Multiples, and Global Investors

(My usual disclaimer. I am punching over my weight on this board. Stocks and paper assets only recently became a noticeable part of my investing lif)

That being said I cannot prognosticate if “the stock market” is to go up or down. IMO these things ebb and flow and are more headline-reactionary driven than ever. And a fuddy-duddy like me does indeed feel that most parts of American life - be it the penchant to do 9 things at once, be it to have perfect abs, the right brands of yoga pants and fashionable grocery store to shop in - culture has set unbelievable expectations to where a corporation can grow amazingly…yet still not satisfy so-called investors. Point being, assets are very heavily valued to a nervous nellie like me.

But…

*$15 trillion bucks of cash, supposedly sitting in households.

*Labor force expanding.

*Millennials. Logan, Aidan, and Cassidy are still starting households and tons of commerce goes with that.

*Immigration. Despite political winds - Industry will figure out how to increase the labor force that way.

All of the above represents people who will engage in commerce. The large millennial generation will realize that their ‘healthy lifestyles’ are rewarding them with longer lives. And higher retirement ages. And cut pensions. They’ll need investment vehicles to keep up with inflation and to provide dignity in their later years.

Now, add citizens of the world.

China. Saudi. UAE. India. Ireland. Russia and all the ships at sea. The Investor Classes are huge…and growing. So the foreign equivalent of a fella with a nice education, a 401K, a nice Whole Foods budget…where’s he gonna invest? The elites in those nations…where are they gonna invest?

I am surmising that many of them - as time goes might see the USA as thee place to go. Yes, there’s growth areas in emerging markets but really, when peoples abroad look for place to put their capital… these latest events show that for now - and perhaps for awhile - the combination of human capital, consumer activity, ENERGY abundance and minuscule chance of being invaded …is the USA. Sure, much to be said about value in European equities…but they are gonna be begging either Putin, King-Whatever, or the USA for energy. America - not at all.

So with all the catalysts of increasing commerce, plus more foreign capital finding its way to the USA…perhaps, are these lofty asset values – - dare I say, totally out of character - – justified?

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Eweppl, welcome to posting on METAR!

<And a fuddy-duddy like me does indeed feel that most parts of American life - be it the penchant to do 9 things at once, be it to have perfect abs, the right brands of yoga pants and fashionable grocery store to shop in - culture has set unbelievable expectations to where a corporation can grow amazingly…yet still not satisfy so-called investors.>

I got a big smile from your clever combination of cultural and market observations. :slight_smile:

< Point being, assets are very heavily valued to a nervous nellie like me.>

I agree. Sign me up as a nervous nellie.
https://www.multpl.com/shiller-pe

<So with all the catalysts of increasing commerce, plus more foreign capital finding its way to the USA…perhaps, are these lofty asset values – - dare I say, totally out of character - – justified? >

Many, many people think they are. A recent poll on METAR found that most METARs are 100% invested in the stock market. METARs are generally very, very smart people. If they are willing to risk that much, how could they be wrong?
https://discussion.fool.com/poll-going-to-cah-or-carrying-on-350…

However…
Investors were equally confident and rah-rah in 1999-2000.

Every investment bubble has had a great “story” that sold it to new investors who kept the bubble inflating…until it popped.

https://www.amazon.com/Manias-Panics-Crashes-History-Financi…

Like you, I am a fuddy-duddy. I’m 68 years old. DH and I live a contented, modest lifestyle on our Social Security and the small returns from low-risk investments such as CDs, bonds and stodgy dividend-yielding stocks. Our stock investments total about 15% of our financial assets. (Not counting a paid-off house.) I’m a gardener, not a gambler.

What would be the point of investing more in stocks? We don’t need the money. I’d be pretty upset if the stock market crashed and then took years to recover as it did in 2001. Given how overvalued ALL assets are (stocks, bonds, real estate) the crash could take longer to recover than my life expectancy.

Which is to say…

The whole point of METAR is for people to think carefully about their personal needs and risk tolerance. Some METARs get a thrill out of risk. Others, like me, are risk-averse.

Investing isn’t all-or-nothing. If you want a LITTLE spice, you could invest, say, 5% of your portfolio in stocks that are just a little outside of your comfort zone.

But you won’t hear any arguments from me if you want to be a fuddy-duddy and avoid risks that you don’t have to take.

And please keep posting. I like your style.
Wendy

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Hello Wendy,

(long post, slightly personal, no worries dear readers if you skip it. This post is rated NN for no-nudity - lucky for you)

Very thankful for what you wrote and over time, I’d say your posts, and Mr Ormont’s posts I’ve read and marinaded in for sure.

