thepupil

I am thoroughly confused by the turn this thread took and some of the responses here. Is asking questions and trying to frame the likelihood of something a reasonable thing to do on an investment board? If RuleNumberOne says "where is the growth in the Dow Jones?" is it reasonable to provide the data with recent growth from companies in the DJIA or S&P500? If RuleNumberOne says "companies are overlevered" is it reasonable to provide data for the S&P500 ex financials showing leverage levels and credit spreads to frame that discussion If RuleNumber one says "I made 55% unlevered timing the market", is it reasonable to download the monthly returns of the S&P 500, put absolute value in the column next to it, and ask why RNO's returns are higher than perfect market timing? Is it reasonable to ask for the potential sources of outsized returns? I don't understand why we cannot ask analytical questions on an investment forum? Don't we post things to be challenged and hear others' views? I was curious and skeptical, so I asked for more information, and tried to contextualize my skepticism in the context of data. I didn't scream "RNO's a liar" immediately after he said he had superior investment insight and the best returns on this website outside of cryptomillionaire Fat Pitch I am genuinely surprised that this would inspire someone to not post here.

for a rather raunchy and ridiculous comedy about Vikings, I recommend Norsemen on Netflix.

what do you mean by this?

Since 10/2013, the S&P 500 has returned 13.1% / year. If one had perfect monthly market timing and only invested in the up months (meaning if you were able to know in advance that a month was going to be a down month and then went to cash (0.0%) for that month, and knew when to get back in for the positive months), one would make 24.7% / year. If one had even more perfect timing and knew when a down month was going to happen and shorted the market at the beginning of the month basically take S&P returns and use the Absolute value function, then one would make 36.8% / year since October 2013 There's obviously benefit to market timing if it can be done well; making 24.7% is a lot cooler than making 13.1%, and making 36.8%/year is even cooler. But do you see why people are having trouble not concluding that false or misleading statements are being made? The stated strategy is unlevered, no options, market timing based on feel. When we do a simple compounding of s&P returns where one had PERFECT hindsight, we are still waaaay short of the claimed returns. If I'm being a member of the dreaded "forum police" or "going out of my way to be a jerk" by countering someone who is claiming that market timing is the road to compounding at ridiculous rates, then so be it.

Only you know your returns. I find the July post, the stated strategy, the stocks mentioned, and the various explanations when questioned to be at odds with those returns. If you are truly compounding at that rate, you need Not pay one iota of attention to me or anyone else. You can ignore this hater or you can provide a morenpotentially satisfying explanation Others can draw their own conclusions

Well that makes things more interesting. Mr 55% CAGR regularly stopped his compounding machine to shave an 1/8 or 1/4 off his mortgage? And made 4-5x in the past few months to beef that CAGR from a shitty 30% to a respectable 55%. C’mon RNO, I was really trying to give you the benefit of the doubt and explain your strategy. Now explain the giant factual discrepancy here. That’s some serious track record endpoint sensitivity you’re working with. Also how did we go from a lack of precision (25-30%) to having 5 year CAGR’s to the precise percentage point, particularly with your assets spread across all those accounts

RNO has mentioned nothing of his concentration or exposure levels (feel free to chime in: are you holding one or two of these stocks at a time, or a combinatino of all of them). IRA's can't use margin and he said no options, which makes this even more of a herculean feat. I understand the benefits of piling in and out and using vol to your advantage...but this is more than that. 17x in 7 years is some serious moneymaking and deserves a little more exposition on RNO's part, for the benefit of the class here.

and you "regret not benefitting from FAANGM" Well shouldn't you be happy to know that your IRA has beaten the best performing one (Netflix) by about 20% / year since October 2013? NFLX was dragging its ass at a mere 38% / year CAGR in that time frame.

no, he specifically said CAGR. On an unrelated note, I think you are joking, but dividends can't go negative because stocks don't mature or have par values*. Again, I think you are joking about negative dividend yields, but no one has commented on the degree to which that isn't possible. *well actually they have par values in a very technical sense but you know what I mean.

