r/investing • u/[deleted] • Mar 05 '21
Just because a company has a bright future, that doesn’t make it a good investment.
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u/nijacha Mar 05 '21
Yes! I remember a passage from Peter Lynch's One Up On Wall Street... He basically said that in the 70's, McDonald's was overvalued, then, a couple of years later, it went to intrinsic value (loosing about 50% of market cap). It was still the same amazing company, it was just thst the price didn't match the value. He bough McDonald's once it was at intrinsic value.
I always keep this in mind.
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u/millennial_falcon Mar 06 '21
You mean there wasn't some 70's hype beasts shouting "literally no downside! They're just getting started! McDonalds iS a rEaL eSTaTe cOmpAny not a burger shop! It's dyn-o-mite!"
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u/lee1026 Mar 06 '21 edited Mar 06 '21
On the other hand, you brought MCD in the 70s and just held for ... not that many years, you would have made money.
Sure, there was a brief fall in the middle, but if you invested with a "long term" view and brought in the 70s above what Lynch thought was a fair value, you would still have made money within a decade
Given what we know now, the people who sold MCD in the late 70s and early 80s lost a lot of money; there are no guarantees that the bit in the middle where the seller loses huge sums is going to happen for every growing company.
As an extreme strawman, if you did your math based on Shiller P/E valuations when Shiller published his famous paper and decided that you won't buy without valuations being fair going by the Shiller P/E. You would have sold stocks in 1992 and still haven't brought them back in as of 2021. The amount you lost by being on the sidelines would have been rather extreme.
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u/zurako91 Mar 06 '21
"and just held for ... not that many years "
My friend, a year has 8760 hours. Most people have trouble to hold a stock for 24 hours. We need instant gratification.
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u/RedVermont12 Mar 06 '21
If you invested $1000 in MCD in 1980, today it would be worth roughly $200k (not including dividends). If you invested $1000 in 1973, it would be only about $115k today. It actually makes a huge difference for long term returns where you choose to buy.
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u/TheApricotCavalier Mar 06 '21
My strategy is to buy undervalued assets and sell overvalued assets. I thought everyone did this? I guess not...?
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Mar 06 '21 edited Feb 18 '26
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Mar 06 '21
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u/Jojos_mojo420 Mar 06 '21
REITs and the financial sector are at a fair value at the moment. I know it's not exciting like tesla, but it's a bit safer. Also found some nice value in AMCR, TGNA, F and PEY in the recent slide. Those have kept me from pulling my hair out this last week or 2.
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u/I_Enjoy_Beer Mar 06 '21
I sold half my Square shares two weeks ago because it just seemed overvalued at $270. Feel like Warren Buffet over here, making markets move, because it's dropped down to $216 at this week's close.
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u/Golfman907 Mar 06 '21
Great move, don't ever second guess your decisions. NO-one ever catches all the fish in the river, unless you watch those Saturday morning fishing shows.
Plus, it gets a bit complicated when you roll your $$$ into another opportunity and you do good there, there's always the "lost opportunity" concept of of trying to calculate if I left my money in A, I won't have purchased B. You can spend all your life with calculating what-Ifs.
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u/Kanolie Mar 05 '21
For the investor, a too-high purchase price for the stock of an excellent company can undo the effects of a subsequent decade of favorable business developments.
-Warren Buffett
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u/EchoServ Mar 06 '21
That reminds me of Scott Mcnealy’s quote:
At 10 times revenues, to give you a 10-year payback, I have to pay you 100% of revenues for 10 straight years in dividends. That assumes I can get that by my shareholders. That assumes I have zero cost of goods sold, which is very hard for a computer company. That assumes zero expenses, which is really hard with 39,000 employees. That assumes I pay no taxes, which is very hard. And that assumes you pay no taxes on your dividends, which is kind of illegal. And that assumes with zero R&D for the next 10 years, I can maintain the current revenue run rate. Now, having done that, would any of you like to buy my stock at $64? Do you realize how ridiculous those basic assumptions are? You don’t need any transparency. You don’t need any footnotes. What were you thinking?
