Have We Hit The Top?

[Gmthebeau]

34 minutes ago, ArminvanBuyout said:

In normal environment (i.e. ex-2021), market definitely underprices durability of growth + capital allocation, so when you think you've found a winner, better hold onto it...

this is exactly right.  Compounding growth is rarely modeled or valued correctly by the market.  For example, 20 years ago LVMH had a PE of 21 but warranted a PE of 160x based on the future growth.  ASML had a PE of 45x but warranted a PE over 1000x.  It’s all about figuring out who has the longest runway and biggest moats.  NVDA looks cheap to many people.

[WayWardCloud]

Uh Oh

 

 

[Sweet]

51 minutes ago, Spekulatius said:

I actually think that NVDA makes more sense than AAPL. As @ArminvanBuyout mentioned, the multiples are not that differ on t and if you are bullish on AI, NVDA should grow by leaps and bounds more so than AAPL.

 

AAPL looks more and more like KO in 1999.

Why does Berkshire have 50% in AAPL at a PE of 30 on flat revenue growth for 2 years.  Sorta crazy to me.  

Great company but unless revenue growth reappears where do the stock gains come from in the next 10 years?

Edited January 20 by Sweet

[Gmthebeau]

19 minutes ago, Sweet said:

Why does Berkshire have 50% in AAPL at a PE of 30 on flat revenue growth for 2 years.  Sorta crazy to me.  

Great company but unless revenue growth reappears where do the stock gains come from in the next 10 years?

Apple is more financial engineering.  Issue debt at low rates then buyback stock.  The services business is growing well, but they are very dependent on iPhone upgrades and consumers may be slowing how often that occurs.   Apple also has significant china risk, which is something everyone should consider with all investments as increasingly no matter who is President it’s likely we keep slowly decoupling from China.   Apple is simply defensive to many in an expensive market.  It’s the new Proctor & Gamble.  People would rather own AAPL than PG if they have to own something 

Edited January 20 by Gmthebeau

[james22]

2 hours ago, cubsfan said:

AI hype?

 

It'll all seem very obvious looking back 10 years from now.

 

Even moreso with Bitcoin.

 

Ha.

 

 

[valueseek]

All good points. I will just add this to @Gregmal's excellent point, it is very very difficult to really pin point on which valuations are out of whack to the upside etc. Barring the really crazy time of the spac and tech. mania from 2021 it has been hard throughout the last decade in doing this. In late 2022, NVDA touched below $120 or so for around a month - that is some 15 months ago. Estimates are for it to print $20 EPS in 2024 - buyside expect at least 10-20% more. Back in Oct. 2022, 2024 EPS estimates were $5.5 or so. So the earnings power has gone up almost 4 times in last 15 months with stock up close to 5 times. Until a month or 2 ago, stock was also up around 4x from that Oct. 2022 bottom. All it says its very hard. For the analysts who follow it, for most of the company management involved as well - it is very hard. I am not arguing whether this situation for NVDA sustains or shoots higher or lower. Given its stronghold, everyone invested could lay out several reasons it could (CUDA, 95% market share, etc.). While many could say otherwise (GM's very high, pricing will go down as AMD enters, inference foothold will not be as strong as training, etc.). My take has been it is too hard for most investors to forecast. Best is if someone has it to keep holding it or the next best is to not be bothered about it or the next best depending on one's ability is to trade around it - that is what most of the big pod shops do - but one needs focus around this trading strategy imo. Anyways, for  individual investor one cannot really have staunch views on such stocks where things keep on changing so rapidly - rather the views need to be updated constantly.

 

@Spekulatius on comparing AAPL with KO in 1998. KO was around 45-50 times forward PE. Since then sales, EPS has grown around ~3,5% resp. Total price CAGR has been 4-5% or so including 2% div. yield. While SP500 has total return CAGR'ed some 7-8% during this time. While AAPL at 28 times is high and all and is not value. If one looks at how iPhone has behaved last few years (with units constant and MSD price increases), and services growing HSD/LDD, overall GM's increasing significantly as service margins are double the product margins, and 3-5% buyback. There are risks to this as well with services regulation, China competition, no real upgrade value of iPhone. Keeping these aside for a bit, if one assumes overall sales increase 4-5%, buyback add say 3-4% with 0.5% from div. yield, one can get around 8-10% and then assume a multiple degradation from say 28 to 20 if the moat still holds over a reasonable period of time. It still could be ~7% total CAGR with not much tax consequence esp. for someone of the size of Buffett - esp. for the size and time of life in Berkshire balance sheet right now vs. back then.

