Have We Hit The Top?

[Spooky]

1 hour ago, dealraker said:

Given time and some age progression you guys are going to realize that the investment world is simply dominated by the latest prices, both the quotes on this day and their direction up or down.  "Are we at the top?"  The obsession, and it is a dominating focus, is that literally everyone ranks both themselves and those they follow in the "in-the-moment" avoidance of lower stock quotes.

 

Step back and think about me - given I'm old as dirt - for a moment.   I'm reading a forum that's better than any other I've participated on...better by far, yet there are a couple of things that stand up and scream at me all the time.  First is the yearly performance - this year about December or early January their will be the chants of how we all did this year and it will rule the minds of all - that's the envy mind steal - you can't avoid it because it is real.  The second thing is that when markets fall those with cash are going to flood the discussion.  Yep cash levels will rule like nothing else ever!

 

And here I sit, years of hearing this stuff now given I've participated in investment forums for 30 years and heard it all in the years prior to forums on TV and in investment clubs.  But there's one thing that stands out more than anything else, it stands so tall above all other things that it literally dwarfs them.  Here it goes:

 

I go around in life and see where the money is, where the net worth's are.  When donations are needed for this or that there's the same ole thing cropping up endlessly.  Those with the means are always long term business owners.  The "nailed the top" bunch and the "I'm 90% cash in this downturn" superiors?  I know online there's claims of fame and fortune, but not once ever in real life have I ever encountered these "nailed the top" and "got cash and avoided the plunge" people as to substantial net worth.  We've had a few come and go in our investment club that I've been in for 50 years.  They come in hot and leave frustrated and angry because we didn't have their level of expertise.  Yet once they are gone?  Hell, they are gone - took their intensity and what's evidently a small pot ----- somewhere else.

 

Yet it - the lower stock quote obsession - dominates...and will dominate.  It will dominate passionately.

 

I just watch.  My yearly performance is always among the lowest online in every single group I'm reading.  And above all I NEVER own the hot stocks!   

 

Life is great...if you can stand it.

 

Thanks Dealraker for your insights. I am guilty of trying to calculate my returns on an annual basis but it is mainly for the purpose of bench-marking against the S&P 500 to make sure my investing process is working. Part of me is always worried I should just buy the S&P and I am hurting myself in the long run. I'm lucky though that I have a long term orientation and am just looking to buy a few great companies and sit of on my ass(ets). What criteria do you use to make sure you are invested in great companies?  Maybe I should benchmark over a longer time horizon than one year. One thing I heard on a podcast recently (think it was value after hours) was that people focus on the "r" in the formula x*(1+r)^n rather than the "n". The "n" or number of years has a bigger impact on compound returns since it is not linear.

Edited August 23 by Spooky

[Blake Hampton]

I realize there's no telling with timing on this stuff, but I'm not impressed with current valuations. I'm sitting on about 70% cash and I'll list a couple of reasons for my poor outlook:

• Overstated figures due to unrealized capital gains being recorded as earnings
• High likelihood of a higher corporate tax rate in the future
• Large government deficits that are almost entirely financed with short-term debt, which is essentially printing cash.

As I've said previously, Buffett is sitting with an approximate 50% cash position when you exclude Berkshire's non-financial assets. I'm not calling for a crash or anything, but right now seems like as good a time as any to be bearish.

Edited August 23 by Blake Hampton

[Blake Hampton]

I'm starting to realize investing isn't about timing crashes or tops, it's about being prepared for any possible situations in the future.

 

Investing is definitely far more difficult than it looks. Maybe this is why bubbles happen.

Edited August 23 by Blake Hampton

[SafetyinNumbers]

8 minutes ago, Blake Hampton said:

I realize there's no telling with timing on this stuff, but I'm not impressed with current valuations. I'm sitting on about 70% cash and I'll list a couple of reasons for my poor outlook:

• Overstated figures due to unrealized capital gains being recorded as earnings
• High likelihood of a higher corporate tax rate in the future
• Large government deficits that are almost entirely financed with short-term debt, which is essentially printing cash.

