It is never too late to learn new things

Investment Analysis Clubs Where Angels Fear to Tread
109

Something that NOBODY talks about on Saul’s board, which should be discussed, is the reality of black swan events. No, not talking about COVID that impacted every stock…I’m referring to geopolitical specific events that would literally target companies favorited on the board.

What would happen to SaaS…Tesla…semiconductor AEHR…if Taiwan was attacked or blockaded by China?

Share prices of companies heavily dependent on TSM or chinese customers would get sliced in half overnight on a shock event.

That’s a real risk of a hyperconcentrated tech portfolio that no one seems to acknowledge.

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110

@BeachMan2115 I @mark19601962 I’ve been reading these posts as I’ve just joined despite reading MF letters regularly. I just read Saul’s investment discussions as well and the investment returns at 5X and 3X in some of his posts are intense. Like we’d all love that, wouldn’t we? But I am wondering @mark19601962 about how that sits with your comment “I have done a tiny bit better than if I just bought and held a total market index fund, and a few bond funds and forgot about them.” Is the 5X 3X rate of return exaggerated? Or is your return actually close? Also this quote from MF I found on Reddit threads: "“Fund manager Fidelity found that if you were fully invested in the FTSE 100 over the 26-year period from 1992, you’d have a total return of 559%, with dividends reinvested. However, if you had missed the best five days in the market, your total return would fall to just 343%. Missing the best 30 days would leave you with a meagre 48%.”

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111

Now, that’s a key point. In was listening to a podcast from The Economist recently and the tension between US and China, within China mainland, is palpable. They don’t see a war imminent, but in the sentiment among the Chinese in general with the US is not happy, according to this news outlet.

So, and perhaps this is for the MECAR forum… right now semis stocks are up on the moon. China is being banned from using the latest chip technology and it appears that this is starting to hurt. If you were the Chinese govt… what would you do? For example, just dreaming… say you elevate the tension in the Yellow sea… what could happen to all the NVDA, AEHR, TSM, AMD and TSLA? And if they short them right before?

So my question would be… what could we do to hedge that risk, and what could we be looking at to measure this so we don’t act too early?

Almost retoric questions, but this is something your comment triggered in my thinking.

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112

I think the returns are real, but only 1 in 10,000 get returns like that. Saul went to Harvard medical school and wrote numerous books on French, so he is a very smart man. He takes on an incredible amount of risk. He owned about 9 companies all in the same tiny subset of an industry. His portfolio was down 75% in 2022. What he failed to mention, or hid somewhere in his long reports is that he has enough cash set aside to live for the rest of his life, so for him it was not much of a risk. I think he should have mentioned more about risk control in his posts. People who found him late put in their life savings and lost 75% of it.

As for the missing the 5 best days comment, it is intellectually dishonest. How would you do if you missed the 5 worst days? They never mention that.

Best,

Mark

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113

Oh a Saul discussion. So much to say on that, but most all of it amongst friends privately. I was one that questioned Saul a few too many times along the way, and when he had the ability to choose who he wanted on his side, I wasn’t one of them. Wasn’t at all surprised. Saul likes to act like the “gee wiz, don’t follow me, I am just another investor”, but the truth is that he loves the attention, and really puts up with zero questioning. I’ve seen him mock others for simply asking an honest question that he doesn’t want to answer.

Yes, for years I questioned a man in his 80s putting all his funds in 8 hyper growth names. I was at times crucified for asking it. How dare I ask such a question. Anyone with any cash is a fool. Yet after his big fall, he finally admits that not only does he have a very big nest egg in cash, he has other funds in much safer investments than hyper growth.

Ok, I could go on and on, but my last point is this. It’s Sauls board. We might want it to be different, we might have better ideas for a community, but it’s his board, with all its faults. It’s why a few of us started our own private webpage, so we could discuss all those topics that Saul didn’t like. We could even discuss Sauls board without persecution. So if you want to build something better than Sauls board, by all means do it. Sauls board only changes when Saul decides. Now he allows the word cash. Now he allows discussion about TSLA. It’s why it’s called “Sauls Board”. A place that’s lost most of its luster, most of its magic, but it’s still his board.