 

[Spekulatius]

14 hours ago, Sweet said:

Why does Berkshire have 50% in AAPL at a PE of 30 on flat revenue growth for 2 years.  Sorta crazy to me.  

Great company but unless revenue growth reappears where do the stock gains come from in the next 10 years?

I think he regards $AAPL as a never sell holding, similar to $KO, $AXP and possibly $BAC. He is at heart a coffee can investor. The way he wrote about Apple in his last annual reports suggests so.

Edited January 20 by Spekulatius

[nwoodman]

36 minutes ago, Spekulatius said:

I think he regards $AAPL as a never sell holding, similar to $KO, $AXP and possibly $BAC. He is at heart a coffee can investor. The way he wrote about Apple in his last annual reports suggests so.

+1 for better or for worse.  No particular insight but I think he looks at the accrued cap gain tax owing as zero cost leverage to justify the position.  

[ValueArb]

DWAC has broken over $50 since its PIPE fell apart. Seems like an easy short, but no idea what happens if Trump wins the election. 

 

Quote

Digital World Acquisition Corp. has surged nearly 200% over a six-day winning streak as shares power to the highest level since May 2022. Monday’s 88% rally, after Trump’s rival Ron DeSantis quit the primary race, marked the special purpose acquisition company’s best day since its meme-stock heyday in October 2021.

 

The SPAC’s surge was kickstarted when the former president cruised to victory in the Iowa caucuses ahead of Tuesday’s New Hampshire presidential primary. After more than two years and regulatory issues, the deal to take Trump Media & Technology Group, the nascent media company behind Truth Social, is still being worked through.

 

“The market has gone full bonkers,” says Julian Klymochko, chief executive officer of Accelerate Financial Technologies Inc., which has a SPAC-focused fund. In his view the current stock price implies an “excessive” valuation of $8 billion. “Shares do not reflect any fundamental intrinsic value of Truth Social, but they are more of a ‘trading sardine,’ or tool of speculation,” he said by email.

 

[ArminvanBuyout]

28 minutes ago, ValueArb said:

DWAC has broken over $50 since its PIPE fell apart. Seems like an easy short, but no idea what happens if Trump wins the election. 

 

 

Isn't like 90% of the float locked or something (remember seeing that somewhere). Feel like you could easily get blown out here based on news / election updates

[gfp]

30 minutes ago, ValueArb said:

DWAC has broken over $50 since its PIPE fell apart. Seems like an easy short, but no idea what happens if Trump wins the election. 

 

 

 

There are definitely not any shares available to short

[ValueArb]

3 minutes ago, gfp said:

 

There are definitely not any shares available to short

 

There are always puts to buy, but they ain't cheap.

[Sweet]

 

 

[Gregmal]

Guys like Macro Alf are a perfect embodiment of the suckers who have sat around seeking attention via likes and retweets talking up borderline conspiracy theory level reasons everyone needs to be scared of the market. At the end of the day they miss nearly everything but feel like big winners every once in a while when we get that brief pullback. World beaters after a 1% down day it seems. As if it vindicates all the time wasted and great investments missed. 
 

Yea, of course like all the great ones who play this game, he offers you subscriptions where you can give him his “risk free” return.

[Sweet]

11 hours ago, Gregmal said:

Guys like Macro Alf are a perfect embodiment of the suckers who have sat around seeking attention via likes and retweets talking up borderline conspiracy theory level reasons everyone needs to be scared of the market. At the end of the day they miss nearly everything but feel like big winners every once in a while when we get that brief pullback. World beaters after a 1% down day it seems. As if it vindicates all the time wasted and great investments missed. 
 

Yea, of course like all the great ones who play this game, he offers you subscriptions where you can give him his “risk free” return.

 

Don't know anything about the guys work, but the meme is funny.  Wouldn't surprise me at all.  These same guys who warn people off the market seem very happy every time it goes down.

[gfp]

I mean he does make it easy to tease him since he is also actively recruiting initial investors for his proposed macro hedge fund on twitter (don't think that would be legal over here in the states, no?).  But Alfonso isn't so bad, he is correct about QT being completely sterilized and ineffective.  (QE was basically pointless as well, although it probably tightened MBS spreads somewhat).

