Is The Bottom Almost Here?

[dealraker]

8 minutes ago, Gregmal said:

Tech stocks are dead. They were the leaders of the past decade. Same thing happening as post 1999 era transition. Theres no better example of the baton pass than the chart of something like FFH/BRK/MKL... Energy. Companies who make money are and will be en vogue again. 

 

My gut says the people still staring at the indexes are also still staring at the AAPLs, MSFTs, and AMZNs of the world. They'd be better off not doing that cuz they're blinded by the dark. 

Precisely my view.  

[TwoCitiesCapital]

15 minutes ago, dealraker said:

 

I would reply that diversification would average those disasters out.  But to any bare knowledable investor Blackberry was a joke; GE was just mind boggling obviously faking it in all its businesses; and in the early 2000's it didn't take any deep thought to clearly see irrationality in Kudlow's Cinderella economy/bank behavior. 

 

In any event I've not had such stocks (GE is a good example).  My emphasis is that AJ Gallagher at sometimes 22 times earnings when growing 15% is not a sell.  If it goes to 40-50 like GE and begins to offer-up some crazy income and balance sheet wierdness?  Yea, sell.  

 

The more you diversify, the more like the index you become and the more index directionality will matter to your holdings. So valuations and sentiment still matter and adopting a framework of adds/sells may improve outcomes. 

 

Secondly, I'd argue that it WASN'T obvious in the cases of GE and Blackberry or they'd have never been bid to such extremes in the market. Maybe it was obvious to you - maybe buy/hold forever works for you - but as demonstrated by the market applying those valuations to those two names it doesn't work for most. 

 

Edited January 25, 2023 by TwoCitiesCapital

[changegonnacome]

6 minutes ago, Gregmal said:

Tech stocks are dead. They were the leaders of the past decade. Same thing happening as post 1999 era transition. Theres no better example of the baton pass than the chart of something like FFH/BRK/MKL... Energy. Companies who make money are and will be en vogue again. 

 

My gut says the people still staring at the indexes are also still staring at the AAPLs, MSFTs, and AMZNs of the world. They'd be better off not doing that cuz they're blinded by the dark. 

 

Yep I'm down with this concept.........Howard Mark's "Sea Change" memo is pretty good on that front......the time value, opportunity cost & cost of capital went to zero in the 2010's.....very very unusual time, when placed in the long arc of time....the average COBF investor is going to do way better than the average reddit investor over the next decade......which is another way of saying value is going to outperform growth.

 

 

[dealraker]

33 minutes ago, TwoCitiesCapital said:

 

The more you diversify, the more like the index you become and the more index directionality will matter to your holdings. 

 

Secondly, I'd argue that it WASN'T obvious in the cases of GE and Blackberry or they'd have never been bid to such extremes in the market. Maybe it was obvious to you - maybe buy/hold forever works for you - but as demonstrated by the market I. Those tow names it doesn't work for most. 

I co-wrote a 21 page document "The 12 Ways GE Misleads Investors" in 1999 with 4 other guys who I met in relation to Berkshire.  GE was obviously fradulent but Welch's power was a wall of steel.  Lord for me Blackberry was a disaster all the way, but one of the Outstanding Investor Digests was big on that so I may have gotten a lucky straw there.

 

GE had one-time write-off every quarter for years.  These often equaled net.  Even if you were unaware that they were booking huge insurance profits in the same businesses where Berk and AIG were recording huge losses those one-timers were always there...and they were massive.  That was a basic start for a basic understanding of financial statements even if other things weren't conceivable.  Then there were quarters where stock based compensation equaled sales like Cisco.  That tends to gain a rational person's attention.

Edited January 25, 2023 by dealraker

[dealraker]

Before we made the lumber company a subchapter s corp we bought and sold Microsoft.  We bought Microsoft at 10 times earnings LOL.  So I know it is "THE CLOUD" and such, but for me it was also "STORAGE" - that exponential growth thing that too had near zero incremental cost that EMC Corp led back in the late 1990's.  EMC routinely traded at 150 times earnings before (like Microsoft) falling to 10-12 times.

 

These things do happen, a tad of history knowledge may be needed.  But MSFT at 12 times would not even get level 1 in my surprise factor.  

