Is The Bottom Almost Here?

[dealraker]

17 minutes ago, Parsad said:

 

+1!  Totally agree. 

 

Even though I think a recession is coming, I bought stocks in one of the most vulnerable areas...retail.  A few of them are just so damn cheap...stupid cheap!  I'll just keep averaging down if the price falls.

 

Cheers!

Yes I would guess high probability too that some retail and bank stocks will be significantly higher a year from now.

[Libs]

On 5/5/2023 at 5:53 PM, Gregmal said:

Yea idk I think the only real way to win the recession game longer term is to just not play it. If I see something attractive I just buy it. Tone deaf and happily oblivious. We ve already seen tons of fruit bore from last years crop. Imagine waiting it out over fear of something that still hasn’t happened? I’ve spent a lot of time studying this and have yet to really find a good company, that was reasonably priced, that was permanently impaired/done in by a regular old recession. They just come out stronger and often times, significant value is created during those recessions. Just play the long game. Problem easily solved.

 

Bingo.

 

This is timely because I suddenly find myself 95% invested in 'really good companies.' I'm incapable, somehow, of holding back when these opportunities present themselves. Even though I'm also 95% sure we're gonna have a recession!

This sounds like it's in conflict, but if I'm honest with myself, I've been a lot more accurate with the first prediction ('really good company') than the second ( fill in the blank, any macro call).

[Gregmal]

Yup. We have had plenty of recessions before and will have plenty more. This is just a risk you accept if you’re going to invest. If you can’t, then buy CDs or munis or whatever. Great returns aren’t for everyone.
 

What I think is crazy the last two years is the hollow, dishonest framing around the “earnings are going to decline” scare tactics. Who exactly didn’t expect some sort of reversion to the mean after covid mania? Acting like an obvious reversion is not such, but rather an ominous sign that the economy and world is going to collapse is ridiculous.
 

Further, we ve given credence to people who don’t deserve it, namely these bums who put up stinker returns the last decade, the ones who told us stories of money printing bubbles that were so obvious everyone but them took advantage of it, all that stuff….all the stories and scare stuff…when, much more boringly, we just kind of eventually get back to the trend line from 2019. In other words, COVID was one hell of an event. It disrupted the world. And then it went away and things went back to normal…..that don’t sell well though.

[dealraker]

I'm forecasting a recession sometime late this year.

 

And many more in the future.

 

 

Edited May 8, 2023 by dealraker

[Gregmal]

The recession forecasting and stock market timing stuff is a grand illusion because on paper it’s so simple. Everything is with the benefit of hindsite. If you just followed a, b, c indicators and bought here and sold at this point on the chart, and then bought back here…voila!
 

On top of this, well, short term, stocks will either go up or down, 50/50 right? Every time this has happened, that has happened…until it doesn’t. Then we debate of this time is different. There’s literally an academic playbook for everything. Except what makes the markets so awesome is they are adaptive and evolving and almost always 5 steps ahead of everyone.
 

When you look at folks who make claims of forecasting success, the most successful ones are very often the ones who aren’t actually doing the buying and selling. Well, correction, they’re doing the selling but it’s in the form of newsletters and advice which to anyone who’s ever laced em up and stepped on the court knows…ain’t even close to the same thing. The majority of the business on WS is….selling! Selling investors everything they need to get rich. Selling companies everything they need to grow forever. Selling those in the middle whatever they need to get to where they need to get. But the great illusion is just that…the game is simple. Build your shit. Buy quality. Be disciplined. Do what’s unconventional. Bet on yourself. That’s it. You don’t even need to “beat the index”…just don’t do stupid shit! 

[TwoCitiesCapital]

13 hours ago, Gregmal said:

 

What I think is crazy the last two years is the hollow, dishonest framing around the “earnings are going to decline” scare tactics. Who exactly didn’t expect some sort of reversion to the mean after covid mania? Acting like an obvious reversion is not such, but rather an ominous sign that the economy and world is going to collapse is ridiculous.