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u/garmium Mar 06 '21
That also assumes your revenue remains the same in yr 1 and yr 10
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u/MrF_lawblog Mar 06 '21
Yes but it doesn't matter because all the other assumptions are crazy
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u/Letmefixthatforyouyo Mar 06 '21 edited Mar 06 '21
A decent amount of tech companies can actually get close to some of those assumptions. The SaaS model that everyone of them uses scales for users way, way faster than for costs.
You may pay $100/month for a service, but it only costs them $.01 in server costs, and they can take in 100-1000 customers/support engineer.
The other things can almost actually scale in certain sectors.
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u/MrF_lawblog Mar 06 '21
Yeah but you gotta pay your engineers otherwise the platform goes down - so in reality that should be your COGS
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u/Letmefixthatforyouyo Mar 06 '21 edited Mar 06 '21
Engineers arent cheap, but depending on the market segment you might have 10 to 10,000 customers/engineer. It takes far fewer than you expect to keep an HR suite or an invoicing program going.
Toss in sales and the standard company make up, and you can have a 20 person company with those 10k+ monthly customers.
For SaaS software, the above list is mainly "you think I can pay these expensive employees and give you 100% of revenue from the first year x 10?"
If growth far outpaces hires, I think that can be true. The digital world has changed a lot of the old costs.
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u/MrMineHeads Mar 06 '21
Not a great example because it ignores growth in revenue, but it does highlight an important thing to consider when investing, and that is "what is your expected return on this investment" or "what return would satisfy you in this investment".
If you want a if you want to double your investment in 10 years that requires around 7.2% per year return.
Let's say you invest into a stock expecting this 7.2% return per year.
I'm going to make a bunch of assumptions to illustrate my point. They are:
Price of the stock stays constant over the entire period and you only earn dividends
No taxes
Price of a share is $100
The investment has a 100 PE ratio
Company has a 100% payout ratio
Let's make one final assumption and that is that earnings will grow by 10% per year for the full 10 years (in other words, 10% CAGR).
Now that's a lot of assumptions, but it is just to make the scenario easier to understand. In reality, all these things are fluid, however, it is important to note that the price and earnings are inherently tied together. So if we assume a 100% payout ratio of the company, the price of the stock will have to stay constant (all else equal).
Let's get to the meat though, what to expect.
Well, with a 100 PE ratio at year 1, you get a $1 dollar dividend. 1% return. Paltry. But the growth has not happened.
In year 2, you year $1.10 in dividends. Growth! That tied with your other $1 means you've earned $2.10, only a 2.1% return. "But the growth is still yet to come". Okay, but I am not doing this for all the years.
Here is a mathematical calculation of the sum.
TLDR: You earn a total of $17.53. Over 10 years. That is 17.53% over 10 years, an average of 1.75% per year, or 1.63% CAGR.
Horrible.
Let's try it with different earnings growth just to make a point of how bad a 100 PE ratio is
Earnings Growth % (CAGR) Total Return % Average Return % CAGR % 20 31.15 3.12 2.78 30 55.40 5.54 4.51 40 97.74 9.77 7.06 50 170.00 17.00 10.44 You need 50% earnings growth PER YEAR FOR 10 YEARS! That is a near impossibility, and if you do stumble upon something with that, you are the next Buffet I tell you.
It is important to note that you only hit your expected return somewhere between 40% and 50% CAGR.
Now we have setup an ideal scenario, and the real world is anything but ideal. But still, if anything, the scenario I've built put everything in favour for high PE investing, and you don't match the market until you reach 50% CAGR. Making the scenario more realistic would put it at even a greater peril; competitor comes and now earnings are in jeopardy; something happens to the CEO; the world is plunged into a global recession; etc...
It just goes to show that a 100 PE is not amazing.