[John Hjorth]

<No comment>.

[Spooky]

54 minutes ago, Gregmal said:

My gut says the people still staring at the indexes are also still staring at the AAPLs, MSFTs, and AMZNs of the world. They'd be better off not doing that cuz they're blinded by the dark. 

 

This. All my friends and a lot of podcasts are still only talking about big tech. A friend of mine is talking about now being a good time to buy Apple and Microsoft and I keep telling him that the biggest companies now won't be the biggest ones 30 years from now. It's possible but the odds are against you. I think Howard Marks is correct in calling the changing environment a sea change and I hope the days of zero / negative interest rates don't come back.

 

 

[Gregmal]

2 minutes ago, Spooky said:

 

This. All my friends and a lot of podcasts are still only talking about big tech. A friend of mine is talking about now being a good time to buy Apple and Microsoft and I keep telling him that the biggest companies now won't be the biggest ones 30 years from now. It's possible but the odds are against you. I think Howard Marks is correct in calling the changing environment a sea change and I hope the days of zero / negative interest rates don't come back.

 

 

Everyone is talking about the $30T debt ceiling or whatever. Then theres AAPL and MSFT at $2T. AMZN at $1T. How freaking arrogant/lazy do you have to be to think that you're gonna get any sort of worthwhile longer term returns out of those things at those numbers if the go forward numbers are driven by real earnings power/growth? Even Google I struggle with but with regulation and a few spinoffs, you can get a better reset figure on the base. But seriously...TF are people thinking? 

[thepupil]

1 hour ago, Gregmal said:

Tech stocks are dead. They were the leaders of the past decade. Same thing happening as post 1999 era transition. Theres no better example of the baton pass than the chart of something like FFH/BRK/MKL... Energy. Companies who make money are and will be en vogue again. 

 

My gut says the people still staring at the indexes are also still staring at the AAPLs, MSFTs, and AMZNs of the world. They'd be better off not doing that cuz they're blinded by the dark. 

 

without expressing a strong view as to whether or not "tech stocks" are dead, I would like to take this opportunity to point out that "tech stocks" as defined by the MSCI USA Technology index do in fact make lots of money. 

 

 

[Spekulatius]

Whether tech stocks are dead (money) or not depends on if earnings in this sector will be growing or not. I don't think tech will be dead. Tech wasn't dead in 2002 either.

[Gregmal]

1 minute ago, thepupil said:

 

without expressing a strong view as to whether or not "tech stocks" are dead, I would like to take this opportunity to point out that "tech stocks" as defined by the MSCI USA Technology index do in fact make lots of money. 

 

 

You are right. But go forward, they have to keep that up, and grow it, and thats largely just to hold their 20-25x multiples. At some point the law of large numbers is real. I mean for real, give me a materials company, or an insurance company, or an oil rigger at 5-10x and a sub $20B market cap over that all day. 

[dealraker]

8 minutes ago, Gregmal said:

You are right. But go forward, they have to keep that up, and grow it, and thats largely just to hold their 20-25x multiples. At some point the law of large numbers is real. I mean for real, give me a materials company, or an insurance company, or an oil rigger at 5-10x and a sub $20B market cap over that all day. 

Again, precisely.  25 times seems incredibly cheap to a tech valuation but nowhere else.   But tech profits are growing slower than energy.  

[Ulti]

34 minutes ago, Gregmal said:

Tech stocks are dead. They were the leaders of the past decade. Same thing happening as post 1999 era transition. Theres no better example of the baton pass than the chart of something like FFH/BRK/MKL... Energy. Companies who make money are and will be en vogue again. 

 

My gut says the people still staring at the indexes are also still staring at the AAPLs, MSFTs, and AMZNs of the world. They'd be better off not doing that cuz they're blinded by the dark. 

This is basically what Jeff Currie from GS has been preaching about since 2020....the revenge of the old economy....and because of the total lack of investment, this cycle (with lots of ups and downs ) will last for several years.

[Luke]

 

2 hours ago, Gregmal said:

You are right. But go forward, they have to keep that up, and grow it, and thats largely just to hold their 20-25x multiples. At some point the law of large numbers is real. I mean for real, give me a materials company, or an insurance company, or an oil rigger at 5-10x and a sub $20B market cap over that all day. 

