Have We Hit The Top?

[changegonnacome]

3 hours ago, dealraker said:

change you've been a stopped clock for a long time.  Eventually the hands will get to you!  

 

Not that long - I'd need to check but fairly sure I started my clickty clack your gonna get whacked talk back in June 2022 at the very dawning of the infamous 'bottom' thread......which meant I sidestepped 2022 SPY down year with an aggregate ~15% positive return across account....which was ya know a 33% outperformance relative to SPY 's negative 18.7%.......and this year I'm up 14.2% so trailing SPY by 2% at MidYear.......I'm an 80% invested bear......and agree with @gfp post & chart.....the market goes up what 78% of years.....and does so in a bumpy fashion i.e. big moves up happen over a few days......the math is irrefutable....so 80% exposure is as low as I go......and @Gregmal @dealraker might well be right.....leaving that 20% rolling around in tbills waiting for the walls to fall might turn out to be dumb......but I like having cash around if something like VIx40 goes down.......no harm too as we can all have a VIX40 moment in our lives too!

[Paarslaars]

1 hour ago, Spooky said:

 

Ugh... I struggle with this myself. My rational brain tells me just to buy the S&P 500 and forget it. But the investing game is just too much fun. 

 

 

Been wondering about this one, if you would buy & hold a leveraged S&P tracker (3x) wouldn't you crush the market without ever having to any analysis by default? Assuming you're not buying at what is going to be the peak for the next 20 years.

[Gregmal]

3 minutes ago, Paarslaars said:

 

Been wondering about this one, if you would buy & hold a leveraged S&P tracker (3x) wouldn't you crush the market without ever having to any analysis by default? Assuming you're not buying at what is going to be the peak for the next 20 years.

No. Daily leverage resets. 

[changegonnacome]

Yeah exactly - holding SPY on margin can work.......but where the margin element is constrained by whatever you can bounce around at super low or no cost non-callable debt thats been discussed elsewhere - like 0% introductory cards. I think to do that you'd want some quant SPY expected return model helping you guide the margin up or down at the right time - kind like the Gotham model. - www.gotham.com.

 

individual names - can for sure be different......sometimes prices are so nuts and you know the business back to front that it gets to be hard to loose & I've got VERY aggressive at times......but only when its like shooting fish in barrel.....still requires caution cause sometimes the fish shoot back. 

Edited June 15, 2023 by changegonnacome

[Gregmal]

Just more perspective, at least stuff that resonates with me. I am sometimes willing to admit that I’ve been accused at being an excellent catalyst trader or sometimes referred to as a “market timer”. I sold CIBR at $32 and $BX at 62 in Feb 2020 right before the market briefly crashed. I top ticked big techs 2022 Q1. MSFT I sold at $290. Google at $2700. WM I sold at $166. Costco at $560. You’d be hard pressed to execute on “timing” as good as this most times. Frankly I consider myself lucky with most of these. And despite this, looking at them all today, it’s pretty conclusive that it wasn’t necessary at all and I’d probably have owned even more of these great names at better prices had I not had a sellers bias. So much of this shit is mental.

[james22]

I'm only grateful I'm not a professional.

 

It's been painful enough being a factor investor the last decade-and-a-half.

 

Imagine being a DFA advisor.

 

Yeesh.

[Spooky]

2 hours ago, Paarslaars said:

Been wondering about this one, if you would buy & hold a leveraged S&P tracker (3x) wouldn't you crush the market without ever having to any analysis by default? Assuming you're not buying at what is going to be the peak for the next 20 years.

 

There was an academic study recently advising that young people should borrow to buy stocks early in life. I've been considering getting a line of credit to invest in stocks and not buy on margin to avoid any possibility of a margin call. In Canada you can write off the interest expense from your taxes. This strategy assumes that the future will look similar to the past though.

[TwoCitiesCapital]

4 hours ago, gfp said:

Liberty (remember them?  They used to post here back in the day) posted this graphic on twitter that I thought was a pretty good illustration of why Buffett and other successful investors like to stay in the market all the time.  Hard to argue with this graphic ->

 

 

It's misleading though because the base is changing for every peak/through. 

