Have We Hit The Top?

[Guest]

It's always amusing to me how confident (arrogant?) people are about their forecasting abilities. If you are going to be a bear, you better see something the market/media doesn't see. 

[Gregmal]

15 minutes ago, stahleyp said:

It's always amusing to me how confident (arrogant?) people are about their forecasting abilities. If you are going to be a bear, you better see something the market/media doesn't see. 

So a recession? Lol

[Parsad]

8 minutes ago, stahleyp said:

It's always amusing to me how confident (arrogant?) people are about their forecasting abilities. If you are going to be a bear, you better see something the market/media doesn't see. 

 

I'm pretty sure most people, including the media, saw the crazy valuations in tech stocks in 1999 and the silly loans people were making on mortgages in 2007. 

 

Nortel accounted for 40% of the TSX in 1999 and no one listened to me or a bunch of other people on the MF BRK Board.  I remember the former CEO/crook of Countrywide (Angelo Mozillo) telling everyone on CNBC how they were now doing 110% LTV's...you just had to put the other 10% into renovating the property!  In that case, no one was listening to a whole bunch of us on the old MSN BRK Board.  

 

Most of the time bubbles are actually right in people's faces.  But they just don't want to face it.  Or worse yet, they don't want to be in the group that say "We missed out!"  Look at crypto or recent small/mid-sized tech stocks that had crazy valuations.

 

But I agree with you that forecasting exactly when the fall happens...that is the damn near impossible part.  

 

Cheers!

[Parsad]

https://finance.yahoo.com/news/us-manufacturing-activity-shrinks-most-142737300.html

 

Cheers!

[Ulti]

1 hour ago, Parsad said:

Countrywide (Angelo Mozillo)

Damn that's a blast from the past... and he was something you didnt want to step in

[Guest]

Sanj, 

 

When was the last time you were fully invested?

[Guest]

1 hour ago, Gregmal said:

So a recession? Lol

 

Worse. Great Depression. Already in it. Been since 2009!

[james22]

1 hour ago, Parsad said:

I'm pretty sure most people, including the media, saw the crazy valuations in tech stocks in 1999 and the silly loans people were making on mortgages in 2007. 

 

How many saw the valuations as too high in 1995 and 2003 and missed the run-up?

 

Or worse, capitulated and bought in at the peak?

[Spekulatius]

Just remember, the stock market is not the economy. Even in 2008, when the economy was already a dead man walking, the stock market bounced back from Bear Stearns disaster in March 2008 and wasn’t really looking bad until July 2008 when the selling started to accelerate. Just because the stock market does well, doesn’t mean that there are no issues that could derail the economy.

 

I am not stating that we are going to see a repeat of 2008, but the above is an example where the stock market clearly got it wrong. There are other instances and it works both ways. At the end of 2015 for example we had an energy and a shallow manufacturing recession and many expected worse to come but that never happened.

 

Looks like we will have a manufacturing recession in the near future at least. I also see this at work and in a a circle of friends, it seems widespread.

https://finance.yahoo.com/news/us-manufacturing-activity-shrinks-most-142737300.html

[Viking]

I don’t understand all the hate for strategies people don’t use. At the end of the day there is no ‘right’ strategy. It comes down to fit. Find a strategy that works for you. 
 

Yes, it would be stupid to use a strategy that you did not understand or believe in. The fact other people use a strategy you do not use does not make them stupid. And of course, calling them stupid for doing so is… well, obviously thats just plain dumb (putting it politely). 

i love all the different ways people chose to invest. I hope they all get filthy rich in the process - or achieve whatever their investment/life goals are. Best of luck to all…

[Parsad]

6 hours ago, stahleyp said:

Sanj, 

 

When was the last time you were fully invested?

 

March 2020, plus maxed out half my HELOC...never used leverage until then.  Went to about 40% cash, then I was also 90% invested late last year/early 2023.  Now 50% cash again!

 

Granted I can do that, because most of my money is in non-taxable accounts.  Cheers!

[Parsad]

6 hours ago, james22 said:

 

How many saw the valuations as too high in 1995 and 2003 and missed the run-up?

 

Or worse, capitulated and bought in at the peak?

 

Probably true! 

 

Although, I didn't really start investing (value framework) until 1998...did perfectly fine to the run-up in 2007, but then saw the writing on the wall in late 2007.  

 

For the average investor, they should just average in every quarter or year in an ETF.  Cheers!

[Monsieur_dee]

2 hours ago, Parsad said:

 

Granted I can do that, because most of my money is in non-taxable accounts.  Cheers!

Did you set up the HELOC specifically for that opportunity?

[mattee2264]

I think it is possible to identify mini-bubbles and bubble stocks. The stay-at-home stocks (e.g. Zoom, Peloton) obvious examples from the pandemic. And more recently Tesla and Nvidia valuations clearly defy logic and to make any sense require incredibly optimistic assumptions about market shares and market growth and future profits. And yes AI is likely to result in a mini-bubble as well that will burst at some point. But this is more helpful in staying away from such situations (or at least not overstaying your welcome). I am not convinced it is incredibly helpful in timing the market as often bubbles burst and overpriced stocks fall back to earth without much of a market impact. 