 

But you are right, these guys on twitter all have something to sell ya.  Except Bill (wabuffo)!  Who gives away his best stuff for free

[Gregmal]

The general problem I have with the macro guys, much like with short sellers, is they can never just be honest or balanced...they ALWAYS need to misrepresent, or grossly exaggerate, or outright lie when they present their "thesis". And then when there's finally some verdict, there is almost never accountability. Its like OK, you predicted the market would crater at this rate level, and we 're at all time highs...."oh well thats because the Fed wasnt really doing QT"....or Oh you said we were already in a recession and the economy was rolling over....2 years ago....why no recession? "Oh thats because the government keeps spending"...Ok....well...you were wrong then, no? "Oh I was right the government just keeps propping up the GDP number"...Ok...so you predicted a recession and declared we were already in one, and then when that doesnt come to fruition its not because you were wrong, its because of all these excuses? Couldn't you have just predicted these excuses and gotten it right LOL?

 

Anyway, on to the "market" and "rate hopium" or whatever the topic of the week is....So isnt it amazing, how the market is supposed to be "forward looking"...and generally, it is. But then, in a situation like this, where its practically a GIVEN, that rates are coming down over the next few years, folks are obsessing over "March or June"....like it makes a friggin difference. Gundlach has been out hoping and praying and cheerleading his lingering recession call...saying "The Fed killed Goldilocks"....I am not really opining on whether or not we even have Goldilocks...but does one or two months in terms of timing, and 25 or 50 basis points REALLY??? determine whether Goldilocks exists? So we're back to the top paragraph where these publicity whores just keep mouthing off, and being dramatic, and.....distracting people from the main objective. Fun, fun. 

[Gmthebeau]

Twitter is mostly just a cesspool of macro or expert trader clowns looking to fleece you.  They all have newsletters, private feeds, signal services, and assorted other garbage to sell you.  More time and money is wasted on that trash.  I deleted twitter a couple years ago.  There is nothing on there worth reading.  I can assure you Buffett doesn't read twitter.  He is reading company reports, WSJ, Financial Times, stuff like that.   As a general rule, if someone does not have a professionally audited track record (nobody on twitter trying to sell you something does) you should not be wasting your time reading it.

[thowed]

Twitter is hideous, & the self-promotion, and show-boating a joke.  It's not a place for humility!

 

BUT just about worth it for the handful of good accounts.  Apart from here, it's one of the few places where you can discuss strange small-caps with people all over the world, and find people who know them using the Ticker search.

 

[gfp]

11 minutes ago, Gmthebeau said:

I can assure you Buffett doesn't read twitter.

No way!

[Gmthebeau]

8 minutes ago, gfp said:

No way!

LOL

[james22]

55 minutes ago, Gmthebeau said:

Twitter is mostly just a cesspool of macro or expert trader clowns looking to fleece you.

 

Just like every other medium.

[cubsfan]

The best thing about Twitter is the ability to get the other side of the story out quickly when the mainstream media censors news they do not like. Elon's done a good job of allowing both sides of the story, whether he ever makes money or not.

[Gregmal]

Man those macro guys are so smart. Really nailed it with the pessimism and caution advisory and it paid dividends in avoided that devastating 0.83% decline yesterday. 

[mattee2264]

Common misconception that the stock market and the economy are the same thing.

 

Under the surface the economy isn't doing that great. Little concerning that such massive fiscal deficits are required to get the economy to grow at the long term historical norm of 2-3%. Banking sector on life support and will need more of the same in 2024 with all the CRE worries. Manufacturing is in recession. Consumers continue to live beyond their means by draining their savings, taking on more debt, and falling prey to buy now pay later retail schemes. Cost of living still rising faster than wages squeezing real incomes. Lots of people having to moonlight to make ends meet etc. 

 

But it doesn't really matter when Mag7 grew 100% in 2023 and are off to the races in 2024 with a Mag7 ETF already up 10% following the after hours increases in Meta and Amazon stock prices. Nvidia and Meta leading the pack up over 20% in a month alone! Microsoft results picture perfect. Amazon on fire with double digit sales growth. Even laggards like Apple and Goggle had pretty good quarters. With Tesla the only real disappointment-but its always been the odd one out. 

 

And the momentum will continue because they haven't even seen much of an impact from AI and even if it is overhyped and of fairly dubious value you can bet your hat that all the C-suite executives are going to be easy to try them out using shareholders money and adding some AI bells and whistles to existing products is an easy way for Big Tech to push through big price increases and gain further market share. 

Edited February 1 by mattee2264