james22 Posted Tuesday at 04:48 AM Posted Tuesday at 04:48 AM 8 hours ago, Milu said: II think that the world is changing so fast now that my only hope as an investor is to rely on a few very intelligent CEO's who I believe will be able to adopt their business to whatever comes their way. Ideally founders who have large control of the company and can take the massive decisions where pivots are needed etc. This is what VCs and Angel investors do - they bet on people, not business plans.
james22 Posted Tuesday at 04:53 AM Posted Tuesday at 04:53 AM 5 hours ago, whatstheofficerproblem said: There is so much abundance of data & over analysis to the point that you just have to accept that the market is pretty much efficient. Yep. Better to wait in the S&P500 until the fat pitch than cash.
Milu Posted Tuesday at 08:47 AM Posted Tuesday at 08:47 AM (edited) 5 hours ago, villainx said: I don't know how to put it - because there's no intent to criticize or anything like that - and I'm assuming you'd acknowledge the same - but it's merely to point out that there is a bit of luck. Right time in the market, right stock to ride, right moment in your life, etc. It's astounding what one good and or fortunate idea can lead to. At the same time, relevant to Klarman discussion, you have to be in the market to get to be lucky. Absolutely, I would go further and say that me making some gut decision to buy Tesla at that point was 100% luck! Randomly stumbling across a profile of Elon Musk, randomly deciding to make a slight change to my Ben Graham investing philosophy after picking up a book called Fooled By Randomness. Life is strange indeed. So while I would fully agree that the purchase of that position was 100% luck, I would say that the conviction to hold a company for a long time through several 60-70% drawdowns, is maybe 50% luck, 50% skill Most people will never get the large multi-baggers because of two things 1. They are unable to spot certain special leaders or world changing trends playing out (Tesla and Meta being prime examples) 2. If they do end up spotting this, they end up selling the stock for a great 2 or 3 bagger, and pat themselves on the back, then missing the next 10x of the stock At the end of the day there is so much "right time right place" and luck with investing that nobody can ever truly know if they have any skill at this game. I enjoy it either way and I guess we can check back in 5 years to see if my strategy continues marching upwards or not. Edited Tuesday at 08:48 AM by Milu
james22 Posted Tuesday at 01:42 PM Posted Tuesday at 01:42 PM 4 hours ago, Milu said: Absolutely, I would go further and say that me making some gut decision to buy Tesla at that point was 100% luck! Randomly stumbling across a profile of Elon Musk, randomly deciding to make a slight change to my Ben Graham investing philosophy after picking up a book called Fooled By Randomness. Give yourself more credit. 1. The uncurious don't read Taleb 2. Gut decisions are often pattern recognition formed
thepupil Posted Tuesday at 01:46 PM Posted Tuesday at 01:46 PM (edited) @Milu are you sure you're calculating your returns correctly? I would expect them to be far higher given your picks. Edited Tuesday at 01:46 PM by thepupil
Milu Posted Tuesday at 02:11 PM Posted Tuesday at 02:11 PM 4 minutes ago, thepupil said: @Milu are you sure you're calculating your returns correctly? I would expect them to be far higher given your picks. Yes the returns are accurate (XIRR in a spreadsheet across whole portfolio including cash, tracking all funds added and removed and associated dates). As mentioned previously I've had large cash balances over the years 70%+ in the early years, down to around 25% now. To paint a somewhat real world example when I was starting out let's say I only had a portfolio size of $20k, a 5% position would only be $1k. So even if Tesla 10x it would only be $10k, during that time I was also single with a reasonably high paying Software sales job so I was saving a decent amount without specifically trying (maybe 20-30k per year). My cash savings was vastly outweighing any gains, even multibagger on my stocks. It's only really in the last 5 years or so where my returns really started to take off. At the beginning the savings rate massively outweighs any portfolio returns and since I was just piling up cash this muted the Tesla returns in the early stages. Now I have kids and the portfolio is in the 7 figures then any savings are dwarfed massively by the returns. The volatility of my portfolio is a lot more noticeable in last 5 years due to the lower cash balance as percent of total.
villainx Posted Tuesday at 03:36 PM Posted Tuesday at 03:36 PM 1 hour ago, Milu said: At the beginning the savings rate massively outweighs any portfolio returns and since I was just piling up cash this muted the Tesla returns in the early stages. Unrelated, have you - and if so, how did you - adjust your position sizing? That's one of the thing I have a difficult time doing, I still have a bit of a "new" investor mentality where instead of a % of investment, I scale up my position size in slight increments from what I formerly did 10+ years ago, when it should really be double or triple.