As I've said previously, Buffett is sitting with an approximate 50% cash position when you exclude Berkshire's non-financial assets. I'm not calling for a crash or anything, but right now seems like as good a time as any to be bearish.

Do you own any Fairfax Financial or do you also find it expensive?

[Hektor]

43 minutes ago, dealraker said:

I go around in life and see where the money is, where the net worth's are.  When donations are needed for this or that there's the same ole thing cropping up endlessly.  Those with the means are always long term business owners.  The "nailed the top" bunch and the "I'm 90% cash in this downturn" superiors?  I know online there's claims of fame and fortune, but not once ever in real life have I ever encountered these "nailed the top" and "got cash and avoided the plunge" people as to substantial net worth. 

Good one @dealraker. Thank you.

[Blake Hampton]

4 minutes ago, SafetyinNumbers said:

Do you own any Fairfax Financial or do you also find it expensive?

Honestly I haven’t looked at it too in-depth besides Prem’s portfolio. 

[dealraker]

So an example of trying to conceptualize "When is business value built?"  Our lowly ole builders supply is an example.  Not the millwork business, let's do the builders supply.

 

We sold 4 builders supply businesses some 30 ago and kept one.  Outside the millwork bus its - our one builders supply - is our total focus.  Capital allocation?  Oh hell yes, on steroids we focus on capital allocation.  We have some very expensive (to our little lives) stuff in the yard, we maintain it like Hershey and Mars do their production floors...this bunch equipment is immaculate!

 

In the last 7 years, each damn year, I've received a 6 figure subchapter S corp sum of money and I'm only a 12.5% owner.  So nearly everyone will say, "The business has done fabulously in the last 7 years, obviously great progress was made....hell dudes just look at the chart!"

 

I could NOT passionately disagree more.  The "value" of our builders supply has steadily diminished in the last three years particularly, even as profits skyrocketed.  Oh my!  Why would an idiot like me say that?  Because competition, new competition, is being built all around.  Yep, both new and bigger competition is going to hurt us and you can be assured with a vengeance we are 100% aware.  Capital allocation?  Did I mention that?  Guess what we are not doing currently?

 

When was our business "value" built?  It was greatly enabled in the 2008 through 2013 time frame when our area basically had zero new houses being built.  A few big ones on the waterfront on the big lakes in our area, a few big ones  here and there, but nothing else.  My...how does that happen?  It happened because basically all, that's ALL, our serve-the-contractor-only (remember we serve custom contractors...not the big tract builders) competitors went out of business.  

 

Why did they go out of business?  Easy call people: they were the bragging bunch making huge profits who added massive capacity during the 2000-2007 boom period.   We didn't add capacity then.  We had 125 employees in our builders supply in 2006 and by 2012 we were down to 22 part time.  Those 22 all agreed to take time and salary cuts, including my nephew the head guy, so that no one else would be let go.

 

That's exactly when our "value" was built.  By 2013 we came out blisteringly hot and our profits today with a smaller staff are multiple times what they were in the 2000-2007 boom period when we had a huge staff.  Wise leadership, generous leadership, one where many ex employees have left with half-a-mil in ESOP....all from a small town builders supply.

 

Same ole story with the insurance brokers, my other once long ago life.  Recently on the insurance broker forum it was brought up...a very lengthy discussion of soon-to-be sure-to-be less than stellar organic commission growth.  That, by those who are hyper-focused on the industry, that lesser organic growth is the main thing that will lessen the value of these current industry leaders...that profits may get pressure and recede.

 

And I sit aside observing, knowing full well the activity that takes place during these periods of awfulness - actually wonderfulness - in the industry.  And all I can think is: That's precisely when the advantage is built, that's the profits of the future that come when pressure is put on the competition.  The less wise competitor has done all kinds of things to make himself vulnerable, it is always the same.  The weak are short term focused and bail out in the weakness.