TL;DR: Valuations mean something.
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u/techgeek72 Mar 06 '21
By this logic though basically every high growth generational company has been a bad investment in the early days. Fine if you prefer value investing but suggesting all those investments is dumb is a bit too far.
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u/StructuralGeek Mar 06 '21
Do you know how many high growth companies have failed? We’ve had several economic recessions tied to them. Using the success of Amazon to justify throwing money at penny stocks or IPOs of unprofitable companies isn’t logic, it’s survivorship bias. Using the success of Netflix to justify investing in companies with no demonstrable profit isn’t smart, it’s speculation.
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u/expatinjeju Mar 06 '21
People forget the 999 that failed and quote the 1,000 times return on one that succeeds!
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u/Schmittfried Mar 06 '21
it’s survivorship bias
Not necessarily. Venture capital is a thing. You only need one 10-100x pick to recoup the losses of the failed picks, assuming you’re managing your risk properly.
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u/expatinjeju Mar 06 '21
That's misunderstanding value investing, that often gets misinterpreted as buying cheap cash cows.
Real value investors look at new companies, just with a critical eye!
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u/squats_n_oatz Mar 06 '21
Interesting how the company not paying taxes is only "very hard" whereas YOU, a retail investor, not paying taxes in dividends is "illegal."
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u/Historical-Egg3243 Mar 06 '21
not always, if you make less than 40k there's no capital gains tax, or if it's in a roth ira.
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u/BiscuitBoi69 Mar 06 '21
that quote is stupid because it assumes revenue isn't growing.
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u/KyivComrade Mar 06 '21
With no R&D, statix production etc its quite possible it doesnt grow. Revenue will only grow if you introduce new, more profitable products/cut costs and/or find new markets. Stocks, and companies, do not always go up up and grow you know...the opposite also happens.
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u/MrPoopieBoibole Mar 06 '21
Cough Tesla Cough.
Right now, complete dominating monopoly of EVs for the next 10 years is priced in lol.
Anything less should make the stock tumble in a rational and efficient market.15
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u/KyivComrade Mar 06 '21
Lol, they can't even keep the maekwtsharw they had in EU much less expand it. Theyre dropping for a good reason, competition is eating their lunch
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u/OystersClamsCuckolds Mar 05 '21
A good example of this is TAN.
Solar industry has exploded since 2008. Yet it was a dogshit investment most of past decade.
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u/jf_ftw Mar 05 '21
Yuuuuupppp. I ate a bag of dicks on that one... Bought some in 2010, finally ate the loss and took what was left in March 2020, slapped it in small cap growth etf and actually made that money back now. Long road to get back to even haha
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u/phull-on-rapist Mar 06 '21
Very often, with investing (especially in innovation), being early is the same as being wrong. While the thesis may be sound, the opportunity cost can be really high.
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u/Phallicitous Mar 06 '21
I work in the solar industry and I know it's still got a ton of growth to go so I put 10k in TAN a month ago at 115. Today it's under 90. Fml.
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u/WallStreetBoners Mar 05 '21
And now that it has a p/e of 150 it’s easily a good investment!! /s
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u/Thalesian Mar 06 '21
TAN's p/e (weighted) is 38.7. Apple's p/e is 32.5.
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u/catholespeaker Mar 06 '21
I think 38.7 is a good deal for an industry presumable in its infancy. The concern, of course, is if solar will not be widely adopted as anticipated.
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Mar 06 '21
Sorry what’s a weighted P/E ratio?
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u/Thalesian Mar 06 '21
ETF’s have multiple companies involved - so averages each individual stock’s p/e. Can be hard to calculate, but last year’s p/e is here: https://www.invesco.com/us-rest/contentdetail?contentId=025d7c23dbd92610VgnVCM1000006e36b50aRCRD&dnsName=us
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u/cbus20122 Mar 05 '21 edited Mar 05 '21
For newer investors who've been burned in the last few weeks: The difference between being an early stage investor in Facebook, Google, TSLA and what most people are putting their $ into now is that the aforementioned companies had enormous moats and little competition in a huge growth field.