 

2000 was a bit different because of the extent of the bubble (encompassing technology and communications) and also the fact that even for the more mature and higher quality companies their revenues and earnings simply weren't sustainable and once the internet and associated communications networks had been built out they'd made most of the money they could hope to make and became ordinary companies again. And of course the dot com start ups with no earnings and not much more than an exciting story mostly went bust. 

 

This time round within the S&P 500 the very high valuations are mostly limited to Big Tech. And ignoring Nvidia and Tesla for now they may well be justified. These are very profitable companies with very strong competitive advantages and their earnings look sustainable even if they may not grow as fast as they used to and they are also very innovative as their exploitation of cloud/data analytics etc. showed and are likely to enjoy a large share of whatever market opportunity there is in AI going forward. They also have defensive qualities as they are essential to the global economy and businesses and consumers cannot do without their products/services (recession hedge) and enjoy pricing power (inflation hedge). 

 

And valuation risk alone is generally a bad reason to avoid holding high quality companies or indeed the market as a whole (especially given it the S&P 500 is stacked with high quality companies). 

 

And as for the recession talk. Recessions are very difficult to predict. And it is even harder to predict the timing or the magnitude/duration. Or the impact of the recession on different sectors e.g. manufacturing, services etc. Let alone the impact on the overall stock market.

 

The chances of a hard landing are probably a lot higher than is currently priced into the market. And if there is a hard landing then corporate earnings may fall by 20% or so which would have a market impact. But not necessarily a proportionate impact as markets may decide to look through a recession. And they may also cheer if a hard landing brings inflation down and raises the prospect of a Fed pivot. And while cyclicals may sell off even more investors may decide to continue to follow the COVID playbook of rotating into Big Tech rather than rotating into bonds.

 

 

 

 

[MikeL]

8 hours ago, Parsad said:

Although, I didn't really start investing (value framework) until 1998...did perfectly fine to the run-up in 2007, but then saw the writing on the wall in late 2007.  

we all know how hard it is to call the exact top, it seems like you did it. May I ask what make you identify it in late 2007 rather than earlier, a lot of people would have sold out prior to that time.

[mattee2264]

2023 First Half Returns... The Enormous Eight... $NVDA: +190% $META: +138% $TSLA: +113% $AMZN: +55% $AAPL: +50% $NFLX: +49% $MSFT: +43% $GOOGL: +36%

 

Everyone Else... S&P 500 Equal Weight ETF $RSP: +7% S&P Small Cap ETF $IJR: +6%

 

This is a pretty good summary of the first half of the year. 

Any predictions for what the corresponding second half numbers might be?

[Gmthebeau]

12 minutes ago, mattee2264 said:

2023 First Half Returns... The Enormous Eight... $NVDA: +190% $META: +138% $TSLA: +113% $AMZN: +55% $AAPL: +50% $NFLX: +49% $MSFT: +43% $GOOGL: +36%

 

Everyone Else... S&P 500 Equal Weight ETF $RSP: +7% S&P Small Cap ETF $IJR: +6%

 

This is a pretty good summary of the first half of the year. 

Any predictions for what the corresponding second half numbers might be?

 

yep, this is a great summary.  NVDA has to be a massive short squeeze.  I don't believe any sensible investors are buying it at these prices.   Artificial Intelligence (AI) is the latest story to get people to FOMO.  Have not seen any real practical applications yet.  Did you know that in the original Mission Impossible movie from 1996 there is a reference to AI chips?  LOL, they were talking about AI in 1996 and still nothing real from it.

[changegonnacome]

16 minutes ago, Gmthebeau said:

LOL, they were talking about AI in 1996 and still nothing real from it.

Not true - a very simple heuristic is that what people class now as machine learning or automation tech is actually what used to be historically classed as AI…and stuff that we can’t quite get to work YET…..and remains to be fully solved…..is called AI.

 

Short version -

Automation is AI that ‘works’, AI is automation that doesn’t ‘work’ yet. 

 

See once AI starts to work on something it very quickly gets classed as ‘just’ straight through processing(STP), machine learning, RPA or just automation…..there has been an immense amount of THIS progress since 1996….so much so that technologists from 1996 would class much of what you seem to take for granted today as really really immense achievements in the field that likely exceeded their best predictions. Eaten bread is soon forgotten….appreciation of AI progress follows the same principle.

[Gmthebeau]

10 minutes ago, changegonnacome said:

Not true - a very simple heuristic is that what people class now as machine learning or automation tech is actually what used to be historically classed as AI…and stuff that we can’t quite get to work YET…..and remains to be fully solved…..is called AI.

 

Short version -

Automation is AI that ‘works’, AI is automation that doesn’t ‘work’ yet. 

 

See once AI starts to work on something it very quickly gets classed as ‘just’ straight through processing(STP), machine learning, RPA or just automation…..there has been an immense amount of THIS progress since 1996….so much so that technologists from 1996 would class much of what you seem to take for granted today as really really immense achievements in the field that likely exceeded their best predictions. Eaten bread is soon forgotten….appreciation of AI progress follows the same principle.

