Have We Hit The Top?

[dealraker]

10 hours ago, changegonnacome said:

Seems to be a Kuppy fan club on here - looking at you @Gregmal see below:

 

 

 

Personally i don't give two shits about energy inflation & either does the Fed....by definition it moves around alot & it is not made in america inflation.......it is made in saudi arabia inflation.....you control what you can....and the Fed can control supercore........and so it has a responsibility to do so under its mandate.

 

If he's correct however - it chimes, for different reasons with my thoughts for later this summer or H2 more broadly.......rubber is hitting the road on this sticky, made in American, underlying supercore inflation in the next few months.......maybe Kuppy is right...and we get some scary headline flare ups....headlines wake folks up I guess and change the narrative.....but like i said I've got my eyes trained on only one thing.....nominal spending growth & productivity....and not really productivity at all....you can take it to the bank thats its sub-2%

"Folks" back in the 1980's, about 1981 if I remember correctly, like my father-in-law....well some bought 30 year treasuries yielding 15%.  Do believe my father-in-law put his entire retirement account right there.

 

Other "folks" like me were hunkered down in stocks in a trust...that I couldn't access and sell.   I've suffered through the outcome too.  Stocks just don't do well through inflationary cycles you know.

 

At least that's what I'm told here repeatedly.  In the meantime I still own my Berkshire, Coke, Pepsi, etc. as do my brother and sister.  My recently deceased step-mom had no children of her own but her sister in Raleigh NC seems to be enjoying life these days.  My step-mom was only 11 years older than me, her sister 2 years younger than me.  That little sis and I were high school boyfriend/girlfriend for a while, we still find that quite entertaining to discuss - and the other family members too still remind us of the enjoyment they found with that.

 

But anyway, for what it is worth, we were in the era of when trading stocks cost a lot of money, literally hundreds of dollars on a $5,000 trade.  And all of us inherited a thousand less than that in Berkshire stock.  Us poor "folks" just get taken adavantage of all the time.  

 

By the way, where I live?  Every older person I knew owned Pepsi and Coke stock.  How do I know?  I know because everybody discussed holding those stocks and this was years and years of what I heard.  Both somewhat "local" in nature back then, hugely popular.  So "folks" all over were suffering that outcome.  

Edited June 14, 2023 by dealraker

[changegonnacome]

1 hour ago, dealraker said:

But anyway, for what it is worth, we were in the era of when trading stocks cost a lot of money, literally hundreds of dollars on a $5,000 trade. 

 

Thanks @dealraker I hear you.

 

Ironically while I'm sure everybody bemoaned the high trading costs back then - they were a blessing in disguise.......they weren't high trading costs, they were cheap trading costs (in the final accounting).

 

I'm also sure calling or physically visiting your broker or financial advisor to buy/sell had friction & was a hassle too back then- even that hassle was a blessing in disguise...it led to inertia/friction....plus if you had a good broker/financial advisor maybe he would tell you - "this too shall pass" - and help you hold the line.

 

'Free' mobile app trading - isn't free at all....on the execution side and on the behavioural side....and it sure isn't 'convenient' for 'long term' you to allow monkey brain/short term you....to so easily act out base instincts.

[Intelligent_Investor]

When it comes to the big 7, their performance isn't surprising considering quite a few of them were way too cheap at the beginning of the year. Yeah Meta has more than doubled but that was because it shouldn't have been trading at sub-100 in the first place. Of the 7, 6 are objectively amazing businesses (Tesla the only exception), and of those 6, 3 were very cheap at the beginning of the year (AMZN, GOOGL, META). AAPL and MSFT are/were also reasonably priced relative to their quality. NVDA is really the only one that has run up a lot on AI hype, but their AI offerings are probably the best in the world right now so not entirely unjustified. I don't think its impossible that great businesses stay great for decades - CocaCola, AMEX, Walmart, Home Depot and a lot of other businesses have been top performers for way longer than big tech has.

[mattee2264]

Agree re the quality. But given the size they are now are growth prospects over the next 5, 10, 20 years that great? And is it reasonable to pay at the low end 30-40x earnings and at the high end 60-70x earnings when interest rates are 5%. Companies are usually judged to be great businesses with the benefit of hindsight and there is no question that they've eaten the world over the last decade and done amazingly well. And a lot of Nifty Fifty businesses remained great businesses but their stock price performance disappointed due to multiple compression and earnings growth that was impressive but reflected their maturity. 

 

I would say though they have a lot more durability and resilience than the tech companies of the 90s and consumers and businesses cannot function without them which should still make them very valuable even if they cannot maintain double digit growth rates going forward. 