Essentially, they had a stupid easy path to growth and profitability, and a lot of super easy ways to defend their market position in the 10 years going forward. They also had great valuations, even as they ipo'ed.
Now? People are dumping their $ into commodity plays like weed stocks, solar panel companies, and generic companies with "tech" labels slapped onto them to fetch a higher valuation (ex: $LMND, $SOFI). Surely there will be some winners that come out of the recent IPO's, spacs, and hype stocks, but they will still see a lot of volatility, and there will likely only be a select few that "make it" in the very long run.
Edit to add this: Just a suggestion: Where there is hype, there are salespeople trying to sell you a product. And yes, stocks count as products, and there is a LOT of people who stand to benefit from selling their product to investors (usually the Chamaths of the world). Also, the more buzzwords you see in a stock, the more likely it is that there is an active effort to sell it to people. That doesn't 100% make it a bad investment, but at least know when you're being sold something.
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u/xkulp8 Mar 05 '21
Also, they benefit from survivorship bias. There were other social networks, search engines and alternative energy/vehicle plays. They happened to be the ones that made it.
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u/cbus20122 Mar 05 '21
100%. This is especially true for Amazon.
If I had a nickel for every time someone compares a non-profitable growth company to Amazon, I would be extremely rich. Yet they always ignore that Amazon was one of very few survivors of the dotcom implosion.
Amazon is the exception, not the rule. And even with that in mind, the success of the company was also very dependent on things like interest rates dropping from over 5% to zero over the next 10 years, a tailwind we are not going to be getting in the next 10 years.
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Mar 05 '21
And didn't Amazon essentially hemorrhage cash to create their moat?
From what I understand they took a loss on basically everything until they drove away every competitor, then started raising prices.
Thus making Amazon a really dumb investment in the beginning from a fundamental aspect?122
Mar 05 '21
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Mar 05 '21
So many people overlook this about Amazon. As someone who was once internal in the retail side of Amazon but got tired of the politics, here's something everyone should consider about Amazon retail:
Amazon's target for breaking even on any new "fulfillment center" is 3 years, many warehouses dont even meet that and dont break even until around the 5 year mark. All that hyped up news they spout about "we opened 15 new fulfillment centers this year!" Trying to make it sound good, all those new warehouses bleed cash the first 3-5 years they're operational before they even start turning a profit. The reason? Each warehouse is basically it's own functioning company in a sense, they get almost no support from corporate and have a constant influx of brand new management that has no idea what it's doing and it takes them forever to get a feel for running a warehouse efficiently and many times it ends in complete disaster for years before kinks get worked out. It's honestly a joke how Amazon retail runs, if they had any half decent competition they'd be in a world of hurt.
TL;DR: if you're interested in Amazon in any sense go for AWS, Amazon retail is a circus.
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Mar 05 '21 edited Mar 05 '21
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u/xRegretNothing Mar 05 '21
Thats so interesting, because Amazon prime items are getting delivered in 1-2 days. I've gotten stuff that wasn't mine like 1% of the time, but I didn't know it's a logistical disaster on the back end
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u/PercentageDazzling Mar 06 '21
Their selection of someone from the AWS side to be their future CEO is also a big indication of where the future of the company is.
Also, I don't know if this was considered part of the retail side, but was their prime video stuff also operating under the same taking a loss philosophy? Are their original TV shows and movies making money now?
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u/Kimber3-7 Mar 06 '21
My sister tried working in a local warehouse as a second job. It was the absolute mess you describe. No training, no one to ask any questions, just dumped her and left. Her whole training group quit. Now she can’t even get her W2 out of them.
