My Thoughts RE This Market

Investment Analysis Clubs Saul’s Investing Discussions
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First off, I’m an active reader her but not an active contributor. I do greatly admire what all is said up here. I have learned quite a bit.

On this latest market fall off. I’ve lost quite a bit myself these last two months. Hundreds of thousands of dollars. Is it fun? No. That said, I’m not worried. The companies we’re invested in on this board are great companies and have long-term secular trends in their favor ---- regardless of what happens in the market. As an example, is there going to be more security or less security going forward ---- even in event of a downturn…companies like ZS (the cloud player of security) are likely to win/take market share…even in a flat or down market. I feel the same way re: others as well w TTD, MELI, VEEV, XPO (I think Saul sold out of this one long ago), NTNX, BZUN and others. These companies are going to continue to win even in a downturn.

Few other nuggets.

(1) I love this little link re: S&P Forward PE. Have a look at it. http://fingfx.thomsonreuters.com/2011/12/16/09414959ae.htm We’re well within one standard deviation of the 25 year mean on the S&P forward PE. Is the S&P flawed based on the stocks we like? Yes. But when the S&P is doing well, we typically do better. So I look to this.

(2) Someone recently posted the Fear & Greed Index. I do like that. Thought it worth posting again. Have a look at the bottom-most chart in this table. Says a lot!
Buffet’s “be greedy when others are fearful”. https://money.cnn.com/data/fear-and-greed/?iid=EL

Look, I don’t think things are as bad as they seem. Do we have rising interest rates? Yes. Do we have issues w China? Yes. Do we have uncertainty w midterms? Perhaps. But so many positive things as well ---- particularly w low unemployment. Could we face inflation. Yes. The Fed is trying to guard against that ---- perhaps a bit too aggressively in their actions and remarks…yes. But at the end of the day, they will be data dependent (no matter what the Fed says in this regard) ---- or guess what? The Fed Chair will be quickly terminated by the USA’s no tolerance POTUS (yes, yes, the POTUS says he isn’t going to fire the Fed chair ;-)). Also, we have the Amazon effect at play ---- where any industry’s margin is their opportunity. They alone account for some level of inflation mitigation. And back on China. How about if the POTC and POTUS get some agreement on the core issues (not all, but core ones)? They are to meet soon… The Shanghai Stock Exchange is off 30%. Yes Xi wants to save face w his people, but this isn’t fun for him…and he’s getting pressure internally re: their markets. Look, China didn’t have a major problem w their stock market until the POTUS put focus on China.

Mid-terms? The House will go to the Dems. The Senate remains w the Repubs. Mixed Congress is good for markets too.

I really just wanted to point out that Forward S&P tool above. But I guess I took the opportunity to do this rant. S&P is off 5.9%. Nasdaq 8.4%. Russell 11.5%. Yet if earnings growth is one key mark of goodness, history suggests that this is all normal. Again, “our” stocks may not have much in earnings per se, but when the S&P does well, we outperform. So I look to it.

Best to all, and please, feel free to push back on my logic. I do appreciate the learning opportunity.

Jay

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Thank you!

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What is the best source for the S&P 500 p/e ratio charts? I did a quick google on this and have found this number varies from your chart link which clearly shows its under 20?

http://www.multpl.com/ . = 22.6 p/e

https://www.macrotrends.net/2577/sp-500-pe-ratio-price-to-ea…

scaling down the the interactive grid to the last 20~ years yes it doesn’t seem like an overvalued market but just wondering how is that going to indicate if there will be a downturn in the market? Don’t think the past recessions were kicked off because of an overvalued market? I’m just learning like you, so maybe my logic is also flawed in this sense? :slight_smile:

Ron

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Those look to be trailing PEs as opposed to forward PE.

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If NTNX, ZS, PVTL et al, have fallen this far with the S&P not even in “correction” territory - not yet at least - what can momo investors expect when sector rotations really kick in during a correction, and perhaps, a crash?

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If NTNX, ZS, PVTL et al, have fallen this far with the S&P not even in “correction” territory - not yet at least - what can momo investors expect when sector rotations really kick in during a correction, and perhaps, a crash?

The above comment lacks perspective because it’s not an apples to apples comparison. If NTNX, ZS, PVTL et al go up 50% while the S&P goes up 20% you can expect a similar ratio on the way down, a 10% drop in the S&P would be the equivalent of a 25% drop in NTNX, ZS, PVTL et al.