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114

So I track all my companies low and High P/S for every quarter. Then I have the high and low P/S of each company going back as far as I have been tracking them so that I can tell when they are nearing the upper or lower bands of their trading ranges.

Hi @buynholdisdead, do you have a template for this? I’d love to check it out and maybe build off it.

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115

I think it was intellectually incomplete too - what happens if we withdraw after the 5 best days? Or the 30 best days? Surely that’s better than a 26-year period of highs and lows? I also wondered if it is incongruous with MF’s advice on active investing as it does suggest leaving the investment there. Thanks for the Saul insight. Just for context, I am a n00b in thinking about investment even though I’m in my 30s! I only discovered it and focused on it about a year ago and this is mainly because we only managed to buy our own home last year, so that was my first step in this country I think. Also, I do all of this financial thinking for the family and it’s sometimes intense :slight_smile:

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116

Hi Sunny,
It is all imputed by hand using an excel spreadsheet. Here is part of one for AMD.

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As you can see on the bottom of the sheet I have the price of the stock, low and high prices, for the quarter, then below that I have the P/S and P/E for Amd. Depending on the stock there might not be a P/E. I calculate P/S and P/E by hand because not every site has these correct. All of the data has to be imputed by hand also. But by doing this I every quarter, and for AMD it is going back to Q419, I can see what range the stock has been trading in. If I buy towards the bottom of the range I hopefully will be good going forward.

So then I take them and put them into another spread sheet in google sheets.

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This sheet has the Date, Ticker, Price of stock in real time, Sales per share to date, P/S in real time, Range of P/S it has traded in. Date it will report (not filled out till earnings). Dollar change for today and Percent change per day. Green is up and Red is down. If you look at IIPR and NLCP those are REIT/dividend stocks so are calculated using the AFFO instead of P/S.

This is a simplistic way to see when a company is trading in a lower range of it’s value Sunny and isn’t meant to be exact. When Tom was on the boards he showed everyone to keep track of trading ranges. He was much more involved than this but I don’t think being exact is necessary in investing.

Hope this helps if you have any questions just ask.

If anyone knows of a site that keeps track of these ranges, correctly, for years please respond to this thread

Andy

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117

Macrotrends.net is a website I have found useful for this purpose. It tracks tons of historical data (P/E, P/S, etc) as well as Revenues and displays them graphically.

I find it very useful to see how a company is trending historically. I haven’t independently verified its accuracy, but haven’t found any obvious errors either.

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118

I am fairly contemplative today.
My timing has been horrible this YTD.

I do think economy continues to teeter and is a house of cards, but market doesn’t care and my portfolio is tied to the market and not my thoughts (unfortunately!).

Here is the new thing I learned:

  1. my target entry prices should trump macro aka last June/Oct/Dec were great buying opps for some stocks I liked.
  2. I am simply a much better investor at buying individual stocks low and selling higher vs shorting/timing a macro market.

But what to do this moment? It always comes down to what I think is best possible move from today moving forward. FOMO isn’t an option. I still think macro will show it’s true colors, and there are no desirable entry target prices on stocks I like (imo). So there isn’t much to chase.

I could reduce the shorts. Because I have been shorting the index vs NVDA it hasn’t been nearly as painful and the moves are gradual. The hope had been to catch a 10-15-20% market downtown, swelling up my cash for eventual longs.

My irritation with myself is that due to poor timing, even if I am “right” in next few weeks or months, all I may wind up doing is netting a few positive % points higher than my starting year balance, before finally going long. That wouldn’t be the worst thing though. The worst would be there is only ever up.

But let’s think about that. The title of this thread is “it is never too late to learn new things”.

Ok.

What about “it is always good not to forget about previous lessons learned”?

Meaning…in 2020 and 2021, everyone and their brother told me I was an idiot for only making 78% or so, when monkeys with darts were bringing in 200%+ in a momentum-based valuation-be-damned mentality.