RNO, I'm still struggling to get there. Help me out a bit. I'm embarrassed that I just took half an hour off work to run this in excel, but whatever. From 10/2013 to today, here is the buy and hold price return (no divvies) of those stocks: BAC: 15.4% BRK B: 11.5% BRKR: 14.8% CSCO: 12.1% IONS: 7.6% MRK: 9.2% USB: 6.5% WAB: 3.1% WFC: 2.3% DVA: 5.5% PRGO: -10.9% BIIB 6.6% A few complicated ones (not 10/2013 start): PYPL: 29% / year from July 2015 ANET: 34% / year from June 2014 GoPro: Very bad from June 2014 So very broadly, you are correct, the buy and hold return on these (excluding Paypal and ANET, BAC and BRKR to a lesser extent) has not been amazing and your returns obviously have a signficant timing component to them. With absolute perfect timing, you could have made some big returns on these names. A rough approximation of "the perfect timing return" on each name (buying at min, selling at max, over that time period) is below (don't have time or desire to do something like "perfect 6 month annualized return"). There's also quite a few names that have not been that volatile or offered huge timing driven gains or compounded at very high rates (Berkshire, Wabtec, Merck, USB, WFC, Davita). and there's two stinkers (Go Pro and Perrigo). In the end, your IRA returns are no one's business and have no effect on my life, but I can't seem to square the stated results with the strategy. The inception date is 10/2013 so that's actually 6.5 years of making 55% / annum for a cumulative return of 16.9x one's initial capital. Even if you doubled your money in the first year and a half (none of the stocks listed doubled in that time fram) and then put your entire account into ANET on its first day of trading @ $43 and sold at its maximum of $330, it wouldn't quite get you there. What am I missing? Was there hyperconcentration in something? Or were options used? Teach us your ways of making 17X in less than 7 years I'm part skeptical, part curious, and part amused. You joined in MAy 2019 and its been an onslaught of random macro commentary about the Europe and the Fed, but apparently are the WORLD'S greatest stock trader and market timer. It's fascinating. ANET: +664% BRK/B +111% IONS +317% BRKR: +230% BAC: +220% CSCO +186% MRK +100% PYPL +296% USB +70% USG +164% WAB +89% WFC +63% DVA +94% BIIB +212%

RNO, so we are clear, you are saying that your IRA’s have returned 56% per year for five years (9.5x cumulative return) from buying out of favor domestic stocks and then dodging the market correction, correct? Can you give examples of these stocks? The thing I’m having trouble with is you seem wired against holding the types of stocks that have generated crazy returns in this environment (like say SAAS for example, I am too) but have clearly been doing something right. So what have been say the top 3-5 contributors over that time frame? What maximum leverage (if any) have you utilized? Any notable outliers in there? Again, just trying to understand how you invest as it’s not clear from the posts I’ve read

Okay, so when you are long, are you long futures? Or individual stocks? If so, how many? What types of companies (GARP, value-y stuff? Domestic?) you don’t have to go through your whole portfolio month by month or anything, I just generally have a feel for the frequent posters investment biases and styles, and I can’t say I understand yours. *for example, thepupil post about asset plays that are at a 20-50% discount and unlikely to have hard catalyst or be great ideas, but are unlikely to permanently impair capital. He doesn’t generate a lot of new ideas and trades around positions on a small number of names because their stock vol tends to be higher than intrinsic value vol. he isn’t the guy to ask about a compounded or get ahead of a company transformation.

RuleNumberOne, Can you discuss your investment style/philosophy/process a little bit? (Past major investments over this period for example) I didn’t go through your whole post history, but saw some earlier discussion of WFC and V but everything else seems to be negative macroeconomic commentary. I’m not questioning the numbers put forth, but am curious how they were generated/what you do (or used to do when you were less bearish) to generate those eye popping returns.

Tempted to buy some MMP. I unwittingly made a spectacular stock pick when I suggested my parents buy this in 2010 or so. The pitch was “these MLP thing seem cool. , sell side says this one is high quality”. I sold it in 2013 at a sub 4% (maybe even sub 3% yield) and a huge gain and a huge tax bill. After going nowhere stock wise for 7 years but raising distro’s It’s almost at a 7% yield with 1.25x coverage , very low cost and long term debt. No IDR’s, pretty much self funded through its history, some long term secular concerns (refined products pipeline), not at a discount to space or relatively cheap though. I bought a dumb money starter position in XOM to start my “i kind of don’t want to have 0% energy” allocation, may buy similar dumb money starters in DMLP and BSM as my “ooo cool royalties down a lot but no idea how to value this” allocation