 

The 57% drop in the GFC looks small relative to the rise from 2002 -2007 preceding it (a 100% rise), but what it actually meant was you gave ALL of that prior rally back and then some despite the prior rally looking significantly bigger. 

 

On a price basis, you were basically flat on the S&P 500 from 2002 - 2013. Would've done significantly better in treasuries but this graphic doesn't pain that picture. Makes 2002 - 2013 look pretty good despite actually experiencing negative real returns over the course of a decade. 

[WayWardCloud]

On 6/14/2023 at 4:01 PM, backtothebeach said:

Most stocks have a positive return in any given year.

 

I don't think this contradicts the study. You have to remember survivorship bias. The overwhelming majority of early car makers went bankrupt but the very few that made it out of the haystack and survived such as Ford and GM posted positive returns for many many years since then. So both stats can be true at the same time. Dead companies have no stocks but they sure destroyed all your wealth.

 

On 6/14/2023 at 4:01 PM, backtothebeach said:

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.

 

There are a million other parameters at play here so you can't really deduce or disprove much using a comparison between market cap weight and equal weight indices. Probably less of a momentum tilt yes but also more of a value tilt, mid-small tilt, different sector weights... Whatever, it's just a different portfolio and the outperfromance or underperformance will come from many factors so maybe some other tilt "makes up" for not having as much of the big winners some of the years and some of the years it doesn't and equal weight underperforms. Also who said the big winners were necessarily the top holdings in weight?

 

On 6/14/2023 at 4:01 PM, backtothebeach said:

Flawed study

 

I'm not married to this study at all by the way so thanks for bringing it to my attention I just would need some proof/convincing because it looks legit to me. Do you have a source?

 

 

Edited June 16, 2023 by WayWardCloud

[Jaygo]

13 hours ago, Spooky said:

 

There was an academic study recently advising that young people should borrow to buy stocks early in life. I've been considering getting a line of credit to invest in stocks and not buy on margin to avoid any possibility of a margin call. In Canada you can write off the interest expense from your taxes. This strategy assumes that the future will look similar to the past though.

I am doing this in Canada. It is referred to as the smith maneuver since I am using proceeds from my Home Line of Credit. Essentially the goal is to go from mortgage that is not a deduction to a line of credit that is a deduction. 

 

I started with $ 50,000.00 in VCE and for most of 2021 and 2022 the dividends were covering the interest. now not so much. This represents about 7% of my investable cash but I am willing to go up to about 25% over time. My basic rules are based on the fact that I can service the dept out of my own savings rates up to about $ 2500/month if it got to that point.

 

last year I had a tax right off of roughly $2,200.00 so I saved about $800.00 in taxes. This year will be more since my rate is now %7.2

 

I

[SharperDingaan]

2 hours ago, Jaygo said:

I am doing this in Canada. It is referred to as the smith maneuver since I am using proceeds from my Home Line of Credit. Essentially the goal is to go from mortgage that is not a deduction to a line of credit that is a deduction. 

 

It works a lot better with a LoC collateralized against a TFSA, passing funds through a taxable investment account, that constantly contributes up to the maximum TFSA lifetime limit at the beginning of the year. Lowest possible interest rate on the LoC, monthly interest cash cost covered via draws on the TFSA, all gains/dividends in the TFSA tax free, and an interest tax deduction at the end of every year (smith maneuver). Transfer out of the TFSA more than you contributed, and the tax free accumulated gains/dividends become additional TFSA room (up to the current lifetime limit).

 

Keep everything in the TFSA and a lifetime of annual contributions/dividends/gains avoids future public pension claw-backs, mandatory minimum RRSP withdrawals, and passes its contents on to named beneficiaries tax free. Invest some of it in co-owned property (anywhere in the world), and get additional benefit. If the TFSA owns part of a 2nd property; an otherwise taxable gain on sale becomes non taxable - whether that 2nd property is in Canadian ski-country, a condo in a university town (where your kid is at school ), or a holiday Airbnb rental on a Greek island. Point is ... take the long-term view around a TFSA, and the utility of this account radically changes ... all for the good  

 

Obviously, not for everybody .....