 

So the market was paying 29x trailing earnings for the "average company", i.e. the index, because it was obvious to everyone that earnings were going to fall? 

 

I think if there is a disingenuous narrative going on, it's that one. 

 

People paid 29x earnings because they were excited about future growth, not because it was obvious earnings were going to contract. 

 

Anybody can go back to late 2021 and early 2022 posts to see that the viewpoint here re: earnings falling was NOT consensus. The consensus was "equities are an inflation hedge and will pass on the cost to their customers to maintain profitability"

Edited May 8, 2023 by TwoCitiesCapital

[Gregmal]

16 minutes ago, TwoCitiesCapital said:

 

So the market was paying 29x trailing earnings for the "average company", i.e. the index, because it was obvious to everyone that earnings were going to fall? 

 

I think if there is a disingenuous narrative going on, it's that one. 

 

People paid 29x earnings because they were excited about future growth, not because it was obvious earnings were going to contract. 

 

Anybody can go back to late 2021 and early 2022 posts to see that the viewpoint here re: earnings falling was NOT consensus. The consensus was "equities are an inflation hedge and will pass on the cost to their customers"

The majority of the 29x was produced by covid related mechanisms and tech euphoria. It certainly wasn't the "average" company. As bearish as @changegonnacome seems, he and I have been talking about the 2019 reversion since like mid 2021. The vax announcement in late 2020 was the beginning of the end. The end is now near its end. Im not sure how it wasn't that obvious to everyone, but the entire way was met with "tech is here forever" in 2020, "inflation is transitory" in 2021, "just buy FANGS" in early 2022, inflation is definitely NOT "transitory" in H2 2022, and throughout the entire spectacle, cries of the housing market crashing and recessions causing massive meltdowns and at best all we got was a very brief intraday, hype driven, move back to what? 3500 SPY for a split second and there been in a range between 3800-4100? Nobody paid $300 for TDOC or $100 for PTON because they were excited about growth. They paid that cuz everyone else was paying that for the get rich quick hot potato. You could have bought plenty of reasonable priced stuff, and in the worst cases you maybe have a modest 2 year mark to market loss assuming you never bought another share...big whoop. I still dont understand this notion that one should seek to never experience paper losses or drawdowns in the stock market. Thats just kind of what the stock market does and why its not for everyone. And inherently, thats where the opportunity is. 

 

It just seems like theres oh so many talking points and reasons to make all these sensational declarations, but if the goal is investing and making money, its still just as simple as its always been. End of the day we revert back to the 2019 trend line and perhaps have somewhat higher "average" multiples because over time, thats just what happens. 

Edited May 8, 2023 by Gregmal

[TwoCitiesCapital]

1 hour ago, Gregmal said:

The majority of the 29x was produced by covid related mechanisms and tech euphoria. It certainly wasn't the "average" company. As bearish as @changegonnacome seems, he and I have been talking about the 2019 reversion since like mid 2021. The vax announcement in late 2020 was the beginning of the end. The end is now near its end. Im not sure how it wasn't that obvious to everyone, but the entire way was met with "tech is here forever" in 2020, "inflation is transitory" in 2021, "just buy FANGS" in early 2022, inflation is definitely NOT "transitory" in H2 2022, and throughout the entire spectacle, cries of the housing market crashing and recessions causing massive meltdowns and at best all we got was a very brief intraday, hype driven, move back to what? 3500 SPY for a split second and there been in a range between 3800-4100? Nobody paid $300 for TDOC or $100 for PTON because they were excited about growth. They paid that cuz everyone else was paying that for the get rich quick hot potato. You could have bought plenty of reasonable priced stuff, and in the worst cases you maybe have a modest 2 year mark to market loss assuming you never bought another share...big whoop. 

 

You say it wasn't the "average" company and yet blame it on companies that aren't in the averages. 

 

Peloton and Teledoc were never in the S&P 500. Neither were most of the micro/small cap stocks that exploded. None of those stocks contributed to the average of 29x on the S&P 500. 