 

Stock price obsession with a hyper-focus on avoiding things that repeatedly come and go?  That's an interesting way of living life but you can be sure I see few, actually none, succeed at it.  Cyclical growth businesses are superb investments if the management understands the cycles.

Edited August 23 by dealraker

[73 Reds]

3 minutes ago, dealraker said:

So an example of trying to conceptualize "When is business value built?"  Our lowly ole builders supply is an example.  Not the millwork business, let's do the builders supply.

 

We sold 4 builders supply businesses some 30 ago and kept one.  Outside the millwork bus its - our one builders supply - is our total focus.  Capital allocation?  Oh hell yes, on steroids we focus on capital allocation.  We have some very expensive (to our little lives) stuff in the yard, we maintain it like Hershey and Mars do their production floors...this bunch equipment is immaculate!

 

In the last 7 years, each damn year, I've received a 6 figure subchapter S corp sum of money and I'm only a 12.5% owner.  So nearly everyone will say, "The business has done fabulously in the last 7 years, obviously great progress was made....hell dudes just look at the chart!"

 

I could NOT passionately disagree more.  The "value" of our builders supply has steadily diminished in the last three years particularly, even as profits skyrocketed.  Oh my!  Why would an idiot like me say that?  Because competition, new competition, is being built all around.  Yep, both new and bigger competition is going to hurt us and you can be assured with a vengeance we are 100% aware.  Capital allocation?  Did I mention that?  Guess what we are not doing currently?

 

When was our business "value" built?  It was greatly enabled in the 2008 through 2013 time frame when our area basically had zero new houses being built.  A few big ones on the waterfront on the big lakes in our area, a few big ones  here and there, but nothing else.  My...how does that happen?  It happened because basically all, that's ALL, our serve-the-contractor-only (remember we serve custom contractors...not the big tract builders) competitors went out of business.  

 

Why did they go out of business?  Easy call people: they were the bragging bunch making huge profits who added massive capacity during the 2000-2007 boom period.   We didn't add capacity then.  We had 125 employees in our builders supply in 2006 and by 2012 we were down to 22 part time.  Those 22 all agreed to take time and salary cuts, including my nephew the head guy, so that no one else would be let go.

 

That's exactly when our "value" was built.  By 2013 we came out blisteringly hot and our profits today with a smaller staff are multiple times what they were in the 2000-2007 boom period when we had a huge staff.  Wise leadership, generous leadership, one where many ex employees have left with half-a-mil in ESOP....all from a small town builders supply.

 

Same ole story with the insurance brokers, my other once long ago life.  Recently on the insurance broker forum it was brought up...a very lengthy discussion of soon-to-be sure-to-be less than stellar organic commission growth.  That, by those who are hyper-focused on the industry, that lesser organic growth is the main thing that will lessen the value of these current industry leaders...that profits may get pressure and recede.

 

And I sit aside observing, knowing full well the activity that takes place during these periods of awfulness - actually wonderfulness - in the industry.  And all I can think is: That's precisely when the advantage is built, that's the profits of the future that come when pressure is put on the competition.  The less wise competitor has done all kinds of things to make himself vulnerable, it is always the same.  The weak are short term focused and bail out in the weakness.

 

Stock price obsession with a hyper-focus on avoiding things that repeatedly come and go?  That's an interesting way of living life but you can be sure I see few, actually none, succeed at it.  Cyclical growth businesses are superb investments if the management understands the cycles.

So in hindsight do you think you made a mistake by not adding capacity once the competition faded away?  Otherwise, what could you have done to better prepare for competition that re-entered your market?

[rohitc99]

5 minutes ago, dealraker said:

So an example of trying to conceptualize "When is business value built?"  Our lowly ole builders supply is an example.  Not the millwork business, let's do the builders supply.