Just for you RuleNumberOne Caterpillar -1% seeing continued sales pressure Jan. 31, 2020 7:12 AM ET|About: Caterpillar Inc. (CAT)|By: Yoel Minkoff, SA News Editor Adjusted Q4 profit per share of $2.63, compared with $2.55 in the same quarter a year ago. Sales by segment: Construction Industries -12%; Resource Industries -14%; Energy & Transportation -5%; Machinery, Energy & Transportation -9%. "We expect continued global economic uncertainty to pressure sales to users in 2020 and cause dealers to further reduce inventories," said CEO Jim Umpleby. "We will continue to invest in services and expanded offerings to advance our strategy for long term profitable growth, while achieving our Investor Day targets." Outlook for 2020: Profit per share of $8.50 to $10.00. CAT -1.4% premarket

At what valuation do you all think stocks should trade? https://www.msci.com/documents/10199/4af921f5-0bbc-470b-ad69-19a177fad9cf Is 20x too expensive for a collection of high quality stocks? Is it expansive at a 2% tsy? 3%? 4%?

for the 4th quarter, revenue went from $2,896 to $2,690, a decline of $206 million, half of which can be attributed to a drop in coal revenues (which dropped by $94 million). For the full year, revenue declined by $162 million and coal declined by $152 million. Operating income was flat. net income per share grew by 8% as they take in shares. Cash paid for interest went from $496 to $555. They make $3.9 billion a year in operating profits and $2 billion in free cash flow (after interest). Even in 2009 this company generated $1 billion of net income and $500mm of free cash flow on $ 8 billion of revenue. that all time high debt seems more than manageable. I don't think NSC is cheap. I wouldn't want to own it at 20x or whatever it is*, but does a decline in volumes driven by coal and commodities in a year in which coal continues its inevitable death and there was a trade war that likley affected agricultural commodities, indicate that the end of the economy is near? that's tough for me to conclude. NSC trades for 21.5x trailing relative to 17.6x average since 2000 and 18.6x over the past 5 years. a bit toppish, sure? crazy? not in my view Railway operating revenues of $11.3 billion declined 1 percent as overall volumes were down 5 percent, reflecting carload declines in all major commodity categories. A common theme with the companies you are pointing out is links to petrochemicals or coal or other commodities: DOW, CSX, NSC, etc *I do own BNSF indirectly for far cheaper via Berkshire

SPX is at 21.3x PE. Since 1953, here are the quartiles using quarterly data. We are in between the 75% and the Max of 29.8. We are not near all time high valuations using earnings. I know you like to use sales or GDP to normalize for corporations overearning, but I still think it's important to keep in mind that the SPX yields 4.7% in earnings in an environment where the 10 year is 1.7%. One doesn't need crazy growth to justify valuations; one also can't have precipitous declines like DOW or BA's earnings. Why does the fed need to buy stocks for these valuations to be justified? They are justified as long as they grow at inflation or so. they are justified by people/savers/institutions needing to preserve and growth their spending power through investment in equities. Min 25% 50% 75% Max 0 1 2 3 4 7.15 13.3 16.9 19.0 29.8 Stocks for the long run! by the way RNO, as you probably know, I consider it my duty to act as your bullish foil and this is all in good fun. it doesn't really affect how I invest (other than generally being comfortable taking a lot of equity risk. I wouldn't be if rates were 4 or 5% and we had similar valuations/growth. I can only invest in today's or tommorow's opportunity set and that points me to invest in stocks and real estate rather than cash or bonds. I am doing what the fed has told us to do for the past decade. I'm also 31 and a working net saver so my time horizon may be different than yours