 

SD

 

 

 

Edited June 16, 2023 by SharperDingaan

[mattee2264]

I think what the post WW2 history shows is that bull markets can be very long and stocks can therefore remain expensive for long periods of time. Even if eventually there is a bear market which brings stocks closer to or below fair value the problem is that fair value increases over time in line with earnings and dividend growth as well as inflation so staying out of expensive markets hoping you can buy back lower when valuations are more reasonable is generally a losing strategy. 

 

But difficult not to feel a little bit anxious when the S&P 500 is fast approaching the 2021 high which was generally regarded as a speculative peak produced by a) Unprecedented monetary and fiscal stimulus b) zero interest rates c) post-COVID growth optimism. The only factor still operative is expansionary fiscal policy which I think has been keeping the economy afloat. 

[Jaygo]

1 hour ago, SharperDingaan said:

 

It works a lot better with a LoC collateralized against a TFSA, passing funds through a taxable investment account, that constantly contributes up to the maximum TFSA lifetime limit at the beginning of the year. Lowest possible interest rate on the LoC, monthly interest cash cost covered via draws on the TFSA, all gains/dividends in the TFSA tax free, and an interest tax deduction at the end of every year (smith maneuver). Transfer out of the TFSA more than you contributed, and the tax free accumulated gains/dividends become additional TFSA room (up to the current lifetime limit).

 

Keep everything in the TFSA and a lifetime of annual contributions/dividends/gains avoids future public pension claw-backs, mandatory minimum RRSP withdrawals, and passes its contents on to named beneficiaries tax free. Invest some of it in co-owned property (anywhere in the world), and get additional benefit. If the TFSA owns part of a 2nd property; an otherwise taxable gain on sale becomes non taxable - whether that 2nd property is in Canadian ski-country, a condo in a university town (where your kid is at school ), or a holiday Airbnb rental on a Greek island. Point is ... take the long-term view around a TFSA, and the utility of this account radically changes ... all for the good  

 

Obviously, not for everybody .....

 

SD

 

 

 

Thank you for the ideas, but if my TFSA and RRSP is already max contributed wouldn't that not work. I actually considered taking my TSFA selling all, paying the $ 170,000 of my mortgage and borrowing it back to refill the tfsa but My accountant said it would not be deductible in a registered account. So ive left the TFSA as is and borrowed from the house to invest in a taxable account.

[Luke]

18 hours ago, Spooky said:

 

There was an academic study recently advising that young people should borrow to buy stocks early in life. I've been considering getting a line of credit to invest in stocks and not buy on margin to avoid any possibility of a margin call. In Canada you can write off the interest expense from your taxes. This strategy assumes that the future will look similar to the past though.

Yep, as long as you compound above the interest rate you'll make money, really depends on for how much you can borrow, for how long and if you can find good investments that beat the interest paid. 

 

 

[SharperDingaan]

16 minutes ago, Jaygo said:

Thank you for the ideas, but if my TFSA and RRSP is already max contributed wouldn't that not work. I actually considered taking my TSFA selling all, paying the $ 170,000 of my mortgage and borrowing it back to refill the tfsa but My accountant said it would not be deductible in a registered account. So ive left the TFSA as is and borrowed from the house to invest in a taxable account.

 

You might want to do the tax refund PV calculations around the RRSP. If you intend to delay taking public pensions until you work until your 72nd birthday, a $1M RRSP at time of retirement becomes a liability as the combination of minimum drawdowns, plus enhanced public and private pensions will start to claw back public pension. Present value that $1M back to today at your expected long-term CAGR; after a while, it's better to pay down mortgage than continue contributing to the RRSP.   

 

In your early years, the drum-beat is 'max out your RRSP' and contribute the tax refund to the TFSA. In your later years it's 'max out your TFSA' and use the TFSA for market timing; when markets are buoyant sell/take the gains, contribute to your taxable investment account, and create new TFSA room; the following year when markets are low, take from your taxable investment account, and max out the contribution to the TFSA. Repeat, and the accumulating tax free roundtrip gains in the TFSA build the equity in your taxable investment account. Reduce your risk by parking the build in Canada's/GIC's with YTM's > 5% 

 

Lots of ways to play, but all of it is long-term.