[TwoCitiesCapital]

6 hours ago, mattee2264 said:

What does give some pause for thought is it would be highly unusual for the leaders in the last bull market are to be the leaders in the next one. So the fact that the Big 7 have accounted for roughly 70-80% of the YTD gains is a little worrying especially as the rest of the index has languished. 

 

On the other hand the rally in the Big 7 has gone on too long and too far to be dismissed as a bear market rally. And the operative factors that killed Big Tech last year (runaway inflation, earnings disappointments) seem to have faded away. 

 

So it seems more likely that we are still in the long secular bull market that began in 2009 with another innings thanks to the AI mania reigniting enthusiasm for Big Tech (and possibly eventually leading to a blow off top within the next year or two). 

 

Last year's bear market seemed more consistent with 1987/2020 in other words a shock driven market panic that was swiftly followed by a V shaped recovery and return to new highs and the bull market resumes its progress to new highs. 

 

I disagree. We've had similar rallies or similar strength previously, though it IS getting on the far end of that spectrum. 

 

I'd say if we don't make new highs and go back down to prior lows, we're still in the same bear market regardless of it took an extra 6-12 months to play out than I expected. 

 

The Dow Jones ended 1968 @ 903. It ended 1980 at 891. There were a few times it had surpassed that 903 level like 1972 and 1973 and again in 1976. Lots of up/down volatility.

 

Some people consider that two separate bear markets. Some people consider it a lost decade with insanely negative real returns (i.e. a single bear market). 

 

I don't care what you call it, even in hindsight. You did better buying and holding T-bills and notes during that decade than buying/holding stocks.

 

If you picked your spots in equities and didn't marry positions - trimmed on the way up and added on the way down - you probably did ok-ish. That's my game plan for this decade regardless of it's one or separate bear market. Sell the rips, buy the dips, and a healthy allocation to short and intermediate dates bonds when spreads/rates compensate. 

[Intelligent_Investor]

2 hours ago, mattee2264 said:

Agree re the quality. But given the size they are now are growth prospects over the next 5, 10, 20 years that great? And is it reasonable to pay at the low end 30-40x earnings and at the high end 60-70x earnings when interest rates are 5%. Companies are usually judged to be great businesses with the benefit of hindsight and there is no question that they've eaten the world over the last decade and done amazingly well. And a lot of Nifty Fifty businesses remained great businesses but their stock price performance disappointed due to multiple compression and earnings growth that was impressive but reflected their maturity. 

 

I would say though they have a lot more durability and resilience than the tech companies of the 90s and consumers and businesses cannot function without them which should still make them very valuable even if they cannot maintain double digit growth rates going forward. 

Fair points regarding growth, but meta at 9x FCF, GOOGL at low teens FCF, and AMZN at ~25x normalized operating profit at the beginning of the year isn't anywhere close to the nifty fifty valuations. Even MSFT and AAPL at the time were trading at >4% earnings yield with >10% FCF/Share growth which is still more attractive than a 4.5% zero growth 10 year treasury. Even with the nifty fifty had you bought McDonald's or Coke at like 60x earnings and owned for 2 or 3 decades you still would have beaten the S&P 500. I just don't think automatically writing off a good business as being unable to continue to produce good returns because its optically expensive is a logical conclusion (doesn't mean I'd buy them at this price, but that's a different analysis).

[Spekulatius]

7 minutes ago, Intelligent_Investor said:

Fair points regarding growth, but meta at 9x FCF, GOOGL at low teens FCF, and AMZN at ~25x normalized operating profit at the beginning of the year isn't anywhere close to the nifty fifty valuations. Even MSFT and AAPL at the time were trading at >4% earnings yield with >10% FCF/Share growth which is still more attractive than a 4.5% zero growth 10 year treasury. Even with the nifty fifty had you bought McDonald's or Coke at like 60x earnings and owned for 2 or 3 decades you still would have beaten the S&P 500. I just don't think automatically writing off a good business as being unable to continue to produce good returns because its optically expensive is a logical conclusion (doesn't mean I'd buy them at this price, but that's a different analysis).