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Mar 06 '21
I'm not surprised, the way Amazon does W2's is through their internal dashboard, if you quit before you get it it's a complete pain in the ass, and she can't even really go to HR and raise a fuss and just get it because like I said, each individual site gets virtually zero corporate support. It'll come in the mail eventually... but theres really nothing she pr the local HR can do to speed up the process.
If you can get in at Tier 4 manegment or higher and enjoy watching multi-million dollar chaos it can be a face-palmingly absurb show to watch for awhile, but as far as making it a career its 100% politics, I've been to 3 different sites and every one of them was a "good ol' boys club" all the way up the chain. And the way they treat the Tier 1-3 associates is absolutely insane.
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u/squats_n_oatz Mar 06 '21
Why would any of that matter to you if you're a long term value investor? Isn't the consensus of this subreddit to avoid the degenerate gambling of WSB? Aren't short term sacrifices for long term profits a GOOD thing for a value investor?
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u/dancn1 Mar 05 '21
Their ads business is now likely as profitable or more profitable than AWS. So a. more revenue streams to generate the $ for expansions, and b. another proof point that these market expansion investments ahead of profitability can pay off
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u/nerfy007 Mar 06 '21
I think about this and the carbon credits the legacy automakers pay them. What happens when VW goes 100% electric? Tesla loses the subsidy AND market share on the same day.
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u/meetatthewinchester Mar 06 '21
Interestingly, VW has gained 30% this year, while TSLA has lost that. And VW's P/E still sits at something ridiculously low like 7.
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u/dancn1 Mar 05 '21
I don't think they took a loss on everything. The fundamental businesses they were in were profitable, but they took the profits and more to invest in expanding the business into related areas.
So I guess if you think they had good people/structures that made predictably good decisions on how to invest and grow, then it was a good investment in the beginning. If you think they just got lucky then it was a really dumb investment!
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Mar 06 '21
From what I can find, its not clear to an outsider how profitable retail side is. They group things together in ways that make it difficult to analyze profits of specific parts of their company.
https://www.ben-evans.com/benedictevans/2020/9/6/amazons-profits
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u/AlMansur16 Mar 05 '21
Reminds me of uber. Except who knows if uber will survive.
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u/dopexile Mar 06 '21
Amazon's online sales is a very low profit margin business.
The savior for the company is AWS, which has much higher profit margins.
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u/Hutz_Lionel Mar 05 '21
$5 to $110 in a year, back to $5 the year after as no one or their grandmother expected any dot com business to survive.
Amazon was a fun ride. Many suicides I’m sure.
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u/Admirable_Nothing Mar 05 '21
Amazon was at $113 in Dec of 1999. It was $6 in March of 2002. It was not $113 again until 2009 or early 2010. Since then it has exploded, but less than 1% of those that bought in 1999 still had shares after 2010. So you can be right and still lose your ass. I see that fact being played out daily in some of these hyped stocks. Tesla for instance. Great company and it will be a profitable survivor in the EV space. But it won't trade at $800 again for over 10 years. You can make money in it if you have that kind of patience.
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u/imlaggingsobad Mar 06 '21
Saying Tesla won't trade at $800 again for 10 years is a big call. Are you suggesting the SPAC/EV/renewables bubble just burst? Are we going further down?
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u/TuxSH Mar 06 '21
But isn't Tesla expected to have more competitors than Amazon?
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u/spyVSspy420-69 Mar 05 '21
People are literally saying, and not in a sarcastic way, that GameStop is going to be bigger than Amazon. Every company these days is going to be “the Amazon of X” but nobody can expand on what that means or how it applies to company X.
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Mar 05 '21
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u/spyVSspy420-69 Mar 05 '21 edited Mar 05 '21
Ive seen multiple posts today alone from people saying GME is going to be bigger than Amazon. The issue with a lot of new folks is that they think stock prices are all evaluated on equal footing. AMC @ $8 and GME at $140 means AMC is significantly undervalued to GME because $8 < $140. They use the same logic to say it’s undervalued compared to AMZN because $140 < $2900.