 

SD

[brobro777]

I'm skeptical but maybe it'll just continue to grind higher for the rest of the year to SPX 5000. 

 

Why not? 5000 sounds nice enough 

[John Hjorth]

This topic has changed name recently, to a name of a topic that has actually been discussed on ongoing basis since I joined CoBF now more that a decade ago, in various shades, actually almost back to the day of what I call "the CoBF Big Bang", the day that Sanjeev [ @Parsad ] installed and folded this board out, getting it up going and running from an infant and modest start. That date was February 1^st 2009 according to our Common Era.

 

The only exception beeing the first short period in this boards existence untill the market buttomed out under GFC, where the pendulum stated to swing forcefully backin the opposite direction. [I have real all posts on CoBF for the period before I the date I joined myself.]

 

Trying to time the shift between each state of the market in the cycle is waste of time, because you can't. The only way on a constantly basis to take advance of this is to stay consistently fully invested all the time.

 

[backtothebeach]

On 6/16/2023 at 1:29 AM, WayWardCloud said:

 

I don't think this contradicts the study. You have to remember survivorship bias. The overwhelming majority of early car makers went bankrupt but the very few that made it out of the haystack and survived such as Ford and GM posted positive returns for many many years since then. So both stats can be true at the same time. Dead companies have no stocks but they sure destroyed all your wealth.

 

 

There are a million other parameters at play here so you can't really deduce or disprove much using a comparison between market cap weight and equal weight indices. Probably less of a momentum tilt yes but also more of a value tilt, mid-small tilt, different sector weights... Whatever, it's just a different portfolio and the outperfromance or underperformance will come from many factors so maybe some other tilt "makes up" for not having as much of the big winners some of the years and some of the years it doesn't and equal weight underperforms. Also who said the big winners were necessarily the top holdings in weight?

 

I'm not married to this study at all by the way so thanks for bringing it to my attention I just would need some proof/convincing because it looks legit to me. Do you have a source?

 

Maybe "flawed" was too strong a word. The results of the study may be mathematically correct with the method they are using.

 

Here is a good argument that questions the applicability of the study for real life investing:
https://www.shrewdm.com/MB?pid=406114835

 

I'm not married to criticizing the study, eiher.

 

If anything, it highlights the importance of Buffett's rule #1 and #2: Don't lose money. Don't hold stocks of questionable businesses. I've held one stock into bankruptcy in my investing career, and have hopefully learned enough not to do that again.

 

As an extreme example: If in 50 years Berkshire's corporate governance goes to shit, and an inept and dishonest management bankrupts the firm, would you say that Berkshire (never paid dividends) did not create wealth during its lifetime? That's presumably what the Bessembinder study would say.

[WayWardCloud]

That's a great point. Thanks for sharing I understand better what you meant now.

[mattee2264]

AI is used as a partial justification for the Fantastic 7 melting up. But aside from Nvidia (where the revenue benefits are clearly already more than priced in!) is it really going to move the needle that much over the next decade?

 

Companies like Google, Microsoft, Apple are already making around $200-$400BN revenues a year. Even if revenues from generative AI grow at a rapid clip similar to Cloud from a low base it would probably take many years to account for more than a fraction of their revenues. As for traditional AI it is really nothing new and these companies already have sophisticated data analytics capabilities that are already contributing strongly to their huge revenues so while it might improve the value proposition for someone like Microsoft especially for upgrades etc and perhaps allow companies like Google and Facebook to target their advertising even more effectively will it generate tens of billions of new revenues for them? And generative AI feels a bit gimmicky at the moment e.g. Bing has a new AI co-pilot etc but it has made no difference to me and I still use Google and most of my friends are asking Chat GPT silly questions and laughing at the answers and more techy people are delighting in finding ways to trip it up. 

 

And you also have to wonder to what extent it will start to cannibalize their existing main revenue streams which are already starting to look very mature and will be difficult to maintain especially in a weak economy where the vast majority of their customers are struggling. 