Just remember Avon, Kodak, Polaroid, Xerox, KMart (Kresge), Sears&Roebuck Digital Equipment and Schlitz Brewing were Nifty Fifty stocks too. Survivorship bias is a problem here. Lots of roadkill on the way:

[Intelligent_Investor]

21 minutes ago, Spekulatius said:

Just remember Avon, Kodak, Polaroid, Xerox, KMart (Kresge), Sears&Roebuck Digital Equipment and Schlitz Brewing were Nifty Fifty stocks too. Survivorship bias is a problem here. Lots of roadkill on the way:

Kodak, Polaroid, Sears and others did go to zero, but had you bought an evenly weighted basket of the Nifty Fifty at its very peak in 1972 and held to today, you still would have outperformed. Most people only look at the huge crash and not the longer term compounding of a lot of these businesses. There's at least 5 or 6 hundred baggers on that list and a lot that came really close even if you start from the peak of the nifty fifty. If you bought all of the nifty fifty in 1972 and held for the last 51 years you would very fucking rich right now and have done better than just owning an index fund. The huge winners made up for all the zeros, just like within Berkshire and within the S&P 500. Keep in mind, I'm not saying I would buy those companies at the price, just that even at ridiculous looking valuations, they still did way better than average companies.

Edited June 14, 2023 by Intelligent_Investor

[TwoCitiesCapital]

50 minutes ago, Intelligent_Investor said:

Fair points regarding growth, but meta at 9x FCF, GOOGL at low teens FCF, and AMZN at ~25x normalized operating profit at the beginning of the year isn't anywhere close to the nifty fifty valuations. Even MSFT and AAPL at the time were trading at >4% earnings yield with >10% FCF/Share growth which is still more attractive than a 4.5% zero growth 10 year treasury. Even with the nifty fifty had you bought McDonald's or Coke at like 60x earnings and owned for 2 or 3 decades you still would have beaten the S&P 500. I just don't think automatically writing off a good business as being unable to continue to produce good returns because its optically expensive is a logical conclusion (doesn't mean I'd buy them at this price, but that's a different analysis).

 

Why are you comparing to treasuries instead of products with credit spread? 

 

You can get 6-7% in agency/government guaranteed mortgages? You can get 6-7% in investment grade corporates. 

 

You can get 7-9% in diversified emerging markets debt. You can get 8-10% in diversified high yield debt. 

 

Comparing the returns of equities, which are the lowest in the capital structure, to treasuries which are essentially the highest is a little asinine.

 

Takes a long time of 5-10% growth for that 4% earnings yield to catch up to 7-8% diversified yields. And in the meantime you're far more exposed to risk in equities. The comparison to spread products makes high multiple equities WAY less compelling. 

 

. 

Edited June 14, 2023 by TwoCitiesCapital

[Gregmal]

13 minutes ago, Intelligent_Investor said:

Most people only look at the huge crash and not the longer term compounding of a lot of these businesses

Uh-huh. 

[thowed]

It depends on your time horizon.  If you bought the Nifty Fifty near the top, sure you'd outperform the index over 50 years, but what if you needed to release some cash to buy a house after 10 years?  I don't think it would be so pretty.

 

I am all for long-term compounders, but I also think one has to distinguish between theory & reality.  Most of us don't live long enough to have the luxury for something to recover from an overvaluation over 20+ years (& there's a whole separate discussion about what human would have the patience to leave it either & believe it would recover).

[WayWardCloud]

5 hours ago, Intelligent_Investor said:

When it comes to the big 7, their performance isn't surprising considering quite a few of them were way too cheap at the beginning of the year. Yeah Meta has more than doubled but that was because it shouldn't have been trading at sub-100 in the first place. Of the 7, 6 are objectively amazing businesses (Tesla the only exception), and of those 6, 3 were very cheap at the beginning of the year (AMZN, GOOGL, META). AAPL and MSFT are/were also reasonably priced relative to their quality. NVDA is really the only one that has run up a lot on AI hype, but their AI offerings are probably the best in the world right now so not entirely unjustified. I don't think its impossible that great businesses stay great for decades - CocaCola, AMEX, Walmart, Home Depot and a lot of other businesses have been top performers for way longer than big tech has.

 

I think you're nailing it. People with a short bias like saying "The market is up but if you remove the biggest winners it isn't really". That's what markets do. A few winners.

 

Here is the Bessembinder study on that topic for the US.

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3537838

- most stocks LOSE value over time

- 0.3% of stocks have contributed to 50% of the total wealth creation

 

Agreed as well on Tesla being the exception. I don't know who decided this co should trade like a 2x NASDAQ bull ETF instead of a freaking car maker but dammit I'm coming for their lunch.

[Gregmal]

Outstanding returns aren’t for everyone. Much of this stuff above on indexes and tops and bottoms and cherry picked starting points is really just an oversimplification of a lot of stuff in hopes of lazily arriving at “the answer”. To be excellent at anything, you have to put in the work. If that work is simply taking risk or trying to see beyond what everyone else is saying and doing, so be it. It was a certainty at the beginning of the year that equities would do poorly. After a meaningless 5% rally in January, it was a certainty that fixed income would outperform equities going forward. And despite this, the DAQ is pushing 25%. How many years worth of fixed income investments does that translate to in just 6 months? To the victor go the spoils as they say. 