Most of my adult life was in the small-business world. Did very well with it. Was in full control of those investments. I think partially out of cockiness my attitude was “I don’t need that stock market stuff” and part of it was - protecting my mothership meaning the excess capital I was making - either would be put back into my businesses - OR saved in a 100% secure way in case I needed to rescue my businesses. No college degree here, no profession - so the business was IT for me. I had ‘phases’ here and there with stocks but mostly I waited for nasty crashes, and did quickies and felt thrilled to make a quick 10-20% and considered it socially accepted gambling. I’d see people who never ran a lemonade stand saying “strong buy!” “conviction!” and my favorite “table pounder!” and I sort of dismissed it all.

But I can’t deny - it can indeed be a wealth builder, or wealth maintainer.

Anyway I’m 46 and a year ago I retired. Part of it - in retrospect is my fault, part of it was just bad timing, and part of it was larger, wealthier forces making me their sweetheart - in the most non romantic way lol. I had known that day would come - and that was that. Luckily - while we lived well, we lived well under our means so I VERY much regret I didn’t make it to ‘classical’ wealth that I really was on my way to. It’s been a year and I still lose a night or two a week - sad and mad.

BUT alas - I think I can still enjoy life, take proper care of a young family – and the call it a day. Luckily, my vanilla steady-eddies real estate has been just fine. 3bed/2bath townhomes, usually in busy metro areas - usually the ‘cheaper’ part of town that still has access to the schools, etc but for liquidity/diversity sake - I figured I’d be in stocks - perhaps 35-40% of total portfolio.

Basically, long term - if I can average a nominal 4.5% annuals on stocks - I’m fine. Lower than that means less vacationing. Higher than that means more vacations - lol. So I don’t want to take un-needed risk, just so I can buy nicer wristwatches. Looking at history - I keep telling myself that my 4.5 is real – even 5% is real.

I remember you being a big proponent of dividends - I remember a post you wrote about that.

So right now - yes - my sincere hope is that the good ol’ blue chips, cash rich, established businesses with recurring revenues - -will see me thru. Basically I just need the dividend, plus inflation and I’m home. Any more than that would be a thrill - but I refuse to tell my kids “ok, you gotta take student loans because Dad lost money because I wanted a Rolex for me and an extra cruise for the family” - that just doesn’t;'t compute. Luckily I grew up in a frugal household as did DW - so we’re very content not looking for home runs. Even in the 20 year business run - it was hitting doubles and the occasional triple and I found that to suit me. I figured the cool kids can have the bigger money and higher growth.

Yes, agreed on a small portion to be a tad aggressive.

Thanks for sharing about your situation and congratulations on a nice, fun, and CONTENT retirement. Those are things one can’t buy at the store.

My inner devil - I am a bit of a gambler. 20 years in business - was risk. 80% of net worth risked daily. So even now - sometimes I want to ‘get more’ and take chances. And I have a father-son chat to myself pretty much saying “Dude, stop it. Enjoy your donut in the morning, enjoy being first in line to get your kids, enjoy long lunches and the occasional poker tourney, and be thankful you aren’t schlepping to work. Slow and steady is what did it for you”. Once in awhile I’ll be in the McDonald’s parking lot - (eating an off-the-books lunch that is delectable) and maybe its vanity but I look outside and remind myself “that line of cars - they used gas - they’re buying coke products and burgers. Odds are they used a razor and toothpaste and will tomorrow. And they turn on lights at home. THAT is your new business model…just call it a day”

Anyhow, that’s that. Thanks again

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<Anyway I’m 46 and a year ago I retired. Part of it - in retrospect is my fault, part of it was just bad timing, and part of it was larger, wealthier forces making me their sweetheart - in the most non romantic way lol. I had known that day would come - and that was that. Luckily - while we lived well, we lived well under our means so I VERY much regret I didn’t make it to ‘classical’ wealth that I really was on my way to. It’s been a year and I still lose a night or two a week - sad and mad. >

If you don’t mind me asking…what happened?

Wendy
(By the way, Mr. Ormont is my older brother.)

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Yes I think I remembered you being siblings. “The Force is Strong in that Family” is us Star Wars geeks will say.

What happened… long story, because the start is relevant to finish.

Worked since I was 12. (Swimming pool job, Sbarro Pizza at 14)

Had family in business - joined that at 15 - entry level, cleaning up etc. By 17 I wore a tie to my senior year of high school, skipped classes, rushed back to work at 3. Gained valuable experiences…just invaluable. Lived with parents, worked 65-70 hour weeks mostly, banked most of the money, but man did I eat well when I went out. Anyhow, love family but my Dad’s side is cursed - good at business, just can’t get along within the business as was the case with my and Father so the plan was for me to go on my own. Age 24…I finally put a deal together… my Dad dropped me off at O’Hare and said 'now it’s all you. It’s your money. You could’ve done college but you didn’t take school seriously. I think you can do this but if you can’t, I can’t do anything for you other than let you stay in the basement again".