Then in 2022 it all became “gosh…what were we thinking?! Of course the valuations were out of control!”

Then a few months into 2023 and you could feel the confidence returning to the downtrodden permabulls. Thanks to a crazy June, especially, and I have to say the sentiment certainly feels like it has returned to 2020/2021.

Supermicro? Seriously? Commoditized server hardware. Congrats on riding that wave, but I am close to calling it the next Zoom and breaking out a poll for random stock against SuperMicro over next 12 months.

So, anyway. I may reduce shorts because I don’t want to bleed forever, but I also am not about to chase, unless I can expand my watchlist and find some downtrodden gems that haven’t participated in the recent upswing.

Feels like late 2021 all over again.

Dreamer

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119

To a large extent, that’s true.

But SMCI has it’s strengths… that offer competitive advantages, such as much quicker delivery times. Go to their earnings presentations if you want to think about it.

Rob
He is no fool who gives what he cannot keep to gain what he cannot lose.

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120

Doesn’t the market mostly price the future events in? Unless it’s wrong in predicting such events. Covid Vaccines were priced in much earlier than the vaccines came in. I’m sure any recession and macro are priced in. Question is what exactly is priced in - soft landing, hard landing, etc. And the money to be made is figuring out if that part is incorrect.

I’m in the same boat as you, just not shorting anything but holding almost 50% cash. I thought I would see volatility with the debt ceiling but alas the politicians disappointed me. Another lesson I learned is to treat my taxable and non-taxable account differently.

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121

I literally spent 10 of the last 18 years at my large national IT hardware/software/services reseller supporting datacenter hardware, including HPE, Dell, Lenovo, etc… Supermicro might be catching up to Lenovo, but they still far lag HPE and Dell to Enterprise, Commercial, and Public Sector clients.

I am guessing this is mainly a cloud play. They don’t make any GPUs…that would be NVIDIA and AMD which attach to all.

Sorry…but this is a saturated commoditized space with existing big players.

This reminds me of how Arista was a Cisco killer.
Then Nutanix was a SAN storage killer.
Then Zoom was a Teams/Skype killer.

I don’t see this ending well.

Dreamer

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122

If that was the case, wouldn’t the markets always be fairly flat/steady?
Reality is we see mammoth hyped up runs, such as into 2000, then mammoth bust of a bubble. We see everyone’s house going up in value in 2007 then bust (along with the stock market) in 2008.

Did the markets “price in” the long drop from March 2000 to 2002/2003? Or the 2008-2010 doldrums?

Who saw covid coming? Then who saw the overhyped WFH/SPACs/Crypto/Meme stock momo run amok? Followed by a collapse in 2022 when everything kinda/sorta seemed ok economy-wise.

I don’t buy the market is an accurate pricing machine. I think the money is made in identifying when the market has lost its mind, to the upside or downside, and acting accordingly. Individual stocks only sort of operate independently of the broader markets, as we have seen.

Dreamer

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123

I don’t disagree with you. I’m not saying the market is an accurate pricing machine in the short term. If I had followed macro closer, I would’ve sold a lot of my holdings when I saw inflation was close and the fed would raise rates soon enough. It is easier to see the mispricing with these things than Covid though since no one saw Covid coming apart from people in Congress.

I do think the market has priced in anymore FY guidance cuts and probably upside beats in 4th quarter. And a whole bunch of things from AI which might not be fruitful for another couple of years depending on the company.

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124

That’s an impressive background!

Since you’re familiar with all this… how is SMCI able to grow revenues and profits so quickly? Is the entire industry growing sales and revenues at that rate?

As for SMCI being a killer of anything, I’ve never seen anybody make that claim. Have you?

Rob
He is no fool who gives what he cannot keep to gain what he cannot lose.

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125

Regarding what the market has priced in, nobody knows, but for the past 20 months, the market has definitely moved based on the words and actions of the Fed (especially the once overvalued hypergrowth IT software companies).