My fast growers are down between 16.8 and 25.5% from their all time high with a mean of 21.4%. The three indexes I look at are down one third of that.

DJI - 5.2%
S&P - 5.6%
COMP - 8.1%

The proportion seems about right. We are what we measure so we need to be careful about what and how we measure.

The other point to consider is what has been talked about here for quite some time, “What would people do when the downdraft came?” If you are a long time buy and hold and if you think your businesses are solid, why panic? Panic will make you sell at the most painful point, near the bottom. Why the bottom? Becasue you are hoping to get back to even before selling so you get deeper into the hole until panic truly sets in, a lot closer to the bottom. It’s called capitulation. Does this remind you of 2009?

https://i.investopedia.com/image/png/1519039620158/capitulat…

Give the Chicken Little’s a chance to sell. After that low point lots of perma bears missed out one of the greatest bull markets ever. Emotions designed to keep you alive in the jungle suck in the market! :wink:

Denny Schlesinger

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Good points about Relative Strength vs. indices, Denny. But I drill deeper than indices. I go further into sectors and sub-sectors.

Here are two pictures of the same ETF. Both are daily charts but with different time frames.

Question, if this was a stock, not an ETF, would you be buying here?

See how many negative warning flags are flapping in the first onshore winds of what could be just a tropical storm or a full blown hurricane:

SKYY Daily chart going back 7 months:

http://schrts.co/XVRJSy

SKYY chart going back 2 years and 7 months to show the last time it closed below the 200 EMA:

http://schrts.co/JZxGUE

The above charts are not signaling “all is clear, let’s start adding here.”

As you can see via the two pictures above and what is readily picked up by even novices in a half-minute scan: the ETF for these cloud computing stocks - until two weeks ago in October 2018 - had not traded under the 200 EMA since the beginning of their bull run in June 2016.

Sentiment has changed for this entire sector.

That’s what I’m hoping to get across.

Indices first.

Sectors second.

Sub-sectors third.

Look for sector rotations working in a down market.

Keep it simple.

Sometimes, Cash is the best trade for those opposed to T/A and who don’t want to short.

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The market is not going to crash! Earnings growth is explosive, GDP is north of 3%, unemployment is low, bond yields while expanding are still low based on historical averages, and the market is not expensive. The constant drivel of fear mongering on this board is not appreciated, nor productive. Yes, the stocks discussed on this board are down significantly if you bought recently, but not if you bought at the beginning of 2018 or earlier. The key metrics for many of these businesses continue to exceed lofty expectations, and if they don’t the market will punish them quickly and we will give back some significant gains. This is part of the cost to play with high growth, small caps stocks, but just a 40% win rate playing this game can create significant wealth and be life changing.

Good luck to all, but all the years of investing with the Fool have been life changing and enough proof for me that despite the crashes (2008-2009)this strategy far exceeds other options you have to grow your money over time.

John

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The market is not going to crash! Earnings growth is explosive, GDP is north of 3%, unemployment is low, bond yields while expanding are still low based on historical averages, and the market is not expensive. The constant drivel of fear mongering on this board is not appreciated, nor productive. Yes, the stocks discussed on this board are down significantly if you bought recently, but not if you bought at the beginning of 2018 or earlier. The key metrics for many of these businesses continue to exceed lofty expectations, and if they don’t the market will punish them quickly and we will give back some significant gains.

Thanks John, I couldn’t have said it better myself. Whenever there is a correction these guys show up on the board to tell us that their TA charts show that a crash is coming and we “momo investors” are going to get killed. As you said, if you figure from the beginning of the year we are way, WAY, out ahead. I’m up approximately 50.0% year to date and others on the board are too. The average of the three indexes I usually follow (S&P, Russell, IJS) is up 0.9%, and if you throw in the Nasdaq and the Dow, the five are up all of 2.7%.

As you all know, this whole thread is OFF-TOPIC for our board. We are here to talk about individual growth stocks. Let’s let this thread die.

Thanks for your cooperation,

Saul

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The market is not going to crash! Earnings growth is explosive, GDP is north of 3%, unemployment is low, bond yields while expanding are still low based on historical averages, and the market is not expensive.