whatstheofficerproblem Posted Tuesday at 03:56 PM Posted Tuesday at 03:56 PM 13 hours ago, John Hjorth said: This is about the most meaningless post I have ever encountered and read here on CofB&F. Please just tell us what you own personally. LQDA, TMDX, BN (never sold that one), FFH, MGNI, EWZ, A few tobacco names, VRRM, PANR, PRX, PDD, A little bit Gold & Uranium, GEO, exposure to crypto via Miners as I think you have AI/HPC as call options there. A few more smaller positions that might not move the needle.
Gregmal Posted Tuesday at 03:59 PM Posted Tuesday at 03:59 PM (edited) Young investors never get it...I made the mistake for a bit too but thankfully figured it out earlier than most...when youre really young, you want to use lots of margin. This is true basically as long as your savings rate of growth is dwarfing your investment returns growth as a percentage of your net worth. Getting skin to put in the game is essential for compounding. Next best is just having the assets, even if theyre borrowed, so you can skim the compounding of them. If you're 25 and have $100K in investments and a $200K annual income, youre foolish not to be carrying at least $20-30k in margin. For it to become an issue, your $120K of stock with $100K of equity would have to decline more than 50%, and even at that point, your margin call would likely equate to a few weeks of paychecks....the earlier and the bigger you get on the horse, the easier life will be later on. Some of my biggest regrets really come down to taking meaningful positions in my 20s that even after being total home runs, were largely immaterial to my net worth in my 30s. Edited Tuesday at 04:00 PM by Gregmal
gfp Posted Tuesday at 04:25 PM Posted Tuesday at 04:25 PM 29 minutes ago, whatstheofficerproblem said: LQDA, TMDX, BN (never sold that one), FFH, MGNI, EWZ, A few tobacco names, VRRM, PANR, PRX, PDD, A little bit Gold & Uranium, GEO, exposure to crypto via Miners as I think you have AI/HPC as call options there. A few more smaller positions that might not move the needle. I'm curious what percent of your net worth your largest single position is?
james22 Posted Tuesday at 04:47 PM Posted Tuesday at 04:47 PM 36 minutes ago, Gregmal said: Young investors never get it...I made the mistake for a bit too but thankfully figured it out earlier than most...when youre really young, you want to use lots of margin. And retirement accounts shouldn't see fixed income until maybe five years before retirement. I held fixed income mostly because it was another interesting thing to study. And made the mistake of caring about portfolio metrics like Sharpe ratio, etc. (also interesting). Returns are all that matter. Volatility does not. Interesting does not. I'd have done better with a Growth index and a different hobby.
Milu Posted Tuesday at 05:11 PM Posted Tuesday at 05:11 PM 1 hour ago, villainx said: Unrelated, have you - and if so, how did you - adjust your position sizing? That's one of the thing I have a difficult time doing, I still have a bit of a "new" investor mentality where instead of a % of investment, I scale up my position size in slight increments from what I formerly did 10+ years ago, when it should really be double or triple. Hasn't been an issue thankfully. I just always go off percentages. All that changes is that an extra zero gets added every now and then as the portfolio grows. 10,000 100,000 1,000,000 10,000,000 Any new position for me would be a min of 5% of portfolio value and a max of 10%, I don't do 'starter' positions as I've never seen the value in it, and I very rarely trim positions that grow. Perhaps if a position got to a third of portfolio value I might do something but ideally I just want to let the compounders ride and accept the volatility.
73 Reds Posted Tuesday at 05:17 PM Posted Tuesday at 05:17 PM 1 hour ago, Gregmal said: Young investors never get it...I made the mistake for a bit too but thankfully figured it out earlier than most...when youre really young, you want to use lots of margin. This is true basically as long as your savings rate of growth is dwarfing your investment returns growth as a percentage of your net worth. Getting skin to put in the game is essential for compounding. Next best is just having the assets, even if theyre borrowed, so you can skim the compounding of them. If you're 25 and have $100K in investments and a $200K annual income, youre foolish not to be carrying at least $20-30k in margin. For it to become an issue, your $120K of stock with $100K of equity would have to decline more than 50%, and even at that point, your margin call would likely equate to a few weeks of paychecks....the earlier and the bigger you get on the horse, the easier life will be later on. Some of my biggest regrets really come down to taking meaningful positions in my 20s that even after being total home runs, were largely immaterial to my net worth in my 30s. I tend to disagree - unless you are a rare, REALLY GOOD young investor and you know it - in which case I'd consider more margin (b/c you know you can make up any losses). The reason is simple: If you follow a successful investment plan or strategy, you don't need margin and debt is a bad habit to acquire when you're young. Margin debt also forces you to pay more attention to current price than what's really important.