24: Took over something losing $400k a year. (We made $369k our first year) The current staff is smirking at me - they were all 40s-50s, I was a kid. Day after Thanksgiving I called them all in and said “Look, I’m gonna do this starting today. I’ll do the whole thing. If anyone wants to quit, please give me 30 minutes notice so I can go across for a Big Mac ok?”. On Black Friday - we had the biggest day that business had ever. I loved my place. On late nights - 11pm, 12am - I’d be last to leave and yeah, I’d high-five the building and say “thanks pal” - I admit I did it all the time.

Anyhow my management nucleus - was GREAT. All family-types. My competitors had new managers 6-8 months at a time - I had the same guys and girls for 20 years in a row. This was in suburban DC and we just killed it every day. I paid many people over scale - but man they worked. We laughed. There’s was minimal drama.

  1. Downturn. I lost something worth about 40% of my bottom line. BUT - the decade of REPEAT customers pulled me thru. Cut my advertising to zero - and we still made good net profits. All the while - the “bigger” competitors I was beating - they’d try to take my employees. They’d phone complaints into their government buddies. Didn’t work. They called me to try and buy me out - I ignored it.

  2. Internet. Competition. The deck got re-shuffled. My “big competitors” thanks to money and real estate got DOUBLE the outlets. I had one rooftop - these guys had 10,15, 20. Economies of scale and internet competition hurt. Good news I still had street Cred and I sold my place, sold it for 10 times more than I bought it for.

The corporate folks call me during all that - they have a struggling outlet in NJ so I went to look. Oh my God it was toxic reputation. Had a UNION in it - a JERSEY Union. So - I tell corporate “oh no, I’m waiting for a sweetheart place. Not gonna do this fixer upper unless its free”. Now - by this time I had a clandestine meeting with the union steward, union president - and it was a love-fest. The corporate seller sold it to me for pennies on the dollar. My TEAM from Virginia - “6” of them come to NJ with me. They rented 2 apartments, lived as roomates. The deal was I’d work the weekends - they’d drive home to be with family (all had spouses, kids, and could be hired for 6 figures easily).

We turned it around - good 7 year run. Year 7 the damn union leadership changes. The new militants were not allowing me to service customers properly. Not to mention - rent on that facility was gonna rise. But I was profitable. Get this - the ORIGINAL place I sold - it was #1 in Virginia sales-wise… it dropped to #48 out of 50. It was a disaster so the corporate folks - paid me VERY well to leave NJ - and come back to VA - I never thought I’d come there again. I KNEW there was 50-50 chance I couldn’t turn it around AGAIN. But the payout to leave NJ was ridiculously good and I just felt - things in my industry will change. And a small guy like me might not make it. So I took the money - as means of securing my family regardless.

Back to VA- SAME TEAM- plus 2 NJ people came to work for me. Damn it was buried. The corporate seller - stuck me with obsolete stuff. (Analogy - try selling the OLD I-phone model, for MORE money than the new I-phone model…70% of my inventory was cra(No I wasn’t in phone business, it’s an analogy). My family lived in suburban Philly due to school preference. I had apartment in VA and me and my 2 NJ people would go home on weekends - this time it was ME doing the weekly road trip.

The internet competition - got REALLY nasty. I did NOT have the economies of scale my mega-competitors did. These families were worth $100 million each, easily. My 20 year managers? 1 got throat cancer - couldn’t work. 1 paid off all his weddings and college stuff, Wifey has a 6 figure pension from government - he retired. So I was missing 2 out of 6 of my key horses.

Corporate was funding these losses (part of my deal, lol)…but Covid hit and they puckered up and asked me to put money in. I said “NO”…so we sold it…and me and my nucleus left the building together, laughs and smiles and some tears. They’re ALL doing great - 4 retired, my main right hand man - a 60 year old woman earning 6 figures, I see her weekly. A young lady - she’s about to get her accounting degree because I thrust her into a key position - and she flourished and she already has an accounting job.

So, here I am. Enjoying doing nothing. Enjoying kids. Enjoying food and yeah, I’ll start doing some solo trips just for kicks and attend conventions related to the industry - just to keep fresh. Overall I’m proud of my lot in life ,and thankful I’m “safe”…but ugh…some days I want to stage a comeback but its so risky and unknown. All my mentors are telling me - don’t do it. But - some nights the itch is there. Just 2 days ago 2 of my old employees texted “where are you going next? We’ll be there in a day”…geez it’s tempting.

That’s what happened :slight_smile:

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“Dont fight the FED”.

Eweppl, thank you for sharing your interesting story.

You aren’t a “fuddy-duddy”! Since you are only 46, I’m old enough to be your mother!