Apple gives you a 5% Earnings Yield at 20x and with some growth and buybacks this could still give a decent return, maybe even market beating depending on apples innovative abilities. Buffett still likes it, i would not call Apple dead but not many doubles left for sure. Microsoft at 25x doesnt look very expensive but not cheap and if growth slows i could see them maybe throwing of something like 5,6,7,8% a year with buybacks etc? Certainly not horrible. 

 

Amazon on the other hand still has a long runway and i wouldnt call them dead whatsoever, wouldnt be surprised if they beat the S P 500 at current valuation for next decade. 

 

Big tech Valuation is not extreme nor is it very cheap, they provide perhaps safer but maybe more mediocre returns with limited upside. My rank for cheapness and runway (longest runway/cheap first): Meta, Amazon, Alphabet, Apple, Microsoft, Netflix. 

 

I would never call them dead and they all have a very high specific moat that i dont see gone for a very long time.

[Luke]

@Gregmal Do you own oil stocks?

[Gregmal]

4 minutes ago, Luca said:

@Gregmal Do you own oil stocks?

Nah I rent them. Or use derivatives. Warrants or leaps do the job. 

[LearningMachine]

35 minutes ago, Luca said:

 

Apple gives you a 5% Earnings Yield at 20x and with some growth and buybacks this could still give a decent return, maybe even market beating depending on apples innovative abilities.

 

 

If you take out SBC, FCF yield comes down to 4.5%.

 

The risk you take with Apple is when treasuries are yielding more, and market is slowly digesting new interest rates, all it takes is P/E going from 20 to 14 for you to temporarily lose 30% of your investment. 

 

Low likelihood but if a cybersecurity/reliability risk materializes, you could lose more until at least the brand reputation is repaired. 

 

NFLX I see no point in touching when you don't even know when you will get your cash back if you were to buy it entirely. 

Edited January 25, 2023 by LearningMachine

[Luke]

1 minute ago, LearningMachine said:

 

 

If you take out SBC, FCF yield comes down to 4.5%.

 

The risk you take with Apple is when treasuries are yielding more, and market slowly incorporating new interest rates, all it takes is P/E going from 20 to 14 for you to temporarily lose 30% of your investment. 

 

Low likelihood but if a cybersecurity/reliability risk materializes, you could lose more until at least the brand reputation is repaired. 

 

NFLX I see no point in touching when you don't even know when you will get your cash back if you were to buy it entirely. 

Yeah, Apple is not cheap but they are one heck of a buisness and i think the chances are good they will do well from current price. Netflix i wonder why it trades at the valuation it trades at...way to expensive agree...

[Gregmal]

The issue with Apple is its a great company at an OK-ish at best price when the alternatives are 3 football fields better. Its like having to pick between a high end steakhouse burger for $45, a Big Mac for $7, or a diner burger for $10. Why even waste your time on the former?

[changegonnacome]

23 minutes ago, LearningMachine said:

The risk you take with Apple is when treasuries are yielding more, and market is slowly digesting new interest rates, all it takes is P/E going from 20 to 14 for you to temporarily lose 30% of your investment. 

 

Yeah and dont forget for all the services talk - Apple is still mainly in the transacting computer hardware business.......even the so called recurring services revenue flatters a bit as it includes one-time App Store transactions.....not inconceivable at all, in a weakened macro environment, that you get a couple of years of folks skipping iPhone upgrades & parents denying those pesky kid requests for extra robo bucks or whatever you call them.....there's cyclicality there on the top line that is under appreciated I would say.....and that Tim Cook has been skillfully & to his credit been trying to smooth out with recurring services revenue plus various iPhone leasing type programs that lock folks into yearly upgrades.

 

 

 

Edited January 25, 2023 by changegonnacome

[aceskc]

Should remind you all that we are discussing all this on the corner of 1/5th AAPL and Fairfax...

[Spekulatius]

Some moves from the bottom have been astonishing:

 

$TSLA almost 50% from it's bottom around $102.

$META - 50% from the bottom around $92

$BABA almost 100% from the bottom around $62.