[james22]

46 minutes ago, Gregmal said:

To be excellent at anything, you have to put in the work.

 

They may not be "excellent," but a lot of lazy, know-nothing, dollar-cost-averaging, S&P500 indexing, retail investors are beating the hard-working, smart, market-timing, individual stock picking, professional money managers arguing "The market is up but if you remove the biggest winners it isn't really" this year.

[dealraker]

As far as investing I just use a model that has worked for others, a bunch of them that I know or have known over time.   I don't need to own any of the historical .03% 99% market cap money-makers or whatnot.  Don't need the Amazon, Google, Meta, Microsoft...or whatever stocks to do very well financially.  I don't give a flip about such studies, they don't affect me at all, absolutely zero relevance to me.  Also don't need Bitcoin or the comparisons to what bonds are doing right now.

 

Don't need to be consumed about beating the market; don't need to post up my yearly returns; don't need to believe the bounce or not believe the bounce.  Don't need others to agree; don't need to be angry when they don't.  

 

Don't need to sell and run to cash; don't need to worry when the market falls 50%; don't need to own or not own the currently hot sectors such as AI.  Don't need options, puts...calls; don't need leverage.  Don't need to know when to buy and sell; don't need to know when the downturn is coming.  Don't need one particular political party, both indebt us endlessly.

 

Do need to invest; do need patience; do need tolerance; do need to avoid fees or things that get in-between you and the ownership of productive business.  Do need to live a while.  

 

Love tollbooth (on a growing economy) companies.  LOL.  Love discovering models of life others have used that have added to the probability of the outcome I (you) desired.  

 

 

[Gregmal]

30 minutes ago, james22 said:

 

They may not be "excellent," but a lot of lazy, know-nothing, dollar-cost-averaging, S&P500 indexing, retail investors are beating the hard-working, smart, market-timing, individual stock picking, professional money managers arguing "The market is up but if you remove the biggest winners it isn't really" this year.

As we see repeatedly, simply being in the market is hard work. I’ve overcome this by being margined at all times, but am still guilty as any of throwing money in the toilet putting on bearish market timing type trades as well. It’s seems the more clever and sophisticated folks think they are, the more their returns suffer. Really Ken Griffin is just taking their lunch money. I was lectured so extensively over the years by many I keep in contact with about being too bullish, using too much margin, being over concentrated, the bubble bursting, all that shit. And I was reasonably up last year owning real estate (which I was told I wasn’t allowed to own in a rising rate environment)and stuff that’s hard to value while the smarty pants Dr Dooms almost all printing negative, and some, really big negative returns. This year is turning out even better. So again the real question is, why does anyone waste their time with this shit? Just focus on what you’re good at and if you don’t have the temperament for owning stocks, don’t own them or don’t own much of them. I briefly even saw a few today trying to act vindicated for missing this rally because they “knew” “Powell is gonna tank the market” and for a split second they had volatility which seemed like a big win for them, and by the end of the day SPY was flat. This is a suckers game that’s used to sell management fees and subscriptions. It makes no one who’s actually investing their own cash, and in search of a return, any money. 

Edited June 14, 2023 by Gregmal

[Sweet]

2 hours ago, thowed said:

It depends on your time horizon.  If you bought the Nifty Fifty near the top, sure you'd outperform the index over 50 years, but what if you needed to release some cash to buy a house after 10 years?  I don't think it would be so pretty.

 

I am all for long-term compounders, but I also think one has to distinguish between theory & reality.  Most of us don't live long enough to have the luxury for something to recover from an overvaluation over 20+ years (& there's a whole separate discussion about what human would have the patience to leave it either & believe it would recover).

Under appreciated comment.

 

Unless you start out with a lot of money, chances are you will need to dip into your investments at some point.

 

Not everybody lives to the age of Warren Buffett, but I’d also bet that Warren would give it all up to be young once again.

 

Money isn’t everything.

[Spekulatius]

3 hours ago, Intelligent_Investor said:

Kodak, Polaroid, Sears and others did go to zero, but had you bought an evenly weighted basket of the Nifty Fifty at its very peak in 1972 and held to today, you still would have outperformed. Most people only look at the huge crash and not the longer term compounding of a lot of these businesses. There's at least 5 or 6 hundred baggers on that list and a lot that came really close even if you start from the peak of the nifty fifty. If you bought all of the nifty fifty in 1972 and held for the last 51 years you would very fucking rich right now and have done better than just owning an index fund. The huge winners made up for all the zeros, just like within Berkshire and within the S&P 500. Keep in mind, I'm not saying I would buy those companies at the price, just that even at ridiculous looking valuations, they still did way better than average companies.