<some days I want to stage a comeback but its so risky and unknown. All my mentors are telling me - don’t do it. But - some nights the itch is there. Just 2 days ago 2 of my old employees texted “where are you going next? We’ll be there in a day”…geez it’s tempting. >

If your mentors are agreeing – “don’t do it” – they are probably right.

But there are many ways that you can use your energy, experience and skills to benefit society without taking the financial risks of starting a new business with an inventory or other capital expenditures.

For example, you could start a consulting business, advising other entrepreneurs. You could teach business at the high school or college level. You could volunteer in a number of ways. (Volunteering has much more flexibility than working because it’s not a paid job so you get to set the conditions.)

You could go to college. OK, OK, I’m a nerd. I loved college and wish I could do it all over again. College still might not be right for you, even though you have matured. On the other hand, my younger sister (who was a social butterfly) was amazed at how she enjoyed learning once she was in college even though she had little interest when she was in high school. You might surprise yourself! Biology? Chemistry? Engineering? Psychology? Classics? Music? Art? Theater? You might find that you love one of these disciplines. (I had a double major in Chemistry and Biology in college, but I also loved the humanities courses.)

You are young and have plenty of energy. The sky’s the limit. Use your imagination.

Wendy

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The whole point of METAR is for people to think carefully about their personal needs and risk tolerance.

On this we agree entirely but some of your further comments contradict this belief.

I’m a gardener, not a gambler.

Then lots of us are not investors who “think carefully about their personal needs and risk tolerance” but gamblers?

The function of markets is to bring together people with opposed interests. If you think a stock is too high and I think it is too low, we are a perfect match to make a trade. If we all though alike markets would die. Give the French credit, “vive la différence.”

You brought up your lifestyle and your investing style matches it, as it should. Others have different lifestyles and investment styles to match. Some might be gamblers but lots are just entrepreneurs which carries a higher level of risk but not high enough to be called gambling.

<So with all the catalysts of increasing commerce, plus more foreign capital finding its way to the USA…perhaps, are these lofty asset values – - dare I say, totally out of character - – justified? >

Many, many people think they are. A recent poll on METAR found that most METARs are 100% invested in the stock market. METARs are generally very, very smart people. If they are willing to risk that much, how could they be wrong?

The error of this premise is that all assets are equally inflated. It might apply if you are looking at wide indexes like the S&P 500 or NASDAQ, but if you have a long enough horizon and willing to ignore volatility, it does not matter:

S&P 500: https://invest.kleinnet.com/bmw1/stats35/^GSPC.html

Ignoring volatility means not buying at tops and selling at bottoms. You can make money doing the opposite making volatility your ally!

But the real issue is not whether stocks are inflated but whether the underlying businesses are sound. Valuation fluctuates but business staying power is what matters. Warren Buffett spends his time reading SEC filings. Peter Lynch listened to buyers. Philip Fisher wanted to hear the scuttlebutt and what experts had to say. It was speculators like Jesse Livermore a.k.a. Larry Livingston, who relied on prices.

Eweppl, by all means, please keep posting.

The Captain

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Eweppl,

Thanks for posting your story. I agree with Wendy that volunteering can be rewarding and you get to set your own terms in how much you want to invest in time and energy.

Wendy volunteers with a group of folks who help senior citizens with their taxes. I volunteer with www.score.org which is a resource partner for the SBA who help small businesses start, grow and manage their businesses.

You can also look on www.volunteermatch.org for volunteer opportunities that might be of interest to you.

Best of Luck!
'38Packard

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Eweppl

Add me to Wendy, the Captain, '38Packard, and others of our motley gang in saying “Please keep posting as you have already contributed to the conversation here and clearly have more to say.”

And I love your clever triple entendre handle!

david fb

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Thank you everyone, for all the kind words and suggestions and life experiences.

As I am daily trying to talk myself out of a “rebuild the empire” route…I am also sort of thinking a bit more about the mentoring consulting thing.

The one thing Wendy said - college. I fully appreciate knowledge but that one - just not me. Never ever was a good student, never tried. Aced Marketing and AP Government in school - flunked or cheated or talked myself into squeaking by the rest. Funny part is my sister - 3 years younger – 4.0, 4.2s, gifted, all that stuff. A rather successful attorney now. Honestly even if I had the aptitude - - the money spent on college - my goodness I could whisper fund a tiny start up for myself :wink:

I do want to do 2 things.

1.)Spanish. I can do basic conversation with 1st generation Spanish speakers, replete with their native accent almost… Most of it from watching Spanish language news, and dubbed movies I know by heart and by daily selling, and dealing with them. As soon as I feel Covid- safe which might be soon - I’m thinking of taking lessons to be fully fluent.

2.)I hate technology - I really loathe it. I’m thinking of truly learning the Microsoft Office stuff. If nothing else it will help my kids. or who knows what else.

Either way, appreciate everyone’s thoughts.