 

We sold 4 builders supply businesses some 30 ago and kept one.  Outside the millwork bus it is our total focus.  Capital allocation?  Oh hell yes, on steroids we focus on capital allocation.  We have some very expensive (to our little lives) stuff in the yard, we maintain it like Hershey and Mars do their production floors...this bunch equipment is immaculate!

 

In the last 7 years, each damn year, I've received a 6 figure subchapter S corp sum of money and I'm only a 12.5% owner.  So nearly everyone will say, "The business has done fabulously in the last 7 years, obviously great progress was made....hell dudes just look at the chart!"

 

I could NOT passionately disagree more.  The "value" of our builders supply has steadily diminished in the last three years particularly, even as profits skyrocketed.  Oh my!  Why would an idiot like me say that?  Because competition, new competition, is being built all around.  Yep, both new and bigger competition is going to hurt us and you can be assured with a vengeance we are 100% aware.  Capital allocation?  Did I mention that?  Guess what we are not doing currently?

 

When was our business "value" built?  It was greatly enabled in the 2008 through 2013 time frame when our area basically had zero new houses being built.  A few big ones on the waterfront on the big lakes in our area, a few big ones  here and there, but nothing else.  My...how does that happen?  It happened because basically all, that's ALL, our serve-the-contractor-only (remember we serve custom contractors...not the big tract builders) competitors went out of business.  

 

Why did they go out of business?  Easy call people: they were the bragging bunch making huge profits who added massive capacity during the 2000-2007 boom period.   We didn't add capacity then.  We had 125 employees in our builders supply in 2006 and by 2012 we were down to 22 part time.  Those 22 all agreed to take time and salary cuts, including my nephew the head guy, so that no one else would be let go.

 

That's exactly when our "value" was built.  By 2013 we came out blisteringly hot and our profits today with a smaller staff are multiple times what they were in the 2000-2007 boom period when we had a huge staff.  Wise leadership, generous leadership, one where many ex employees have left with half-a-mil in ESOP....all from a small town builders supply.

 

Same ole story with the insurance brokers, my other once long ago life.  Recently on the insurance broker forum it was brought up...a very lengthy discussion of soon-to-be sure-to-be less than stellar organic commission growth.  That, by those who are hyper-focused on the industry, that lesser organic growth is the main thing that will lessen the value of these current industry leaders...that profits may get pressure and recede.

 

And I sit aside observing, knowing full well the activity that takes place during these periods of awfulness - actually wonderfulness - in the industry.  And all I can think is: That's precisely when the advantage is built, that's the profits of the future that come when pressure is put on the competition.  The less wise competitor has done all kinds of things to make himself vulnerable, it is always the same.  The weak are short term focused and bail out in the weakness.

 

Stock price obsession with a hyper-focus on avoiding things that repeatedly come and go?  That's an interesting way of living life but you can be sure I see few, actually none, succeed at it.  Cyclical growth businesses are superb investments if the management understands the cycles.

thanks @dealraker that was an investment book condensed in a single page!

[Gregmal]

Love it Charlie, preach the gospel my man. 

[Spekulatius]

37 minutes ago, Gregmal said:

Love it Charlie, preach the gospel my man. 

Gospels sound good in the church but once you leave you tend to do the same stuff that you always do.

 

You have to live through these things yourself and learn from it hopefully.

[Castanza]

1 hour ago, Blake Hampton said:

• Overstated figures due to unrealized capital gains being recorded as earnings
• High likelihood of a higher corporate tax rate in the future
• Large government deficits that are almost entirely financed with short-term debt, which is essentially printing cash.

 

Some variation of these things will almost always exist.

 

https://awealthofcommonsense.com/2014/02/worlds-worst-market-timer/

[brobro777]

Maybe Powell saying rate cuts are coming marks the top haha

 

[73 Reds]

2 minutes ago, Castanza said:

 

Some variation of these things will almost always exist.