Because of the 24 hour business news cycle that is available to anyone who wants to see it (and even those who don’t), the Fed’s actions during this time were a huge driver of the market selloff in 2022. And now that the Fed has paused/slowed increases, and chances are, will be stopping within the next 6 months, and cutting within the next 12 months, the market is now pricing that potential outcome in.

Then the low 3% inflation print that came out on Wed, that may even get the market thinking the Fed may only increase one more time this year, instead of two, which would be another boost to stocks if that happens.

I also think that most stocks have finally gotten their estimates conservative enough that even with an economic slowdown or soft landing, most companies should be able to beat their estimates going forward, and start to show good YOY comps as they lap the slowdowns of 2022/23.

Of course, a deep recession, high unemployment, increasing inflation, the Fed taking matters too far and continuing rate increases for no reason as inflation gets under control, or any combination of those would cause the above rosy scenario to crap the bed. But my money is on the more upbeat scenario unfolding.

I’ve got a 10% cash position currently, the largest I’ve had in years, as I’ve been taking some profits from the recent runups as one of my key takeaways from the late 2021/22 disaster. I will continue taking more profits (maybe up to 20% cash) from various companies if they continue to do well, and will move some or all of that cash position to safer investment vehicles so I will sleep better than I did in 2022.

Good luck to all.

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126

so if rates go up (which they have in an aggressive fashion for months) stocks go up (which they have more or less since Oct/Dec).

And if rates go down…well…stocks should go up, too?

Must be nice to be stocks!

Reminds me of how TTD had some of the worst Q’s in 2020, yet the stock blew up dramatically. Comps got easier…but stock tanked in 2022 like everything else.

I think it is getting to the point where we are all creating narratives to match whatever outcomes we want. Doing that isn’t necessarily unusual, but I think it is this unique period where stocks are overvalued (again) but yet still off the super-bloated 2021 peak, which causes you to feel correct no matter which direction you call or predict moving forward.

No man’s land.

Dreamer

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127

No, I didn’t say that, for the past 6 months the aggressiveness of rate increases has been reducing. The Fed had 4 straight increases of 3/4% in 2022, during that time stocks were cratering (the high growth ones for sure). All major markets hit bear market territory, with the Nasdaq significantly lower than that. That shows stocks going down with aggressive rate increases, the opposite of what you say above.

Now for the past 6 months, rate increases have dropped from 3/4% at every meeting to 1/2%, then 1/4%, then skipped a meeting with no increase, and an expectation of stopping completely within months, if not sooner. That’s what’s given stocks a boost in 2023.

The discussion was that the market is forward looking, and that’s what we’re seeing now, and what we saw earlier. My portfolio started tanking in Nov 2021, there had been no rate increases but inflation was there and there was an expectation of rate increases (which didn’t start until Mar '22, almost 5 months later). Yet the market was forward looking then, going down before rates had even begun to increase. And it went down for well over a year. The last few months there’s been an expectation of rate increases reducing (which they have) and eventually stopping, so again, the market is looking out to that point and stocks have been increasing because of it.

I agree, we do, but that’s the whole point, right? Trying to make sense of a seemingly irrational market at times.

I don’t agree stocks are necessarily overvalued at this time, some are of course, as is always the case, but just because many have had a good run, doesn’t mean they’re overvalued. Just as in 2022, many times, it felt (to me anyway) that stocks had been sold off too much and were undervalued, only to make new lows again and again.

What’s going to determine whether they’re overvalued now or not, should be how they perform over the next 6-12 months. I’m betting they’ll do OK over that time period.

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128

For better or worse, since 2010 we have been in an era of relatively higher valuations (bonds: lower yields, stocks higher P/E, P/S). It feels like this will continue (too much capital looking for a home - including yours, mine and everyone else - relative to the pool of available investments). Any ideas why this wouldn’t continue?

Currently, short-term yields are higher, but the rest of Treasury curve, not so much. The 10-yr briefly touched 4% and then promptly sold off. So apparently the market is ok with sub 4% out to 10 years. And inflation looks to be bouncing around 3.x%+/- (and clearly trending down), that’s a pretty worry-free number.

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