 

Also there seems to be an assumption that mega-caps will be the main beneficiaries when history would generally suggest that while they clearly have a massive advantage in terms of making investments, buying up promising start-ups, hiring the best talent etc. so did IBM and Microsoft back in the day (before Microsoft rediscovered its mojo) and Google and Meta emerged AFTER the tech bust. So often with a new technology it favours more innovative entrepreneurial companies that don't have to worry about their existing businesses being cannibalized and have a fresh perspective. 

 

Even if there is an incredible long term opportunity in the near term non-AI revenues are clearly going to come under challenge especially if we are heading for a hard landing. Apple, Facebook, Google and Amazon all have cyclical revenues. Tesla is an automobile company and autos are famously cyclical. And even in a soft landing that the Fed are predicting whereby GDP growth is only 1% or so for the year that will translate into single digit growth figures which rarely goes down well when investors are paying 30-60x earnings expecting double digit revenue and earnings growth as far as the eye can see.

 

 

[dealraker]

On 6/15/2023 at 4:11 PM, changegonnacome said:

 

Not that long - I'd need to check but fairly sure I started my clickty clack your gonna get whacked talk back in June 2022 at the very dawning of the infamous 'bottom' thread......which meant I sidestepped 2022 SPY down year with an aggregate ~15% positive return across account....which was ya know a 33% outperformance relative to SPY 's negative 18.7%.......and this year I'm up 14.2% so trailing SPY by 2% at MidYear.......I'm an 80% invested bear......and agree with @gfp post & chart.....the market goes up what 78% of years.....and does so in a bumpy fashion i.e. big moves up happen over a few days......the math is irrefutable....so 80% exposure is as low as I go......and @Gregmal @dealraker might well be right.....leaving that 20% rolling around in tbills waiting for the walls to fall might turn out to be dumb......but I like having cash around if something like VIx40 goes down.......no harm too as we can all have a VIX40 moment in our lives too!

It is inevitable that we want to be experts on all things at all times, such that we write about hundreds of times to engrain whatever we're hyping even deeper.  I was surprised, seems many business profit margins are higher with the current inflation?  Gee-lee, I'm confused yet again.  

 

Guess I'll pick one of the hedge fund runners, the one who agrees with me (actually can't find one but...), and post-up his stuff.  Like I wrote, in the late 1990's I met Jimmy Rogers at a local investment seminar.  Tiny guy.  He was on CNBC once a week back then, doing his world motorcycle tour and screaming commodities.  I thought to myself, "He's the expert; I own Berkshire, AJ Gallagher, the railroads, equity exchanges, Brookfield, Markel, Fairfax, etc...and I am just another loser I guess."

 

And Johnny Chambers was as popular as Elon is today.  John was fighting the FASB on expensing stock options, he used them for all capital needs and expenses not just compensation.  Some quarters this expense, that was inflow of cash, exceeded sales.  And Jack?  Damn he owned CNBC with 17-18% forever GE boasts.

 

AI baby!  Gunna take them big cap techs to 500% of GDP!  They say.  Where's Jimmy...and Jack? 

 

The whale sighting is always on the other side of the ship for most of us.  

Edited June 18, 2023 by dealraker

[Spekulatius]

@dealraker Jimmy and Jack were right….for a while.

 

I listened to a blinking  summery of the book (Superforecasting) that stated that the best forecasters are those that continuously update their forecast based on current data and that are not afraid to change their mind.

 

This does not work well in the media circus because media wants to story, so do they want to bearish story, they dial 1-800- CHANOS or 1-888- GRANT and if they want tech bull they sent an email to Crazy Cathie. None of this is likely to make you any money and in fact it’s not meant to, because for media it’s about the number of  eyeballs, not the portfolio performance of their audience.

[changegonnacome]

On 6/18/2023 at 8:20 AM, dealraker said:

I was surprised, seems many business profit margins are higher with the current inflation? 