 

https://awealthofcommonsense.com/2014/02/worlds-worst-market-timer/

Yep.  That demonstrates that investment success does not require any real skills, per se.  In fact, if you are just starting out, it would be nearly impossible not to amass more than you need for retirement by simply dollar cost averaging a reasonable sum into a broad based equity fund over the course of a normal working life span.

[Spooky]

Latest memo from Howard Marks about the recent bout of market volatility: https://www.oaktreecapital.com/docs/default-source/memos/mr-market-miscalculates.pdf?sfvrsn=ddfe5566_3

 

Worth it for some of the cartoons he has included alone.

[rohitc99]

23 minutes ago, 73 Reds said:

Yep.  That demonstrates that investment success does not require any real skills, per se.  In fact, if you are just starting out, it would be nearly impossible not to amass more than you need for retirement by simply dollar cost averaging a reasonable sum into a broad based equity fund over the course of a normal working life span.

+1

[John Hjorth]

2 hours ago, Blake Hampton said:

I realize there's no telling with timing on this stuff, but I'm not impressed with current valuations. I'm sitting on about 70% cash and I'll list a couple of reasons for my poor outlook:

• Overstated figures due to unrealized capital gains being recorded as earnings
• High likelihood of a higher corporate tax rate in the future
• Large government deficits that are almost entirely financed with short-term debt, which is essentially printing cash.

As I've said previously, Buffett is sitting with an approximate 50% cash position when you exclude Berkshire's non-financial assets. I'm not calling for a crash or anything, but right now seems like as good a time as any to be bearish.

 

2 hours ago, Blake Hampton said:

I'm starting to realize investing isn't about timing crashes or tops, it's about being prepared for any possible situations in the future.

 

Investing is definitely far more difficult than it looks. Maybe this is why bubbles happen.

 

Blake [ @Blake Hampton ],

 

Where do you look to get to these 'actual', 'at present', 'at the moment' conclusions about valuations?

 

To me, there has always been something to do, if one look around.

[Gregmal]

3 minutes ago, John Hjorth said:

To me, there has always been something to do, if one look around.

Totally, 150%, this!

 

Not to pick on Blake, but I thought it ironic that he states everything is expensive, and then when asked about Fairfax, states he hadn't looked at it.

 

I havent had less than 120% long exposure since I started investing. If I ever start getting down to 100% exposure, let alone a cash balance, that means I NEED to be looking at EVERYTHING, relentlessly, until I find something. Because as you said, thats the thing, theres ALWAYS something, you just gotta find it. There was soooo much value and opportunity over the past 2-3 years. People who missed it just got caught up in the headlines. 

[dealraker]

3 hours ago, Spooky said:

 

Thanks Dealraker for your insights. I am guilty of trying to calculate my returns on an annual basis but it is mainly for the purpose of bench-marking against the S&P 500 to make sure my investing process is working. Part of me is always worried I should just buy the S&P and I am hurting myself in the long run. I'm lucky though that I have a long term orientation and am just looking to buy a few great companies and sit of on my ass(ets). What criteria do you use to make sure you are invested in great companies?  Maybe I should benchmark over a longer time horizon than one year. One thing I heard on a podcast recently (think it was value after hours) was that people focus on the "r" in the formula x*(1+r)^n rather than the "n". The "n" or number of years has a bigger impact on compound returns since it is not linear.

Ben Graham retired with 2 or 3 mil which can be extrapolated upwards from his death for inflation.  As Munger says, "Half of it was simply holding one stock named Geico."  And then there's the businessman Buffett, the business owner.

 

Who dun the best...the in-and-outer or the businessman?  

[rkbabang]

On 8/13/2024 at 11:03 AM, Gregmal said:

To a hammer, everything is a nail. I’ve literally heard “bubble” screamed every year since 2011….

