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mattee2264

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mattee2264 last won the day on March 2

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  1. People conflate Mag7 with the market because Mag7 is 30% of the S&P 500 and the S&P 493 has basically gone nowhere over the last five years while Mag7 has increased about fivefold. And at this stage most investors are either indexing (or closet indexing) or buying call options on tech stocks. And it isn't difficult to understand why. John Authers in the article I referenced earlier discussed the concept of a "bubble" in fundamentals. Over the last 5 years or so Big Tech have grown earnings around 20% a year and their stock prices have increased by a similar amount. So not that bubbly from a valuation perspective and indeed valuations are far lower than those reached by Nifty Fifty and during the Dot Com bubble. Nvidia is a more extreme example but again a lot of its stock price increase is driven by earnings growth rather than multiple expansion. But the question is whether this earnings growth is sustainable going forward. Eventually the law of large numbers will catch up. And while AI is seen as extending the fast growth runway for Big Tech and delaying incipient maturity the reality is that aside from Nvidia no one has a moat in the AI space and eventually the hype will need to be supported by evidence of monetisation. And AI is bringing Big Tech companies into direct competition. And if AI does deliver productivity improvements and allow companies to reduce their headcounts then a lot of companies within the S&P 493 are going to get a double whammy from better earnings and a higher multiple.
  2. https://www.bloomberg.com/opinion/articles/2024-03-12/nvda-vs-csco-a-bubble-by-any-other-metric-is-still-a-bubble?utm_source=website&utm_medium=share&utm_campaign=twitter Bit of a more balanced commentary from John Authers. Agree with the general point that a big question is whether the acceleration of earnings growth of Mag7 post-pandemic and in the case of Nvidia over the last year or so is sustainable and that probably matters a lot more than valuation which are rich but not to the same extent as Nifty Fifty or Dot Com levels.
  3. Grantham bearish as usual on the US stock market but sees good opportunities in climate related investments https://www.gmo.com/europe/research-library/the-great-paradox-of-the-u.s.-market_viewpoints "Climate-related investments: With increasing climate damage and the increasing willingness of governments to take action, I believe climate investments will have top-line revenue growth that is guaranteed to be above average for the next many decades, although with no guarantees as to the smoothness of that growth. But, with all the cost of solar, wind, etc. being up front and little of the cost being operational, climate investments are exceptionally discount rate-sensitive, which has hammered them over the past two and a half years. And in its usual way, the market has overreacted to the trend of rising rates, making these investments real bargains today. Today, solar stocks are priced at over a 50% discount to the broad equity market, and some of the best clean energy companies in the world trade at levels that imply negative real growth" Anything climate related bubbled up in the aftermath of the pandemic and then got killed when interest rates rose. But therein perhaps lies the opportunity. Especially as market attention has switched to anything AI related and cryptos are back in favour. Of course renewables have always struggled to stand up on their own two feet without subsidies and other government grants and the energy transition isn't going to happen overnight which doesn't jive well with investors increasingly short time horizons. But over the long term we are going to have to get a much higher share of our energy from renewables. https://www.ishares.com/us/products/239738/ishares-global-clean-energy-etf seems a know-nothing investor way to play this theme. And the chart below shows that its price has returned to pre-pandemic levels irrespective of the fact that ESG reporting is becoming a way bigger deal and climate change is being taken increasingly serious. But interested if anyone on here has any specific names they favour.
  4. Isn't it a little worrying for Mag7 investors that a start-up founded only a few years ago can release LLMs that compare favourably to the ones put out by OpenAI/Microsoft and Google? Reinforces the point that in AI no one really has a moat at this point. Mag7's ability to stockpile chips gives them an edge and they can outspend everyone on R&D. But in the internet age it was Google who ended up with the dominant search engine not AOL/Netscape/Microsoft. Any company with a good idea/product will have little problem attracting funding and users aren't locked in to a specific LLM at this point so will switch if something better comes along. And so far it is LLMs that are generating all the buzz and drawing in all the users and seeming to have the most practical use as a lot of people are using LLMs to write emails, assignments, research papers, marketing copy etc.
  5. Does seem to be a bit of a race against time. Can the supply side benefits of Artificial Intelligence and immigration get inflation down quickly enough to allow the Fed to cut interest rates to a level where debt servicing costs are more manageable? And will GDP be able to grow at a 4-5% rate over the next decade or two which would greatly help reduce debt to GDP and reduce reliance on fiscal stimulus to keep the economy firing on all cylinders?
  6. https://www.axios.com/2023/11/03/productivity-growth-us-economy https://www.reuters.com/markets/us/us-productivity-rises-fastest-pace-three-years-third-quarter-2023-11-02/ https://www.ft.com/content/61b8574d-724c-4486-b6b0-21191c22d476 https://www.brookings.edu/articles/machines-of-mind-the-case-for-an-ai-powered-productivity-boom/ https://www.bloomberg.com/opinion/articles/2024-02-23/us-productivity-is-on-upswing-again-ai-could-supercharge-it-for-good-or-ill?leadSource=uverify wall Quite a few hints that US productivity growth is on an upswing and that is even before widespread adoption of AI by businesses. If so it really would be a holy grail as it would result in faster economic growth and lower inflation (and therefore allow lower interest rates). Economic growth and productivity growth was anaemic for much of the post GFC period with most of the EPS growth of the S&P 500 driven by financial engineering, secular growth from Big Tech and tax cuts. So if this isn't a false dawn then this could indeed be the roaring 20s with the S&P 500 already up almost 150% from the pandemic lows and a long bull market can take markets up 300-500%. And that is a prospect that would keep even the most hardened perma-bear up at night.
