Copy of the 2025 Review Letter
The following is a copy of the 2025 4th quarter letter sent to clients. It reviews the markets and the client account’s activity and performance for the 4th quarter of 2025.
In a world where computers, algorithms, and artificial intelligence play such a big role in the financial markets, fundamental developments have a reduced influence. In fact, it seems that once an economic or earnings report is released the markets have already priced in the news.
As this new landscape has developed, innovative trading products and approaches have seen their influence expand. Short-dated options is one of these new trading vehicles. These are options that expire daily and are offered on the S&P 500 and Nasdaq. Additionally, many of the leading stocks have weekly expiring options.
From a hedging standpoint, they have changed investing. Prior to their formation, Wall Street had to use longer term strategies to hedge risk. The most popular were futures (quarterly expiration) or options (monthly expiration). Futures require significant collateral and may not match the desired timeframe.
Short-term options have changed the landscape and have a far-reaching impact. Traders can now pinpoint the exact event they want to hedge. For example, Wall Street might be worried about an upcoming Fed interest rate decision or a monthly jobs report. Put options can be purchased that expire on the day of the report.
One of the results of these developments is that institutional positioning and dealer flows have as much impact on day-to-day market direction as the headlines. Certainly, the economy and corporate developments matter, but much of the time these are anticipated and largely priced into the current stock price.
This is one explanation why the financial markets can trade higher in the face of bad news, which happened regularly in 2025. Traders would hedge for a specific event and then after it happened (and the world didn’t end), the unwinding of the hedges could push the markets higher. To one trying to match a bad headline with higher stock prices, it was puzzling.
Options positions and dealer flows have almost become a necessary input when analyzing the markets. I began including this information into investment decision on a larger scale in 2025. There are several services that provide data and algorithmic analysis in this area. It undoubtedly helped in understanding short term and intermediate market moves and, ultimately, making better decisions.
The performance was the result of many different positions and strategies. We had exposure to precious metals, base metals, the industrial sector, uranium/nuclear, energy, software and technology, and consumer discretionary.
One position to highlight is TheRealReal (REAL). We covered REAL in the 3rd quarter letter, and it continued to perform well in the 4th quarter.
REAL is an online marketplace for consigned luxury goods. It specializes in resale of such things as watches, handbags, jewelry, home goods, and pieces of art. The company’s chief asset is authentication software which verifies that the item is what the seller claims and not a counterfeit product.
The stock traded around $5 in the middle of 2025. It ended the year around $16. REAL has been experiencing strong sales growth and has improved operating margins. They have been utilizing artificial intelligence to engage with current customers as well as introduce their services to new buyers and sellers. Company management is optimistic that they have a high level of future potential.
There are many other positions that contributed to your account’s return. I am happy to meet to discuss them in more detail as well as answer any questions. Also, I can explain how I am using option flows, dealer data, and algorithms in the investment making process.
As always, thank you for your support and confidence in Kerr Financial Group.
Sincerely,
Jeffrey J. Kerr, CFA
President
Kerr Financial Group