 

It was very much the Amazons, Facebooks, Teslas, Microsofts, Apples, Googles and other blue chip companies driving much of that trend. And those are very much the average person's portfolio/stocks and they were very much buying those on continued expectations of growth/profits/revenues - either directly for those companies or for averages as a whole via index purchases.  

 

And 2-years of negative returns during an inflationary periods of 7-9% in an asset class nearly everyone believes is an inflation hedge IS a big deal. 

 

Most stocks are probably -20 to -40% real returns over the last 24 months. Coming back from that ISNT easy. And we're not even sure that it's over yet.

 

All we've seen is a reversion in the multiple - people still aren't pricing on corporate profits contraction despite it occuring for 3 quarters now. The Fed still tightening, leading indicators are still weakening, coincidental indicators are beginning to roll over, and we're now contending with tightening credit availability as banks struggle for liquidity. None of that is priced in @ 19x trailing earnings that are currently falling....

 

 

You'd have done much better buying bonds and gold over the last 2-years than most stocks. That is largely what I've been advocating for the entire time. Gold is up over that time frame. Short term bonds are neutral-ish. And intermediate/longer term bonds are up since I started advocating for them when the Fed Funds pass 3-3.5%. All have done markedly better in real returns versus most equities and will likely continue to do so if a recession is in-store later this year. 

 

 

[Gregmal]

Why is there never any context and always a cherry picked starting point in the case of using the peak to trough numbers? Some stuff might be down 20-40% and some stuff isn’t. If you’re a multi year holder you probably have a lower basis. If you bought at the top you’ve had plenty of opportunity to buy in at better prices. The only caveat being you didn’t buy a turd that was trading for 1000x PE. But again, using this sort of jaded, must avoid any volatility at all costs logic has cost so many people so dearly for decades.  If you’ve owned say Google for the past 5-10 years you’ve done great even off the tops. Every single year during that stretch there’s being critics both macro wise and other of Google.
 

This obsessive focus on “short term” is cancerous. I personally think there’s more enticing stuff out there than Google today, but again just using it as an example, stating, with the benefit of hindsite that “there’s this short term period of time where it was devastating owning stocks” is kind of missing the point and focus of it all. 
 

The popularity of the Fang stocks obfuscated the value present in many other pockets of the market for a long time. There is and has been plenty over the last few years that’s reasonably priced and opportunistic and everyone I know who’s operated from a position of fear has largely missed out. It’s like saying oh Berkshire is still off over 10% from its highs and at one point declined 30%+ and the returns have been devastating….and that just encapsulates an approach that is all about focusing on the short term guessing game which isn’t something an owner of Berkshire should likely give much weight.

 

And then there’s also the aspect of it all in which one who is investing is utilizing cash they don’t need. In which case, again, if it’s a long term proposition, with something you do not need, becoming preoccupied with stuff that is 100% driven by temporary fears; that is counter productive.

Edited May 8, 2023 by Gregmal

[Gregmal]

Its one thing if folks bought clear bubble stuff like post deal spac stocks or iPads on bikes and stuff like that, which ain’t ever coming back, but in terms of just owning equities that any reasonable investor would look at, there’s just hardly anything all that spectacular that’s unfolded. Prices fluctuating and volatility is a normal function of the stock market. Going forward it seems The Fed realizes it got goaded into too aggressive of a hiking campaign so that risk is largely removed. The debt ceiling is probably the last real gasp of air for the fear mongering crowd…and I have no doubt that the politicians will bungle that whole thing, but it’s also the very definition of a temporary issue. And past that, what’s left? Just regular old run of the mill recession forecasting/fretting? Which to be honest I’ve heard just about every year I’ve paid attention to the markets. 

[dealraker]

55 minutes ago, TwoCitiesCapital said:

 

You say it wasn't the "average" company and yet blame it on companies that aren't in the averages. 

 

Peloton and Teledoc were never in the S&P 500. Neither were most of the micro/small cap stocks that exploded. None of those stocks contributed to the average of 29x on the S&P 500. 