Okay, so we only want to use those 30 and the most recent 12 months. Median and Average growth of 2.6% and 2.9%. Weighted by market cap its 4.5%. Why are you focusing on the 7 negative ones and not the 23 positive ones. Again, I'm not super bullish, but I think you are selective with your bearish data points. Maybe some of the below doesn't incorporate the most recent quarter so it's actually worse. You asked where the growth was. it appears to be in the ones you didn't point out. Why is DOW more important than DIS? Why is PFE more important than MRK? BA more important than CAT? Is MSFT late in the cycle of its product cylce. It's supposed to end 6/2020 with $140 billion of revenue, up from $110 billion in 2018. It's a Dow component, thats 20x the size of DOW. AAPL US Equity 2.3% BA US Equity -24.3% UNH US Equity 7.0% GS US Equity 2.7% HD US Equity 5.1% MCD US Equity 0.2% V US Equity 11.5% MMM US Equity -1.9% MSFT US Equity 13.0% UTX US Equity 15.9% JNJ US Equity 0.6% IBM US Equity -3.1% DIS US Equity 17.1% CAT US Equity 3.2% JPM US Equity 9.3% TRV US Equity 4.3% AXP US Equity 8.6% PG US Equity 4.0% WMT US Equity 1.8% CVX US Equity -4.9% NKE US Equity 7.1% MRK US Equity 10.2% INTC US Equity 1.6% XOM US Equity -5.6% VZ US Equity 0.6% KO US Equity 3.4% WBA US Equity 2.1% CSCO US Equity 3.4% DOW US Equity -13.5% PFE US Equity -3.5%

Yes I meant to say price weighted, which was half my point as to why it’s idiotic

I would encourage you to pay no attention to a cap weighted arbitrary collection of 30 companies. Let's look at the generally accepted US stock benchmark: the Russell 3000 Russell 3000 Sales / Share: 2013-2019 686.10 720.06 707.51 719.81 779.70 840.00 889.80 Below are the top 100 3 year average growth. the median for the entire 3000 company data (errors=0%) set is 7.4%. the average of the top 100 is 9.9%. for the trailing 12 months, the median of the whole 3000 is 5.1, average of top 100 is 8%. You will likely point out that some of these may be M&A driven and not organic; that would be a reasonable counter. I would not extrapolate a conclusion about the market by looking at 7 companies that happen to be part of a shitty and archaic index weighted in a way that only made sense before calculators and computers were widespread. Sales 3 Yr Average Growth AAPL US Equity 6.7% MSFT US Equity 11.4% AMZN US Equity 29.6% FB US Equity 46.2% BRK/B US Equity 2.5% GOOG US Equity 22.2% GOOGL US Equity 22.2% JPM US Equity 10.6% JNJ US Equity 4.5% V US Equity 15.2% PG US Equity 1.2% INTC US Equity 6.7% MA US Equity 16.2% T US Equity 3.5% XOM US Equity 6.9% BAC US Equity 6.7% UNH US Equity 9.4% HD US Equity 6.9% VZ US Equity -0.1% DIS US Equity 8.0% MRK US Equity 2.3% KO US Equity -8.1% PFE US Equity -0.7% CVX US Equity 10.8% CSCO US Equity 1.8% PEP US Equity 0.8% CMCSA US Equity 10.6% WFC US Equity 3.3% ADBE US Equity 24.0% C US Equity 7.5% BA US Equity -5.4% WMT US Equity 2.2% MDT US Equity 2.0% MCD US Equity -5.0% ABT US Equity 15.8% CRM US Equity 25.8% BMY US Equity 10.9% NFLX US Equity 31.7% NVDA US Equity 33.0% PYPL US Equity 18.7% COST US Equity 8.8% AMGN US Equity 3.1% ACN US Equity 7.5% TMO US Equity 12.9% PM US Equity 3.5% NEE US Equity 6.2% HON US Equity 2.7% UNP US Equity 3.0% UTX US Equity 10.5% ABBV US Equity 12.8% NKE US Equity 6.5% IBM US Equity -1.2% AVGO US Equity 19.9% TXN US Equity 2.8% LLY US Equity 7.2% LIN US Equity 0.0% ORCL US Equity 2.2% LMT US Equity 8.2% SBUX US Equity 7.6% AMT US Equity 16.0% QCOM US Equity 1.1% GE US Equity -6.7% DHR US Equity 11.4% XTSLA US Equity 0.0% MO US Equity 1.4% LOW US Equity 6.5% CVS US Equity 8.4% MMM US Equity 2.2% FIS US Equity 9.7% AXP US Equity 8.2% GILD US Equity -12.1% TSLA US Equity 74.5% UPS US Equity 7.2% BKNG US Equity 16.4% MDLZ US Equity -4.2% ADP US Equity 6.7% GS US Equity 13.0% USB US Equity 6.8% CHTR US Equity 81.9% BDX US Equity 12.4% CME US Equity 9.2% CI US Equity 8.9% TJX US Equity 8.0% ANTM US Equity 7.2% TFC US Equity 7.9% SYK US Equity 9.5% CAT US Equity 6.8% SPGI US Equity 5.6% SO US Equity 10.5% INTU US Equity 13.1% DUK US Equity 3.1% D US Equity 4.6% CB US Equity 23.2% FISV US Equity 3.5% COP US Equity 9.4% ZTS US Equity 7.0% PNC US Equity 9.6% ISRG US Equity 18.3% RTN US Equity 5.1% CCI US Equity 14.2% loomberg description of the metric: Calculated as three-year arithmetic average growth of Sales/Revenue/Turnover (IS010, SALES_REV_TURN). For interim periods, the comparative period is the same interim period three periods earlier. Unit: Actual.API: current value available, historical values available