If you look at historical bear markets, you will find that strong recent quarter performance of the economy doesn’t really protect against massive stock market losses.
In Q2 of 2000, the US economy grew at an annualized rate of 7.3% and unemployment was at 4% and trending down.
What followed was one of the most savage bear markets in history.

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In Q2 of 2000, the US economy grew at an annualized rate of 7.3% and unemployment was at 4% and trending down. What followed was one of the most savage bear markets in history.

Hi Devil’s Advocate,
I presume you are talking about the Internet Bubble bursting. That was a bear market in internet stocks that were selling at 400 times revenue, or had no revenue. I switched into normal companies near the beginning of 2000 and stayed 100% invested, and was up 19.4% in 2000, and up 46.9% in 2001 … one of the most savage bear markets in history …I don’t think so!

Saul

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If you look at historical bear markets, you will find that strong recent quarter performance of the economy doesn’t really protect against massive stock market losses.
In Q2 of 2000, the US economy grew at an annualized rate of 7.3% and unemployment was at 4% and trending down.
What followed was one of the most savage bear markets in history.

True but it lacks perspective. It is generally accepted that markets are mean reverting meaning that the current state of the market is a fairly good predictor of the magnitude of the following bear, absent extraneous events. A good illustration is a long term (40 year) chart of the NASDAQ index

https://invest.kleinnet.com/bmw1/stats40/^IXIC.html

The 2002 crash was the consequence of the huge previous bubble, stocks were simple overpriced, many stocks went to zero as former market darlings like Global Crossing went bankrupt. One telling point is that in 2002 NASDAQ didn’t drop below one standard deviation. The S&P 500 only reverted to the mean

https://invest.kleinnet.com/bmw1/stats40/^GSPC.html

Of course the fall from the top was very painful but, if the charts are to be believed, neither NASDAQ nor the S&P 500 are in bubble territory now hence the correction should be a lot milder. Of course the high flying high tech will fall more than the general market but if my positions are an indicator, they have already shed 25% from their all time highs. How much further can they drop?

The only other huge drop during this 40 year period was 2007-2009. It was caused by the housing bubble but the fuel that made it so deep and steep was market manipulation via derivatives with astronomical nominal values. The 2008 crash was a liquidity crisis reminiscent of the 1929 margin abuse. It would take some extraneous event to trigger a huge crash as the market itself is not in a stressful state like the 2000 bubble. Some fear that a Chinese collapse might be such a trigger.

Denny Schlesinger

EXPO Exponent, Inc. 54.50 10.4 23.3% 21.8% 25.3% 26.7% 48.82 1.50 3.17

Down from high


**Symbol     Date          High       Last   Down%** 
TREE    01-23-2018     402.60     206.75    48.6
ATRO    04-10-2015      57.92      32.67    43.6
PVTL    06-15-2018      28.91      18.15    37.2
NEOG    09-14-2018      96.50      63.10    34.6
AOS     01-26-2018      67.84      45.18    33.4

FB      07-25-2018     217.50     154.05    29.2
NVO     08-03-2015      60.23      43.17    28.3
MELI    03-09-2018     413.94     301.87    27.1
BOTZ    01-23-2018      27.38      20.20    26.2
SOCL    03-12-2018      38.73      28.59    26.2
EXPE    07-28-2017     159.50     118.32    25.8
ANET    08-24-2018     308.58     229.76    25.5
HCSG    01-26-2018      56.01      41.82    25.3
AAON    08-22-2018      42.90      32.21    24.9
MNST    01-26-2018      68.91      52.11    24.4
NUVA    07-25-2017      81.04      62.05    23.4
MDB     09-11-2018      84.77      65.04    23.3
PSTG    09-11-2018      28.66      22.08    23.0
FIZZ    09-11-2017     126.40      98.16    22.3
TTD     09-26-2018     155.75     121.30    22.1
ODFL    09-11-2018     168.03     132.06    21.4
NVDA    10-01-2018     289.36     229.17    20.8
NFLX    07-09-2018     418.97     332.67    20.6
ALGN    09-25-2018     392.98     312.79    20.4