 

Me too - got it wrong - or maybe more correctly the timing completely wrong which is the same thing as being wrong 

 

Guess SPY companies are by positive selection better businesses and so have better than average pricing power.......inflation was an opportunity for them to push price & flex that muscle they have. Might help explain SPY vs. Russell 2000 delta. Margins expanded or could be expanded by these businesses with the backdrop of strong economy/strong consumer. They also found, that when they looked internally a little later in the post-covid cycle (when macro rumblings began to emerge) that they had fat to trim and they did giving a another tailwind to margins. Most notably big tech of course which had become bloated. Some evidence of course of accountancy shenanigans where CFO's extended useful life/deprecation calculations for data centre equipment etc.. So for sure some levers being pulled to 'make the numbers' too.

 

There is occurring now through Fed actions disinflationary pressures building..albeit way slower than any would have thought......they just haven't quite landed yet which is the BIG forecasting error of the last 12 months.....that the US economy had become so insensitive to rates & that the tailwind/echo from fiscal stimulus had such an extended half-life that it managed to sustain 3.4% unemployment with Fed Funds sitting at 5.25%.......nobody including me saw that coming.

 

In some respects the failure to budge supercore....is connected at the hip with margins.....they are twin brothers.....supercores failure to move down is the same environment that has allowed margin strength to remain....falling supercore i.e. true disinflation progress is when you would expect margins to bite and as the Fed/JPow pointed out at the June meeting & by way of flagging further hikes in July/Sept there has been ZERO progress made on supercore disinflation after 15 months & 500bps of rate rises & so in some respects we shouldn't be surprised that margins are yet to get pinched more fully.....margins getting pinched IS disinflation. Put another way the absence of demonstrably significant margin compression is part of the problem that is alarming the Fed and is going to require them to continue raising in H2.

 

When you start seeing disinflationary progress on supercore its a sign that margins are likely contemporaneously getting squeezed too. No progress on supercore = margin maintenance.

 

Lets see the simple thesis is that the Fed fails at many things - forecasting, communicating, timing - the one thing the Fed rarely fails at, given they control the price of money, is inducing a recession/slow down if that is what they desire....their inability to create a recession in a more normal timeframe.....fashion shouldn't be misinterpreted as a failure to do so...they will get there in the end.....they seem intent on continuing with hikes until that is achieved and they will achieve it......they won't rest till unemployment spikes upwards to at least 4.5% (ballpark NAIRU). The book says that in doing so they wont be able to stop it going to 5.4% such is the negative momentum that builds up & the lagging nature of unemployment as the last thing 'to go'.

Edited June 19, 2023 by changegonnacome

[mattee2264]

Fiscal stimulus is ongoing with the debt deal just normalizing emergency level trillion dollar deficits despite the fact we are at full employment and the pandemic is long over. So that is definitely providing ongoing support to the economy. 

I think we have seen something akin to tacit collusion whereby companies en masse have been able to put through hefty prices increases without much resistance. Perhaps if we do go into recession some of these price increases will have to be reversed to some degree. And already we are starting to see a bit of that. I am not expecting a lot of wage inflation especially if we go into recession but there will be some because generally pay reviews are annual usually at the start of the year and in 2022 companies were probably able to get away with the pre-pandemic 3% pay rises but will probably need to give a bit more this year. 

 

What has been a bit surprising is the degree to which Big Tech have been able to maintain pandemic earnings (well in nominal terms at least). My assumption was that to some extent pandemic earnings were unsustainable as they were achieved when everyone was on their phones/online 24/7 and their old economy competitors were severely handicapped by lockdowns etc. But I guess it goes to show how strong Big Tech are and how people continue to underestimate them.

But they haven't been properly tested by a recession so I think earnings could show a bit more cyclicality than people are expecting if we go into recession later this year or early next year. And I think to some degree their explosion in prices YTD is a replay of the COVID period when people saw them as a safe haven. In other words, they are the new defensives (forget bonds, consumer staples, utilities etc!). 

 

And what could be more seductive than a select group of stocks which offer glamour, incredible past performance, apparent safety (largely based on their pandemic performance), familiarity (especially for the younger generation), and seeming invincibility as every time they get knocked down (e.g. 2018, 2022) they come back stronger and reach new highs. And now the added kicker of an incredibly fertile avenue for future growth in AI. So little wonder everyone wants to own them and pretty much does and is comfortable paying high double digit multiples even as interest rates head higher. 

 

 

 

 

[mattee2264]

Contrarian indicator?