action takes place, the would-be buyer’s confidence that prices might turn upward tends to go up, and the seller’s confidence that prices will continue to go lower tends to diminish. Again, no warranties. This is just a guess. These are observations based on my own sense of probabilities, not clear cut “facts.” Nobody really knows when bottoms occur. When they are predicted correctly, it is mostly attributable to pure luck.

Still, many short-term-oriented traders know precisely what two successful re-tests of an intermediate term low means, at least probability-wise. And these types are likely to shift more aggressively to the buy side when and if they see this happen.

In the meantime, the very best equity investments for the next five to ten years are on sale. Our job as investors is NOT to put too much credence into the probability of a second successful re-test of the mid-March 2025 level. Our job is to do the homework and astute analysis correctly. The goal is simple: Accurately IDENTIFY the WINNERS over the next five to ten years.

Somewhere out there is another Mastercard. And one only needs to find a couple of gems like Mastercard per career to get set for life, IF one is 1) confident enough to take a decent-sized position in some of the right companies and 2) retain that confidence through subsequent selloffs to hold on as we did many times we chose do do NOTHING and hold Mastercard, it all works out..

So, the keys do not change. The keys are to 1) find companies that seem to check all the boxes, 2) take significant-sized positions after heavy damage has been done to all winners, and then 3) have the courage to hang on through the endless emotional cycles that human beings impose on equity investing.

Stay tuned. More from both Landon and Jim later this month.