premarket thoughts

Premarket trading is down. NVDA -6.5%, SQ -9.7%, MDB -9.69% AYX -1.3%, TWLO -7.02. S&P down 1.1%

Stuff I’ve heard, etc. “Need to test October low”: That is 2660 and that is where we are pre-market. The February through April lows were 2600 (three times). That is another 2.2%.

Saul posted his highs-to-lows data. I calculated his stocks need another 10% from here drop to hit what has been a frequent low. Looks like we will be close to that at open.

So, just thinking. Game plan. I caved in to cash raising over the last 7 or so trading days. Should be a day to put a noticeable part back in. Part. Not lose nerve here.

Over at Epsilon Theory on October 24, they had this to say about a circumstance that maybe the market is anticipating:

• When everyone has nominal revenue growth, business models based on profitless revenue growth won’t get the same valuation multiple. At all. More generally, every business model that looks so enticing in a world of nominal growth scarcity will suddenly look like poop


10 minutes to open. Gird the loins.



We need a game plan. A list of companies, ranked roughly in pecking order of enticing price and stalwart business to start purchasing once the blood letting starts to slow.

Monkey’s list:


But let’s get smart and analytical about this, rather than merely anchoring from previous high prices.

What does your list look like? What are the obvious Buffet moves here? I think we have time to think this through together.


Monkey (long SQ, OKTA, NEWR, ZS)


Of the “Saul stocks” that I own, even with yesterday and this morning’s drop, most are not any lower than they were a month ago:

MDB - about the same
NTNX - about the same
ZS - a little bit lower
OKTA - ok this one’s quite a bit lower
AYX - quite a bit higher today

and I don’t even own TWLO which is higher as well

I’m not any more concerned today then I was a month ago. I don’t need the money that is invested in these stocks in the short term, and I’m comfortable that even if one or two of the above do really poorly over the next 5 years, the others could (I would even say “should”) do so well to make the bad ones seem like a rounding difference given the dramatic transformation of the industries that these companies are taking over.

Yeah, the red on the computer screen is ugly, but it’ll pass. What matters is the numbers when these companies report their earnings. If they are bad, then we’ve got a problem. But the ebbs and flows of the stock market while our companies are firing on all cylinders and growing like crazy is not something that will keep me up at night.



The obvious Buffett move would be to buy more Apple. The stock has given up most of its gains for the year and profits have been up nicely. I’m confident Apple is buying a load of its own shares.



Woke up and looked at my screen just now. Limit orders a poppin.

AAPL @ 178
MDB @ 66
NVDA @ 134
SQ @ 56

I think now that the big houses like Goldman Sachs are hedging and fudging and warning of a market plunge, we are closer to a bottom then not. I’ll keep buying all the way.



My short list, roughly in order – but I’m not in any particular hurry:

ABMD - I’d love to buy more at anything under $270. Hard to value this company, and $270 would raise my cost basis (currently in the 80s) significantly, but it has much moat-ness and room to run.

AYX - already a slightly oversized position , but would add more

OKTA - already full position, but would be ok to add a little more if the price is right

MDB - I missed the original boat, so coming back to this one as a trade-out from TLND. The lower this goes, the happier I am to build the position (assuming it’s whole-market dropping, not something negative about MDB itself)

SQ - late entry into this one (last few months), and not yet a full position size, so happy to build at lower multiples

ATVI - Happy to add to this one anywhere below $46 or $47, and it’s close and getting closer

NVDA - once the dust settles and only because it’s not my largest position anymore; long-term still a winner, but they need to show their mettle again

I did also double my UNIT holding in my IRA today, just because the huge dividends (currently ~13%) will build the cash position while things settle at a new bottom. But do your homework on Uniti Group (definitely nowhere near being labeled a Saul stock!) and some of the legal fun around it before going there.


I should have added NEWR (New Relic) to that list. It’s not a full position for me yet, just reported what I think is a really great set of earnings, and is being punished pretty hard (down ~ 30% from only a few weeks ago). I think the punishment is purely based on P/E ratio… but the moment they flip the switch to full profitability, that sentiment will reverse with a vengeance.


I think now that the big houses like Goldman Sachs are hedging and fudging and warning of a market plunge,

Goldman has said nothing of the sort, in fact quite the opposite, it is not necessary to make up lies about their recommendations.

GS Investment Strategy Group, Nov 20th:

'Thoughts on Continued Market Volatility
The return of downside volatility—especially over the last two days—has revived fears that the longest bull market in history has finally peaked. This concern is particularly acute now because stocks have thus far ignored the resumption of buybacks and a historically positive seasonality into year-end, factors that were expected to reverse the October weakness. Instead, the market has focused on a confluence of worries, including slowing global growth, less accommodative policy and rising geopolitical tensions.