 

It was very much the Amazons, Facebooks, Teslas, Microsofts, Apples, Googles and other blue chip companies driving much of that trend. And those are very much the average person's portfolio/stocks and they were very much buying those on continued expectations of growth/profits/revenues - either directly for those companies or for averages as a whole via index purchases.  

 

And 2-years of negative returns during an inflationary periods of 7-9% in an asset class nearly everyone believes is an inflation hedge IS a big deal. 

 

Most stocks are probably -20 to -40% real returns over the last 24 months. Coming back from that ISNT easy. And we're not even sure that it's over yet.

 

All we've seen is a reversion in the multiple - people still aren't pricing on corporate profits contraction despite it occuring for 3 quarters now. The Fed still tightening, leading indicators are still weakening, coincidental indicators are beginning to roll over, and we're now contending with tightening credit availability as banks struggle for liquidity. None of that is priced in @ 19x trailing earnings that are currently falling....

 

 

You'd have done much better buying bonds and gold over the last 2-years than most stocks. That is largely what I've been advocating for the entire time. Gold is up over that time frame. Short term bonds are neutral-ish. And intermediate/longer term bonds are up since I started advocating for them when the Fed Funds pass 3-3.5%. All have done markedly better in real returns versus most equities and will likely continue to do so if a recession is in-store later this year. 

 

 

One thing's for certain, if you are obsessed with finite win/lose figures you will never-ever get bored, the micro focus will mandate all the upkeep and awareness you can possibly muster.  It would be exhausting to me, but others may find it exhiliarating.  

[John Hjorth]

39 minutes ago, dealraker said:

One thing's for certain, if you are obsessed with finite win/lose figures you will never-ever get bored, the micro focus will mandate all the upkeep and awareness you can possibly muster.  It would be exhausting to me, but others may find it exhiliarating.  

 

To me, you appear here to be too kind here, @dealraker. With all respect for @TwoCitiesCapital as such, who has compounded consistently over longer periods of time in gold and bonds?

 

The argument posted above is invalid, unless you're a trader.

 

Which brings up the next question : Show us a long term really successful trader, or even better more than one.

[Dinar]

27 minutes ago, John Hjorth said:

 

To me, you appear here to be too kind here, @dealraker. With all respect for @TwoCitiesCapital as such, who has compounded consistently over longer periods of time in gold and bonds?

 

The argument posted above is invalid, unless you're a trader.

 

Which brings up the next question : Show us a long term really successful trader, or even better more than one.

I will show you two (which are the exception that prove the rule) - Soros & Druckenmiller

[TwoCitiesCapital]

31 minutes ago, John Hjorth said:

 

To me, you appear here to be too kind here, @dealraker. With all respect for @TwoCitiesCapital as such, who has compounded consistently over longer periods of time in gold and bonds?

 

The argument posted above is invalid, unless you're a trader.

 

Which brings up the next question : Show us a long term really successful trader, or even better more than one.

 

I'm not saying buy short term bonds with a 10-year horizon, but I AM saying (and have been saying) that there are many better alternatives to equities at this time.

 

I was also saying that in 2021. If inflation proved sticky, and there would be things that outperform stocks. It did. And they did. 

 

I don't think double digit real-return outperformance over 2-3 years is anything to sneeze at. You didn't have to catch the top or the bottom to make that work. Just generally avoid equities for the last 2-years and generally buy gold and short term bonds. 

 

I trimmed equities on rallies and directed new flows to those asset classes. I didn't sell 100% of my stocks overnight - but I have been trimming every rally. 

 

I'm not advocating trading daily, but I am advocating buying what makes sense and shifting portfolios to meet that environment with a 12-36 month horizon. 

 

Equities @ 29x in accelerating inflation? Never made sense. Equities at 19x with slightly lower inflation and deteriorating fundamentals and macro? Still doesn't make sense. 

 

1-3 year govt guaranteed mortgages yielding 6%? Short term treasuries yielding 4-5%. Short duration IG corporates yielding 6-8%? That makes sense and is exceptionally less risky than the average equity. 

 

As far as successful traders?