 

This!  The macro market situation is never screaming cheap except in retrospect.  If the market is going down there is always the fear that it will continue to go down a lot more, and whenever the market is going up there is the fear that you missed it and are too late or that it is about to collapse.  Best to just focus on individual stocks and forget the rest.  If you are investing in an index just dca into it and know that you'll get the bottoms as well as the tops.

 

Remember from mid-2022 to mid-2023 when everyone was sure the market was going to collapse. This was my post from more than a year ago in one of these macro threads:

 

 

Can you imagine being out of the market for the last two years because everyone knew it was going to collapse?

 

 

Edited August 23 by rkbabang

[Spooky]

4 minutes ago, dealraker said:

Ben Graham retired with 2 or 3 mil which can be extrapolated upwards from his death for inflation.  As Munger says, "Half of it was simply holding one stock named Geico."  And then there's the businessman Buffett, the business owner.

 

Who dun the best...the in-and-outer or the businessman?  

 

Definitely agree with Munger. Trying to find good companies I can hold for 10 years or longerand just let them do their thing and compound. Been holding BRK and CSU now  as 75% of my portfolio for about 7 years and they have treated me well. Also gives the advantage of lower taxes and transaction costs. Not really sure if I will ever sell these two companies.

Edited August 23 by Spooky

[thepupil]

I generally think that people who are net savers who have jobs or businesses /unrelated sources of income that they can add to their portfolio should be relatively drawdown/volatility agnostic and I think those who are not those things should be drawdown aware and seek to mitigate volatility (to a degree). What I find difficult about that statement is as someone who is in between (nut = 13-18x+ spending, not 25+ but not just a few years either), I don't want to be set back by 3 or 5 or 10 years by a big drawdown so even though I'm a net saver, my stance has become more akin to a jobless rentier regarding desire to stomach a big drawdown. This will probably extend the working career a little because I'd probably have higher returns taking more risk/leverage/etc. but I don't really want to. Some folks take more risk as the nut get bigger. I'm definitely in the opposite camp.

 

But I could never have <60-70% invested. That would basically frighten the hell out of me regarding the 1x irreversible inflation node. 

Edited August 23 by thepupil

[Blake Hampton]

1 hour ago, John Hjorth said:

 

 

Blake [ @Blake Hampton ],

 

Where do you look to get to these 'actual', 'at present', 'at the moment' conclusions about valuations?

 

To me, there has always been something to do, if one look around.

 

This is simply my broad analysis of the current market. I know of some decent things to do and I agree that there's almost always something great if you look hard enough.

 

If you mean fundamentals that I'm basing my listed ideas on, I would look at the S&P 500 factsheet and earnings figures. If you sit and play around with those numbers for a while, you'll notice some interesting things.

 

S&P 500 Earnings and Estimate Report.xlsx

S&P 500 Factsheet.pdf

Edited August 23 by Blake Hampton

[SafetyinNumbers]

17 minutes ago, Blake Hampton said:

 

This is simply my broad analysis of the current market. I know of some decent things to do and I agree that there's almost always something great if you look hard enough.

 

If you mean fundamentals that I'm basing my listed ideas on, I would look at the S&P 500 factsheet and earnings figures. If you sit and play around with those numbers for a while, you'll notice some interesting things.

 

S&P 500 Earnings and Estimate Report.xlsx

S&P 500 Factsheet.pdf 1.05 MB · 4 downloads

There is such bifurcation between quality and sh!tcos that deeming there to be no value based on the aggregate stats seems like a risky choice.

 

That’s why I thought you might like Fairfax. It’s got almost $2 of cash equivalents with relatively short duration for every $1 of shares you buy. Plus about 80 cents in equities with a high earnings yield because its mostly sh!tcos. 

Edited August 23 by SafetyinNumbers

[Blake Hampton]

One of the harder things for me to understand is how asset prices would react to inflation. How would the FED react? They have all these bonds on their balance sheet that they could sell, but who would buy them? How far could interest rates go up?