While there are no certainties in investing, there are several reasons why we continue to believe that an underweight position in equities is premature:

? Slowing Growth ? Recession: While global growth has slowed since the start of the year, we should not equate that with the onset of recession. After all, most economies are still experiencing well above-trend growth. Arguably, the recent deceleration in activity lowers the risk of economic overheating and allows central banks to normalize policy gradually, elongating the business cycle.
? Continued Above-Trend US Growth: We expect this above-trend growth to persist next year, with our preliminary 2.3-3.0% real US GDP range standing well above potential growth estimates of 1.5-2.0%. Our forecast is supported by the fact that consumption spending—68% of GDP and the most persistent driver of growth—rose 4% in the third quarter. Moreover, the personal savings rate was recently revised higher to 6.4%, providing some dry powder for future spending. Even so, growth is likely to be a bit slower in 2019 as the drag from tighter financial conditions—namely higher interest rates, a stronger dollar and lower equity prices—is only partially offset by the remaining boost from tax reform and government spending. The net effects should represent a modest ~0.4 percentage point drag on quarterly GDP growth next year.
? Still Low Risk of Recession: While financial conditions have tightened, we continue to assign 10% odds to a recession over the next year, given the positive trend of economic indicators, still positively sloped yield curves and low levels of inflation, which should enable the Federal Reserve to continue its gradual pace of tightening. We expect one more rate hike this year and two to three next year.
? Defaults are Likely to Remain Contained: Recent spread widening in high yield—particularly in response to falling oil prices—has rekindled fears that we are on the verge of a turn in the credit cycle. Yet we note that the economy is the most important driver of defaults and growth remains above trend. In turn, the par-weighted US high-yield default rate was unchanged for a third consecutive month in October at just 2%, well below the historical rate. While the energy sector is still about 15% of the high yield universe, the firms that survived the 2015–16 default cycle have since restructured their business models to be viable at $45-55 oil prices compared to needing $100 oil back then.
? Odds Favor Remaining Invested in Expansions: Investors enjoy high odds of a positive return and low risk of large losses when the economy is expanding, as it is now. Equity returns have also remained favorable until about six months prior to a recession, highlighting the penalty for prematurely exiting the market. Keep in mind that growth scares—such as the one we are currently experiencing—occur far more frequently than actual recessions and equities have tended to rally when growth proved better than feared.
? Earnings Remain Supportive: Earnings expanded by nearly 26% in Q3, 6.7% higher than expectations and more than twice the level of sales growth, indicating expanding margins. Tax cuts are not the sole driver either, as earnings before interest and taxes (EBIT) grew 13% in Q3. While such strong performance has fostered concern about peak earnings growth, we note that about 3/4ths of market peaks occurred more than two years following the peak in earnings growth. Moreover, these earnings are fueling record stock buybacks, which are estimated to exceed $900B this year.
? Risks Unlikely to Topple US Expansion: Although there is no shortage of global risks, we do not think any of them—in isolation or collectively—is likely disruptive enough to tip the US economy into recession. US trade tensions remain elevated with China but have abated with many other key trading partners; these tensions have not derailed business sentiment which remains at expansionary levels. And while a divided government has resulted from the recently concluded mid-term elections, stocks have typically gained in the subsequent year regardless of who wins as uncertainty dissipates."

GS has a record of not only not panic selling during market bottoms, but of being the buyer from other Wall St shops, historically speaking. LTCM circa 1998 would be one well-known example.


GS has a record of not only not panic selling during market bottoms, but of being the buyer from other Wall St shops, historically speaking. LTCM circa 1998 would be one well-known example.

If you are part of the brotherhood it pays to play nice and it’s risky not to do so. In 1998 Bear Stearns triggered the crisis:

Bear Stearns’ $500m call triggered LTCM crisis…

and guess who declined to participate in the bailout:

Seeing no options left, the Federal Reserve Bank of New York organized a bailout of $3.625 billion by the major creditors to avoid a wider collapse in the financial markets.[26] The principal negotiator for LTCM was general counsel James G. Rickards.[27] The contributions from the various institutions were as follows:[28][29]

$300 million: Bankers Trust, Barclays, Chase, Credit Suisse First Boston, Deutsche Bank, Goldman Sachs, Merrill Lynch, J.P.Morgan, Morgan Stanley, Salomon Smith Barney, UBS
$125 million: Société Générale
$100 million: Paribas, Crédit Agricole[30]
Bear Stearns and Lehman Brothers[30] declined to participate.…

Guess who were not rescued ten years later, in 2008! Sweet revenge!

Denny Schlesinger

By comparison, Mafia Dons are pussycats!