  7. Luca is also right. If AI results in a productivity miracle it is going to be the users who benefit. The technology really isn't that proprietary. Lots of companies are coming out with LLMs including start ups no one has ever heard of. For now Nvidia has a technological lead in GPUs but it may not last and you are already paying a high price on the assumption it will. And while Big Tech have deep pockets that doesn't guarantee success and in recent years they've become better at monetization than ground breaking developments and the woke bureaucracy in these organizations is undermining trust and getting in the way of product development.
  8. I can't imagine the average low skill white collar worker has much money to buy Mag7 stocks especially with the cost of living squeeze ongoing and wage increases nowhere near sufficient to compensate for all the post pandemic inflation and even less likely now that companies are planning to automate work and reduce headcount. And if a lot of low skills do lose their jobs they will probably end up liquidating their portfolio of Mag7 stocks they bought with their stimmy checks. Same way most people aren't buying BTC because of considered concerns about the explosion of the money supply post GFC and unsustainable path of US government debt. When inflation was in the double digits everyone was dumping bitcoin. To the extent people are buying perceived AI beneficiaries and bitcoin it is because people like to chase what is hot and going up. And this is especially true of retail investors who do not have the patience to hold something like Berkshire that will get you rich slowly compounding 10% a year like clockwork. The main fear that drives investors in a bull market is FOMO. And that is helping to drive up multiples. Case in point there is apparently a huge increase in custodial accounts being set up with brokerages that allow teenagers to buy stocks because they don't want to miss out on the action. But yeah there is a broader point here that capitalism is a bit broken when it is difficult to get ahead doing honest work with wages barely increasing in real terms prior to COVID and post COVID probably falling in real terms (who's had 20-30% wage increases over the past few years?) while anyone with a stock portfolio has been making double digit real returns over the last 15 years and anyone owning real estate has been building huge amounts of equity given their interest payments were next to nothing for much of the GFC period. Putting whatever meagre savings low skill workers have into Mag7 stocks which they will probably have to sell to feed their families when their jobs get automated and they become redundant isn't the solution. What we really need is to find a better way of taxing corporations and HNW individuals who will milk it if AI fulfils its promise so some of the wealth created can get redistributed via a universal basic income or at least generous benefits until a way can be found to repurpose low skill workers. Of course tech optimists talk about agriculture and industrialisation and de-industrialisation and say that new jobs will be created. But that ignores the issue of structural unemployment. Think about all the mining towns and factory towns that decades after de-industrialisation still have high unemployment rates?
  9. GRANOLAS is the buzzword driving European indices to all time highs. Their version of the Magnificent 7. GSK, Roche, ASML, Nestle, Novartis, Novo Nordisk, L’Oreal, LVMH, AstraZeneca, SAP and Sanofi Internationally exposed quality growth compounders. Now account for around a quarter of the Eurostoxx 600. And are up 60% over the last three years keeping pace with Mag7.
  10. Something I have seen doing the rounds on Fin Twit is the idea that the release of Chat GPT is equivalent to the launch of the first web browser in the early 90s which means that we are only just getting started.
  11. Yeah that is the bull case. That AI will lead to a productivity miracle. Much needed considering that for much of the post-GFC period US GDP growth has been sub-3%. And it will also dampen inflationary pressures as wage increases will be offset by headcount reductions and some of the efficiency improvements from AI can be passed along to consumers in the form of lower prices. So that will allow central banks to lower interest rates before the strain on the economy becomes too much. And if GDP can grow rapidly that will help to ease the debt burden over time. And of course if every IT department starts to allocate a sizeable chunk of its budget to AI then Big Tech can continue to grow earnings at a double digit rate and at 30% of the S&P 500 that is going to be a major kicker to S&P 500 EPS growth. So I am not surprised that bulls are talking about the Roaring 20s and setting targets for SPY 8000.
  12. Couple of reasons. Firstly, Berkshire isn't promotional. Most big companies will get into bed with investment banking analysts and give them guidance in return for coverage and employ investor relation departments. Secondly, Berkshire is complex to understand being a conglomerate and an insurance company. Really you are just placing faith in Buffett's ability supported by his team to grow intrinsic value over time. Smart investors aren't usually capable of that leap of faith. They prefer something where they can come up with a complex investment thesis with extensive models and presentations running hundreds of pages. Thirdly, people hyperfocus on Berkshire's stock picking which has been a bit hit and miss over the last few decades (although Apple demonstrates he can still swing hard at a big pitch) when more of the value comes from the operating businesses and the well-run insurance operations. Also I think that markets generally have been buoyed over the last few decades by very interventionist monetary policy. Berkshire's business growth especially over a 20 year period has probably been in the top 5% but because it continues to trade around 1.5x book value you aren't getting the multiple expansion you get in other stocks.
  13. I also find it ridiculous that people use Apple as evidence that Buffett is now a tech investor. Apple is a luxury consumer goods company and Buffett understands consumer goods well and easily grasps the idea of the Apple ecosystem and the associated switching costs. It doesn't mean we can expect him to go piling into AI stocks.
  14. Buffett knows that bitcoin is a speculation. That doesn't mean it cannot go a lot higher especially if institutions decide they all want 5% of assets in bitcoin. But it is absolutely bizarre to call bitcoin a hedge for cash when it is so volatile and no actual real world transactions take place in bitcoin. It isn't even a good inflation hedge as 2022 showed. It is basically just another high beta play on the stock market and a sign that markets are still very speculative which Buffett alluded to in his recent letter.
  15. Amusing that during the pandemic Green Energy was such a massive investment theme. Now speculators have moved on to cryptos and AI both of which are going to use a huge amount of energy and other resources.
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