ROBO    01-23-2018      46.16      36.99    19.9
SPR     02-01-2018     102.93      82.55    19.8
MIDD    12-08-2016     142.38     114.67    19.5
IRTC    09-14-2018      96.89      79.87    17.6
PAC     07-24-2017     118.81      98.08    17.4
XPO     09-27-2018     114.54      94.70    17.3
BEAT    09-28-2018      64.45      53.63    16.8
EW      09-28-2018     174.10     145.42    16.5
BKNG    06-06-2018   2,153.78   1,805.74    16.2
PSCT    08-31-2018      89.71      75.76    15.6
TLND    09-25-2018      72.89      61.76    15.3
ASR     07-24-2017     220.73     188.79    14.5
XSD     09-04-2018      79.29      68.08    14.1
FDN     07-25-2018     147.65     126.88    14.1
BCPC    09-18-2018     116.69     100.28    14.1
ULTA    06-05-2017     313.73     270.78    13.7
ISRG    10-01-2018     574.74     504.26    12.3
MKTX    03-16-2018     224.59     197.43    12.1
EXPO    09-14-2018      54.50      48.82    10.4
TDG     07-31-2018     375.56     337.19    10.2
MA      10-01-2018     223.77     203.06     9.3
SKYY    08-29-2018      56.87      51.74     9.0
PYPL    09-04-2018      93.07      84.78     8.9
AIEQ    08-29-2018      29.89      27.36     8.5
^IXIC   08-29-2018   8,109.69   7,449.03     8.1
CNI     10-01-2018      91.40      84.71     7.3
V       10-01-2018     150.79     140.08     7.1
^GSPC   09-20-2018   2,930.75   2,767.78     5.6
AAPL    10-03-2018     232.07     219.31     5.5
^DJI    10-03-2018  26,828.39  25,444.34     5.2
ROST    09-27-2018      99.46      94.69     4.8
ORLY    09-11-2018     347.72     339.87     2.3
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That was a bear market in internet stocks that were selling at 400 times revenue, or had no revenue. I switched into normal companies near the beginning of 2000 and stayed 100% invested,

The market in 2000 was very bifurcated.
Tech stocks and many blue chips (but not nearly all) were incredibly expensive, while in particular small cap value, but also many “boring” large caps were highly undervalued.
That is not the case this time.
Markets (and not only in stocks) are broadly very expensive, but tech is particularly expensive.

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Of course the high flying high tech will fall more than the general market but if my positions are an indicator, they have already shed 25% from their all time highs. How much further can they drop?

Denny, you’re an experienced investor. You know the answer to that question.

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Denny, you’re an experienced investor. You know the answer to that question.

To zero! :innocent:

Denny Schlesinger

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To zero!

Wouldn’t go that far. But the universal answer that will be right most of the time is “The stock could go down A LOT more”.
A 25% percent drop is nothing. That’s just a few months of gains.
If this is the long-awaited big bear market of the next recession, then many highflyers will retrace ALL their gains going back several years.
Remember, business investment is always a casualty of a recession.
Instead of growing revenues at a fast pace, revenues will in many cases shrink.
And those same investors that are currently extrapolating a +30% growth rate into the indefinite future will then be afraid that not even the 2016 revenue level was sustainable. That’s the psychological shift that happens towards the end of the bear market. That’s why growth stocks go down so much in recessions.

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Instead of growing revenues at a fast pace, revenues will in many cases shrink

That is quite the generalisation, and one that needs to be substantiated to some degree for the software stocks discussed here if this bearish view is to be considered a reasonable probability

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It’s quite simple. We’re on the cusp of a significant U.S. economic slowdown after a 9-year expansion. If anyone thinks that the IT-spending that is fueling the growth of many of the companies discussed here will be immune from that slowdown, then I’ve got a bridge to sell you.

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The average forward P/E of the S&P 500 over the past 25 years is 16.1.
The current (as of 10/22) forward P/E of the S&P 500 is 16.8.

That doesn’t sound that expensive.

Eric

Source:
https://am.jpmorgan.com/us/en/asset-management/gim/adv/insig…
https://ycharts.com/indicators/sandp_500_pe_ratio_forward_es…

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That doesn’t sound that expensive.

Eric,
You are going to spoil those guys’s narrative. C’mon. The market is expensive, this bull market is old, you guys are going to lose a ton of money, I am not invested in the stocks you are invested in because Bonds are much better. Oh I pulled all my money out in 2012 so I could buy Alaska from the Russians.

Andy
:slight_smile:

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