Soros. Druckenmiller. Dalio. Tepper. Plus others. 

 

And I'm not even advocating doing what they do. Just asking people to recognize that there are 10-20 year periods where equities go nowhere. There are extended periods of time where stocks generally don't make sense. If you want to fight that tide and try to find the minority of securities, be my guest. But the vast bulk of people would be better served by avoiding/reducing exposure to the asset class during those periods. We are likely in one of those periods given the starting valuations of 2021 and instability of inflation witnessed since. 

Edited May 8, 2023 by TwoCitiesCapital

[Gregmal]

Even intraday, there’s tens of thousands of stocks that based on the hour could’ve produced big returns or big losses depending on the hindsite interpretation of the charts. I used to scrupulously fixate on them. Now I just shrug my shoulders and am thankful I don’t have to be busy and devoting all my time to what is largely guesswork and a distraction from investing. 
 

In 2021 the SPY did +29%, in 2022 it did -18%, and ytd 2023 it’s up about 8%. So even there, it just seems like a whole lotta effort and fretting and transacting for little general long or even medium term benefit. Like we really need to get creative short term cherry picking and even there you have to make assumptions like picking exact dates here and there; a behavior of which typically isn’t indicative of a one off, but systematic approach, and extending that systematic approach anything beyond a very short term window has created horrible back dated results. 

[John Hjorth]

1 hour ago, Dinar said:

I will show you two (which are the exception that prove the rule) - Soros & Druckenmiller

 

@Dinar,

 

Now we're at it, I'll personally add Jeffrey Gundlach [, who also seem consistently to do well in this space].  @Viking, cool, rational  and laid back - as always - is a fan of his.

 

Now try to find a fairly recent photo of Mr. Gundlach on the net, then at least try to dig up - say, a five year old photo of Mr. Gundlach for comparison.

 

If you have done this comparative excercise, you'll acknowledge that return in this space has a price.

Edited May 8, 2023 by John Hjorth

[TwoCitiesCapital]

1 hour ago, John Hjorth said:

 

@Dinar,

 

Now we're at it, I'll personally add Jeffrey Gundlach [, who also seem consistently to do well in this space].  @Viking, cool, rational  and laid back - as always - is a fan of his.

 

Now try to find a fairly recent photo of Mr. Gundlach on the net, then at least try to dig up - say, a five year old photo of Mr. Gundlach for comparison.

 

If you have done this comparative excercise, you'll acknowledge that return in this space has a price.

 

I think professional money management has it's price, not necessarily "trading". 

 

Doesn't matter how enviable these guy's track records are, 20-30% of AUM will leave if they have more than 12 months of underperformance...even if ultimately proven right. 

 

Look at Michael Burry during 2008. Look at Bruce Berkowitz in 2011. Money management is s fickle. Doesn't matter how long your time horizon is as a manager. 

Edited May 8, 2023 by TwoCitiesCapital

[Dinar]

@dealraker, Sir Chris Hohn at TCI is incredible.   

[Sweet]

37 minutes ago, dealraker said:

I'm not so sure what would make any of us relate an investing style to a specific hedge fund runner who's living 2 and 20 with 100 people working a system or whatnot.  The endless racing though your mind the latest economic data is pretty overwhelming when you try to coordinate a 'move 'em around' strategy to make sure you aren't out-of-sorts with keeping up with the last 2 years or next 2 years of market performance. 

 

So given AJG and BRK are currently a tad over 80% of what's in our family stock portfolio and that AJG began with a relatively large initial (large to me) stake in 1994 (BRK was long already there) you can be certain that we have outperformed Mr. Market by some large degree since 1994.  But it wasn't any attempt to outperform, nor was it thinking we would outperform.  It was, "Hey, these are good businesses and they never get much over-valued (in hindsight basically never over-valued) so leave 'em alone."   So is this a logical investment model too?  Is it one that can work - where daily price changes and daily news isn't the input that instigates portfolio changes?