$ASML - ~85% up from the bottom around $365.

 

If you know how to bottom fish, l there is a lot of money to be made here.

Edited January 26, 2023 by Spekulatius

[changegonnacome]

 

Always good to hear what folks who owns malls and hotels have got to say.

 

He's got one thing exactly right......the Fed hasn't moved unemployment as of now........but they are currently in the process of creating unknown levels of future unemployment that will only reveal itself in time - as PP&E projects conclude and investments/spending that might have otherwise occurred or been green lit at the corporate sector got deferred/cancelled last year in response to tighter financial conditions.

 

The long and variable lag thing is very real.............but so is the inertia that occurs when the Fed, having seen it's done enough or perhaps even too much......then try to restart things........not so easy to do with construction related activities given the bureaucratic hoops required to go from approval to plans to breaking ground that are now endemic everywhere in US.

 

I hope the fiscal side of the US steps up if/when the Fed induced unemployment air pocket shows up - the trillion dollar infrastructure bill should be deployed aggressively at that point.....as we discovered during the pandemic the speed at which fiscal stimulus can positively effect the economy is night and day better as compared to the slow moving derivative nature of how monetary stimulus works.

 

 

Edited January 26, 2023 by changegonnacome

[UK]

On 1/25/2023 at 7:43 PM, Gregmal said:

Everyone is talking about the $30T debt ceiling or whatever. Then theres AAPL and MSFT at $2T. AMZN at $1T. How freaking arrogant/lazy do you have to be to think that you're gonna get any sort of worthwhile longer term returns out of those things at those numbers if the go forward numbers are driven by real earnings power/growth? Even Google I struggle with but with regulation and a few spinoffs, you can get a better reset figure on the base. But seriously...TF are people thinking? 

 

I agree that tech stocks carries some additional risk for buy and forget type, but also think what you call arrogant ant lazy in sometimes could be just smart and easy. Large cap tech, just as any large cap or small cap, can be also mispriced. Just look at APPL, when WB bought it. So called law of large numbers not so obvious also sometimes (same was said about APPL size like 10 years ago), not sure it applies to AMZN today at all, considering its business TAM. Then if you look at META, which is btw already like +50 from autumn low, it was very and still is cheap, like value stock. I think somebody even put it in value index last year:). TSM is another interesting case. Then of course there is TSLA and similar things, but most of this kind of growth or non for profit tech already went down 2000 style, like at least 80 per cent:). So I am not sure lumping all tech stocks together serves any better than dealing with the market on the SNP level. 

 

Edited January 27, 2023 by UK

[mattee2264]

If tech stocks get into value territory (i.e. 10x earnings etc) which happened with Microsoft about a decade ago and Apple several years ago and Facebook last year then there is definitely a lot of money to be made. But the mispricing usually occurs because they are under a cloud e.g. Microsoft's PC business was dying, Apple was thought to be at risk from cheaper smartphones, Facebook was losing out to Tik Tok and wasting tons of money on the metaverse. And there are contrary examples of famous and mature tech companies that got cheap and turned out to be value traps so it is not always as obvious and it can be with the benefits of hindsight. 

 

Also you have to put a 50% decline in the context of crazy high market caps and stock prices that have increased five to ten fold over the last decade or so. 

 

As for the relatively unblemished mega tech stocks like Microsoft, Apple, Google etc you still have the law of large numbers. Cloud growth and services growth is going to be a lot more subdued going forward and there is no guarantee new avenues for growth will be discovered. And when you combine slower growth with higher interest rates that can result in a considerable hit to valuation multiples. 

 

And while obviously even more money can be made picking through the rubble of the unseasoned tech stocks that exploded in value during the pandemic only to crash back to earth and identifying which companies are going to be long term successes. But isn't an easy game easy or else everyone would have bought Amazon, eBay, Priceline etc in 2002. 

 

Also during the pandemic mega tech stocks gained a reputation as a safe haven and now that the market is far less worried about aggressive rate hikes and starting to get a little more worried about a possible recession they may be reprising that role. Of course the shock might be that the mega tech stocks are more cyclical than people realize especially as they now represent a large part of the economy and are close to market saturation.