Agreed, whenever i use margin (and often when I don’t) I hedge wipeout with OTM puts, often recovering the premium via call sales on exit and/or capital return, or just paying the premium. Unhedged margin no matter how right you may be eventually is crazy to me.

I used to use more margin than I do. Instead I borrowed a lot of money at a blended 3.5% for 5 years - 10 years. 80% LTV 1st mortgage at 3.125% (10 year fixed period, 30 year amort, floating thereafter, cannot go higher than 8.125%, cannot go up by more than 2% / year) 80-98% LTV 2nd mortgage at 5.25% (5 year balloon, 15 year amortization) because the proceeds of the 2nd lien were used to buy stocks, this is "investment interest" and the bulk of the 1st mortgage is also tax deductible. in order to take the investment interest deduction, you have to classify all your realized gains/interest/dividend as short term so it may not make sense every year to do so, but in some years the after tax cost of that debt will be very low. so in other words, I'm partying like its 2005 with my 98% combined LTV with a 2nd lien balloon! what a time to be alive.

Sales per share (2012-2019) 1,064.46 1,095.34 1,137.23 1,106.83 1,129.54 1,213.80 1,315.80 1,374.03 Diluted Earnigns from continuing Ops per share 99.09 106.20 112.08 108.84 108.97 122.57 150.85 150.09 I agree with you that sales and earnings growth has recently turned weak. I agree with you we are late cycle. I just think that it's hard to make the case that stocks are very expensive. You can justify owning stocks if they just can have 0% real growth. (2-3% nominal) over the next decade or so. Indeed, Bridgewater (generally recently turned bearish) says stocks are discounting about 0% real earnings growth. I have money to put to work and struggle to not put in risk assets. That whole financial repression thing works! I do think the lack of a lower risk alternative higher yielding alternative (bonds) and lower absolute valuations today should play a role in one's thinking when you're comparing to 1999. Also, the world is not only US large cap stocks. From 1999 to 2004, the EM index returned 15.4% / annum while the MSCI USA did -1.1%. The US REIT index made 20.4% / annum. Now I don't think either REITs or EM will do that in the next 5 years, I'm just saying that if you think US stocks are super expensive and awful, there are other investable asset classes. If we are indeed in an "everything bubble" that won't matter, though.

the multipl.com numbers are inflation adjusted. Here are nominal earnings per share for the S&P 500 from 1999 to 2004, they drew down by about 16% and grew by about 5% / year 1999-2004. the SPX started this period at 29x (1230 price on 50/share of earnings, 3.4% earnings yield). It troughed at around 800 (about 19x trough earnings in the low 40's per share), price drawdown from 99 of 35%. the actual peak to trough drawdown was higher because SPX peaked at ~1500 in March 2000. 50.17 54.62 42.99 46.00 54.08 65.45 if we were sitting here in 1999 with the SPX at 29x earnigns, we might have been inclined to put a portion of out money in bonds. The 10 year real yield based on core CPI in 1999 was 4.6% (6.4% nominal 10 yr on 12/31/1999). So the S&P was at 29x and the you could make CPI+4% pre-tax risk free. today the SPX trades for 19x 2020 eanrings and 21.5x 2019 earnings. the equity risk premium is much higher today than it was in 1999. The 10 year real yield today is -30 bps. If we are indeed in early 1999 and earnings might decline by say 20% and then recover some 4,5,6 years later, should I own cash or bonds instead? It's not clear to me given my time horizon. Just providing the unrelenting TINA perspective here. Go read some Jeremy Siegel and quit worrying :D