 

Munger's mention that Ben Graham made 1/2 his profits over his entire life from Geico makes me even more focused on making sure I do not sell a good business.  The man I worked for in the late 1970's, Marshall Johnson, had a terriffic quote, a super-duper terriffic one...at least in my very low IQ opinion.  It was this, "You can't make up with new ideas what you lost by selling a great business."

 

I feel like I am in a foot race with the world's best sprinters when I read this thread, that it implies that those who don't race data in and out and change based on it are completely failures.

 

Which hedge fund runner should I be following?  Name one today.  Let's see how he does.  Seriously let's begin today with one, just one, of these heros mentioned so many times and at least pretend we put our money with him and see how we do, keeping a detailed 1,2,3,4,5 year account of it.  Then we can add a tad of complexity to the game by saying, "Ok...we choose so-and-so and we'll keep up with this choice to see how it does...but we are too small to invest with him so let's chose what parts of his strategy to use and earmark some money on that premise today- keep account of it and see how it turns out!

 

WEEEEEEHAAAAAA!  Can you pick and choose parts of a hedge fund heroes strategy and do well with it?  I don't see how, given he'll change it 50 times in the next 5 years.  

 

I'll just stick with my stocks.  I'm exhausted already.  

 

 

 

 

Hope this doesn’t come across as a rude question, but what are your holdings, specifically those companies you don’t want to ever sell?

[dealraker]

2 hours ago, Sweet said:

 

Hope this doesn’t come across as a rude question, but what are your holdings, specifically those companies you don’t want to ever sell?

I'll send a peronal note on this. 

[Simba]

If you bought the S&P 500, basically pre covid high (i.e. Feb 2020) and held till today, your annual return w/ dividend, is 7.5-8%? (using round figures, assuming minimal taxes). That assumes round trip from peak mania to today. Gold is up a similar portion, while long-term bonds seem to be down.

 

IMO 8% historical return is in-line with historical, and I'll take that compounded over the next 50 years, easy.

 

Edited May 9, 2023 by Simba

[Gregmal]

10 minutes ago, Simba said:

If you bought the S&P 500, basically pre covid high (i.e. Feb 2020) and held till today, your annual return w/ dividend, is 7.5-8%? (using round figures, assuming minimal taxes). That assumes round trip from peak mania to today. Gold is up a similar portion, while long-term bonds seem to be down.

 

IMO 8% historical return is in-line with historical, and I'll take that compounded over the next 50 years, easy.

 

The problem is that all those returns are based on hopium and money printing. Then add in 9% inflation and really you need to discount them bigly! 
 

Jokes aside, the biggest issue is largely that many have very inflexible framework. For much of the last decade or so, every time the market goes up, we have people claiming it’s undeserved. Like how many times recently have we seen every downturn met with “I knew it” and every updraft met with skepticism? An underlying belief that the market “should not be up”. And I mean if that’s always the subjective analysis, then what’s the point of even paying attention to the market? Shit should just always be down and when it goes up it’s invalid…. I don’t get it. 

[Gregmal]

Like can anyone imagine the calamity and chaos at firms like Bloomberg for instance, if it became widespread common knowledge that you don’t need all this instantaneous info and god forbid you can actually be patient and practical? That 95% of the time the correct move is to just do nothing? I’d gander the returns of many quiet individuals like @dealraker beat the shit out of pros paying a quarter mil a year for a terminal! 
 

Nah…those secrets must be kept as they are the key to active management alpha! Folks in general need to wake up to the idea that the game is rigged against them and 1) there’s a reason they don’t educate young people on financial matters and 2) it’s the bread and butter of all these leach firms that you constantly need to do something in the name of being conservative and well prepared.

Edited May 9, 2023 by Gregmal

[Paarslaars]

31 minutes ago, Gregmal said:

That 95% of the time the correct move is to just do nothing? 

 

The irony is, doing nothing is the easiest of all and the media does it very best to make it the hardest thing. 

[dealraker]

I think I could very easily go 'ungovernable emotional excess' (hysteria) with extrapolating economic data as an investment model.   I do enjoy typing, my dad ya know...the newspaper part-owner and editor thing.