whatstheofficerproblem Posted Tuesday at 05:20 PM Posted Tuesday at 05:20 PM 53 minutes ago, gfp said: I'm curious what percent of your net worth your largest single position is? LQDA & TMDX are my two largest right now, 20% each. I sold other investments to double down on these when they were down.
Gregmal Posted Tuesday at 05:41 PM Posted Tuesday at 05:41 PM 21 minutes ago, 73 Reds said: I tend to disagree - unless you are a rare, REALLY GOOD young investor and you know it - in which case I'd consider more margin (b/c you know you can make up any losses). The reason is simple: If you follow a successful investment plan or strategy, you don't need margin and debt is a bad habit to acquire when you're young. Margin debt also forces you to pay more attention to current price than what's really important. Yea I mean obviously the disclaimer is the assumption that the person is both interested and “not bad” at working with stocks. But I mean you just regularly throw 1.2x your monthly savings allocation into BRK or VOO or GOOG you’re gonna be fine. I see wayyyy too many people 35/40 and under talking about building up their cash positions or seeking out CDs and it just blows my mind. It’s like WTH are you doing lol.
Blake Hampton Posted Tuesday at 06:39 PM Posted Tuesday at 06:39 PM (edited) Here's some quantitative figures and analysis for VOO (the S&P 500): TTM ROE: 17.2% Pre-TCJA 18-year average ROE: 12.4% Buffett's market average ROE: 12% Current P/B: 5.2x The above chart indicates that recent expansions in the market's ROE are primarily due to lower interest and corporate tax rate expenses, not because companies have generally been employing less equity to make the same amount of profits. Consider also that the U.S. fiscal deficit is at historical highs, and just currency in circulation has expanded threefold since 2008. Likewise, a future with both lower taxes and interest rates seems quite unlikely. Using both Buffett's long-term average ROE figure and the market's current P/B ratio, the S&P 500 is currently selling at an implied P/E of 43.3x. Not exactly cheap. This would equate to an earnings yield of 2.3%, which is approximately half the yield currently offered on 10-year government bonds. Sources: S&P 500 Earnings and Estimate Report - S&P Global How Inflation Swindles the Equity Investor - Warren Buffett Eye on the Market Outlook 2025 - J.P. Morgan Edited Tuesday at 06:42 PM by Blake Hampton
Malmqky Posted Tuesday at 06:48 PM Posted Tuesday at 06:48 PM (edited) 8 minutes ago, Blake Hampton said: Here's some quantitative figures and analysis for VOO (the S&P 500): TTM ROE: 17.2% Pre-TCJA 18-year average ROE: 12.4% Buffett's market average ROE: 12% Current P/B: 5.2x The above chart indicates that recent expansions in the market's ROE are primarily due to lower interest and corporate tax rate expenses, not because companies have generally been employing less equity to make the same amount of profits. Consider also that the U.S. fiscal deficit is at historical highs, and just currency in circulation has expanded threefold since 2008. Likewise, a future with both lower taxes and interest rates seems quite unlikely. Using both Buffett's long-term average ROE figure and the market's current P/B ratio, the S&P 500 is currently selling at an implied P/E of 43.3x. Not exactly cheap. This would equate to an earnings yield of 2.3%, which is approximately half the yield currently offered on 10-year government bonds. Sources: S&P 500 Earnings and Estimate Report - S&P Global How Inflation Swindles the Equity Investor - Warren Buffett Eye on the Market Outlook 2025 - J.P. Morgan Why is the market's current PB ration relevant when you have companies like Apple dominating the index? Like look at the top 10 holdings...why is BV a good way to value any of them? Edited Tuesday at 06:48 PM by Malmqky