I thought studies shown that the Nifty Fifty performed about the same that the SP500. I guess in a way that shows they were efficiently priced.

What is the best performed form the NF list - WMT?

[backtothebeach]

2 hours ago, WayWardCloud said:

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3537838

- most stocks LOSE value over time

- 0.3% of stocks have contributed to 50% of the total wealth creation

 

It's a flawed study that is quoted a lot, maybe to make people feel better ("oh well, I wasn't so lucky to pick one of the few winners, that's why I lost money. It's a damn casino, that stock market").

 

Most stocks have a positive return in any given year. In fact, equal weight indices have only a small % in those 0.3% of stocks that allegedly make up 50% of "wealth creation". Yet somehow equal weight indices have a similar performance as market cap weighed indices, sometimes better.

Edited June 14, 2023 by backtothebeach

[james22]

3 hours ago, Gregmal said:

So again the real question is, why does anyone waste their time with this shit?

 

1. It's very, very hard to accept you can't beat the market if you're intelligent and work hard. 

 

2. It's fantastically entertaining.

[Viking]

6 hours ago, james22 said:

 

1. It's very, very hard to accept you can't beat the market if you're intelligent and work hard. 

 

2. It's fantastically entertaining.

I played a lot of sports when i was younger. Not the most talented; still loved it. Over time got pretty good. Great physical and mental workouts. Strong relationships built over time. Continuous improvement. The competition was great. Lots of peaks and a few valleys. And it always felt great when your team won; especially the important games.
 

i love investing for many of the same reasons. Except with investing you are competing with the best. And the rewards, if you are good at it can be life changing - and not just for you but your entire family.
 

I have friends who have chosen to step away from investing in recent years. I am not there yet. I still love the game/competition too much - and, for an old guy, the pay is still pretty good. 

Edited June 15, 2023 by Viking

[mattee2264]

Some interesting comments from Powell's presser. Of course he is data dependent so if inflation falls off a cliff and we fall into recession this may all change. But certainly indicates rates will stay higher for longer. 

I wonder that once markets start to believe this they might assign lower PE multiples to stocks. 

 

“It will be appropriate to cut rates at such time as inflation is coming down really significantly. And we’re talking about a couple of years out.“

"I think, as anyone can see, not a single person on the committee wrote down a rate cut this year -- nor do I think it is at all likely to be appropriate if you think about it."

"Inflation has not really moved down. It has not reacted much to our existing rate hikes. We’re going to have to keep at it.”

"There's just not a lot of progress in core inflation."

"We want to see it moving down decisively."

"Risks for inflation are still to the upside."

 

 

[Spekulatius]

1 hour ago, mattee2264 said:

Some interesting comments from Powell's presser. Of course he is data dependent so if inflation falls off a cliff and we fall into recession this may all change. But certainly indicates rates will stay higher for longer. 

I wonder that once markets start to believe this they might assign lower PE multiples to stocks. 

 

“It will be appropriate to cut rates at such time as inflation is coming down really significantly. And we’re talking about a couple of years out.“

"I think, as anyone can see, not a single person on the committee wrote down a rate cut this year -- nor do I think it is at all likely to be appropriate if you think about it."

"Inflation has not really moved down. It has not reacted much to our existing rate hikes. We’re going to have to keep at it.”

"There's just not a lot of progress in core inflation."

"We want to see it moving down decisively."

"Risks for inflation are still to the upside."

 

 

Yes, if the Fed really does two more rate hikes this year, as they say they might, market participants are going to scream bloody murder:

Market had been saying that the Fed is bluffing for a while but so far they have done exactly what they said they are going to do. I don’t think that two more rate hikes are likely either , but it seems that most have already penciled in rate decreases this year, which I don’t think are likely either.

https://www.cnbc.com/2023/06/14/fed-rate-decision-june-2023.html

[frommi]

I am 70% sure that short term interest rates have peaked (for the next 2-3 years), because that is the probability for a recession in the next 12 months right now according to my indicators. And you see it already in the inflation data, its coming down m/m. I am pretty sure some time in the future the deflation ghosts will come back and the FED will cut interest rates in panic. The bond market is telling that (yield curve) and its hard to believe the bond market is wrong, because it rarely is.

[MattR]

11 hours ago, Spekulatius said:

I thought studies shown that the Nifty Fifty performed about the same that the SP500. I guess in a way that shows they were efficiently priced.

What is the best performed form the NF list - WMT?

I think it should be Philip Morris.