 

ok, sure thing.  Keep telling yourself that.  I didn't see a practical application listed in all that.  ChatGPT and such is interesting at first until you realize it starts producing some really bad responses.

[UK]

1 hour ago, mattee2264 said:

2023 First Half Returns... The Enormous Eight... $NVDA: +190% $META: +138% $TSLA: +113% $AMZN: +55% $AAPL: +50% $NFLX: +49% $MSFT: +43% $GOOGL: +36%

 

Everyone Else... S&P 500 Equal Weight ETF $RSP: +7% S&P Small Cap ETF $IJR: +6%

 

This is a pretty good summary of the first half of the year. 

Any predictions for what the corresponding second half numbers might be?

 

Despite being very exited about some of these enormous eight just 6-8 month ago, I in no way expected that situation with long duration assets in general and big tech in particular will reverse so quickly and to a such extreme. I think I still can live with a multiples of 20x or even 25x for a really good companies with an improving results (as most of these probably are), but now some of them are getting into 30+ territory, which is maybe already disturbing for a such large and in some cases slowing businesses? But Apple is one of these and BRK continues to hold like half portfolio in it and I am also not sure what to think about it. So...more questions than answers and no predictions from me:)

 

 

Edited July 5, 2023 by UK

[Gregmal]

5 minutes ago, UK said:

 

Despite being very exited about some of these enormous eight just 6-8 month ago, I in no way expected that situation with long duration assets in general and big tech in particular will reverse so quickly and to a such extreme. I think I still can live with a multiples of 20x or even 25x for a really good companies with an improving results (as most of these probably are), but now some of them are getting into 30+ territory, which is maybe already disturbing for a such large and in some cases slowing businesses? But Apple is one of these and BRK continues to hold like half portfolio in it and I am also not sure what to think about it. So...more questions than answers and no predictions from me:)

 

 

If nothing else, wouldnt somewhat of a contrarian approach be to get long-ish the non supercap tech and even short the index? Bet that beats bonds over the next 6-12 months as well.

[Gmthebeau]

7 minutes ago, UK said:

 

Despite being very exited about some of these enormous eight just 6-8 month ago, I in no way expected that situation with long duration assets in general and big tech in particular will reverse so quickly and to a such extreme. I think I still can live with a multiples of 20x or even 25x for a really good companies with an improving results (as most of these probably are), but now some of them are getting into 30+ territory, which is maybe already disturbing for a such large and in some cases slowing businesses? But Apple is one of these and BRK continues to hold like half portfolio in it and I am also not sure what to think about it. So...more questions than answers and no predictions from me:)

 

 

 

I traded TSLA, AAPL, GOOG, MSFT, and AMZN off the bottom but sold all of them recently.  I think they are all back to too expensive.  Doesn't mean they won't go higher but they are likely to give it all back and then some at some point.  Buffett also held Coke in 1998 at a PE of nearly 50.  He later admitted he should have sold it.

[Ulti]

13 minutes ago, Gmthebeau said:

 

ok, sure thing.  Keep telling yourself that.  I didn't see a practical application listed in all that.  ChatGPT and such is interesting at first until you realize it starts producing some really bad responses.

Good discussion on how Bridgewater is using ai for investing, progress they have made…. Jenson is co cio and is in their ai investment committee 

[changegonnacome]

10 minutes ago, Gmthebeau said:

I didn't see a practical application listed in all that.

Voice assistants…..dictation with 99% accuracy rate….smart homes….Google search for christs sake is a marvel of AI…..L2 & L3 autonomy in commercially available vehicles….the L4/5 systems driving around SF & Phoenix without any driver….zero cost trading…Waze..all the automation/AI that goes into ANYTHING you do on a banking app on your phone….you do realize in 1996 that needed to be done in-person and for a given financial task performed it involved swathes of people in your bank & the counterparty bank to get it done? During my brief career whole back office finance teams of 100’s of people in companies I’ve worked in have already been replaced by AI….but like I said by the time AI eliminates jobs….the solution doing it is called RPA/STP/automation/ML system…..or just a systems refresh…never AI but that’s exactly what it is. 

[Gmthebeau]

11 minutes ago, changegonnacome said:

Voice assistants…..dictation with 99% accuracy rate….smart homes….Google search for christs sake is a marvel of AI…..L2 & L3 autonomy in commercially available vehicles….the L4/5 systems driving around SF & Phoenix without any driver….zero cost trading…Waze..all the automation/AI that goes into ANYTHING you do on a banking app on your phone….you do realize in 1996 that needed to be done in-person and for a given financial task performed it involved swathes of people in your bank & the counterparty bank to get it done? During my brief career whole back office finance teams of 100’s of people in companies I’ve worked in have already been replaced by AI….but like I said by the time AI eliminates jobs….the solution doing it is called RPA/STP/automation/ML system…..or just a systems refresh…never AI but that’s exactly what it is. 

 

I don't think all of what you have described is AI, some of this is just software automation.  Regardless there is a tremendous amount of hype around it that started in January.  Why then?  I would say cuz they needed some buzz to get people to FOMO.    Sure there will be applications and uses, but there is a ton of hype too.