Malmqky Posted Tuesday at 06:53 PM Posted Tuesday at 06:53 PM (edited) 1 hour ago, Gregmal said: Yea I mean obviously the disclaimer is the assumption that the person is both interested and “not bad” at working with stocks. But I mean you just regularly throw 1.2x your monthly savings allocation into BRK or VOO or GOOG you’re gonna be fine. I see wayyyy too many people 35/40 and under talking about building up their cash positions or seeking out CDs and it just blows my mind. It’s like WTH are you doing lol. Key to wealth with zero brainpower used for the average person: * buy property when young, 30yr mortgages are great leverage you usually wouldn't be able to get otherwise. buy a bit more than you "afford" at the moment, relying on future earnings growth * have a decent emergency fund in cash, maybe 3-12 months (also used to cover upkeep for property like new roof, etc) * 401k contribution to get employer match, VTI/VOO * max ira, VTI/VOO * rest of leftover monthly funds DCA'd into 120% VTI/VOO in normal brokerage (maybe 401k depending on tax situation) * avoid buying depreciating assets like expensive cars with high interest rates and excessive spending in general If you have at least average intelligence and an interest in investing, you can probably cut down on the emergency fund and do more than DCAing into index funds for even better results. Edited Tuesday at 06:54 PM by Malmqky
Blake Hampton Posted Tuesday at 06:57 PM Posted Tuesday at 06:57 PM (edited) 11 minutes ago, Malmqky said: Why is the market's current PB ration relevant when you have companies like Apple dominating the index? Like look at the top 10 holdings...why is PB a good way to value any of them? Long-term returns are all about the price paid for the future earnings you’re receiving. If you know that a company will earn 12% on it’s equity forever, and you buy that company at its equity, otherwise known as book value, you can reasonably expect a return of around 12% over time. Edited Tuesday at 07:01 PM by Blake Hampton
Blake Hampton Posted Tuesday at 06:58 PM Posted Tuesday at 06:58 PM (edited) People piling into assets regardless of the fundamentals, and doing it just because everyone else is doing the same thing, is known as a bubble. Edited Tuesday at 07:31 PM by Blake Hampton
Malmqky Posted Tuesday at 07:31 PM Posted Tuesday at 07:31 PM 30 minutes ago, Blake Hampton said: Long-term returns are all about the price paid for the future earnings you’re receiving. If you know that a company will earn 12% on it’s equity forever, and you buy that company at its equity, otherwise known as book value, you can reasonably expect a return of around 12% over time. You ignore intangibles completely using this method. The things that make Apple so valuable, to use it as an example.
73 Reds Posted Tuesday at 07:35 PM Posted Tuesday at 07:35 PM 34 minutes ago, Blake Hampton said: Long-term returns are all about the price paid for the future earnings you’re receiving. If you know that a company will earn 12% on it’s equity forever, and you buy that company at its equity, otherwise known as book value, you can reasonably expect a return of around 12% over time. What does book value have to do with earnings power? Even with our favorite insurance companies, BV is increasingly irrelevant.
Malmqky Posted Tuesday at 07:39 PM Posted Tuesday at 07:39 PM Buffett says book value is becoming more and more irrelevant for valuing Berkshire. I believe he's said the same for Apple. I try not to quote Buffett and such, but I trust his judgement for valuing these two companies. And if book value is poor for valuing APPL and BRK, it's poor for the other ~8 holdings that make up ~30% of SPY.
Blake Hampton Posted Tuesday at 07:39 PM Posted Tuesday at 07:39 PM 3 minutes ago, 73 Reds said: What does book value have to do with earnings power? Even with our favorite insurance companies, BV is increasingly irrelevant. Earnings are measured against book. Return on equity is what's important.
Vish_ram Posted Tuesday at 07:40 PM Posted Tuesday at 07:40 PM Two fundamental things about S&P 500 that partially explain the valuation. Here are the average return on equity (ROE) percentages for some S&P 500 sectors: Technology: 35.7% Utilities: 10.3% Healthcare: 16.8% Financials: 12.4% Consumer Non Cyclical: 16.91% Energy: 20.52% Services: 25.29% As given in the image, weightings have gone up considerably. They are mostly the mag stuff, but still they sport higher growth, higher ROIC, higher moat, pricing power etc. To be bearish on S&P, the following things have to happen 1) inflation/tax should skyrocket 2) the passive $ flow should stop (from 401k etc) 3) the weightings should go back to 1990s or earlier. From information age, we should go back to old age industrial. It aint happening
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