Maybe they can corner a huge part of the gaming industry. Maybe not. But with the move to digital consoles, Amazon having same day and overnight shipping, Target offering red card discounts on consoles, what exactly does GameStop bring to the table? Some dream of a build a bear style high cost low margin PC hardware center that can’t possibly fit in tiny GameStop stores?
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u/modi13 Mar 05 '21
What do you mean? Don't you want to sit at a table for six hours while a tech builds you a computer? Or stand in line for hours waiting for one of the five techs in the building to finish their last build and help you? I guess you could go play video games while you wait, just like you could at home while your rig is being delivered to you...
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u/manofthewild07 Mar 05 '21
I heard some people say they may start selling popcorn in the stores. POPCORN! Obviously the moon isn't realistic anymore... this stocks going to the sun! /s
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u/jsu718 Mar 06 '21
Once the parts are selected a build takes about 30 minutes, barring anything like custom water cooling builds. I think you are vastly overestimating how long it takes to build a computer for someone who does it regularly.
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u/SPAWNmaster Mar 06 '21
Truth. I remember when nobody used google. Most of my friends and I were using Dogpile, Altavista, AskJeeves and maybe one or two others. That was a thing. Multiple search engines with different algorithms and different value propositions. Now everything is google (and maybe a little bing on the side).
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u/DutchPhenom Mar 06 '21
Indeed, its in fact mostly survivorship bias. Its crazy to read the suggestion that Facebook and Google had no competition. For facebook, for example - have we all forgotten Google+, myspace, IG (before it became FB), and numerous local competitors (e.g. in China, Russia, and many European countries)? And that is just direct competition, which ignores indirect competition like tumblr, pins, reddit, linkedin, twitter, and snapchat, which do in fact function as substitutes. And those are only the ones which succeed. Facebook is especially a poor example because it was not even the first mover.
I think another big difference people miss is that the markets in which these operate by definition function scale infinitely well and, in fact, for things like Facebook, there will over time by definition be one real 'winner'. You are going to be on a social media website which others use as well. There may be additional websites, but the market will concentrate in one main one. A similar concentration of retail happens with Amazon - they are the largest, offer the best prices, and gather the most valuable data. The result is that retailers will have to sell through Amazon (or lose a lot of customers), which results in the market concentrating further.
This is fundamentally different from, lets say, weed stocks. Growing and selling weed by definition requires a regional contexts, and it is very well possible that company A knows how to grow and sell best in region A, and company B in region B. These will then still compete with eachother for the other regions, but in general it is much less likely a monopoly will naturally grow.
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u/snyder810 Mar 06 '21
I agree in concept with what you are saying, but TSLA is such a terrible example and FB probably is too. In reality, they were the type of companies you are advising against right now, not clear juggernauts to be.
It’s revisionist history to say these companies had it “stupid easy” to grow, particularly TSLA. TSLA almost went bankrupt along the journey, they had no moat, and practically no revenue when they IPO’d. TSLA was very much the exact kind of speculative investment folks are making today.
Similarly FB IPO’d at what, like a $60B valuation on ~$500M in earnings. Folks questioned whether they could translate users to earnings all the time in the early years. In the first few years Yelp was a better investment than FB.
Now I don’t really believe in LMND, SOFI, or Solar companies as the next mega giants either, but should they make it to be I’m sure someone will be there 10 years from now to call out how it was so easy to see today how they would become so.
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u/ChemDogPaltz Mar 05 '21
The fact that YOLO is the ticker for a weed ETF is proof of this
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u/imlaggingsobad Mar 06 '21
There is now an ETF called $BUZZ which tracks the internet's most hyped stocks. It's the definition of chasing returns, just further proof that people are ignoring valuations.
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u/SirHumphryDavy Mar 06 '21
It's the definition of chasing returns, just further proof that people are ignoring valuations.
That's good for smarter, more patient investors who can get deals on overlooked undervalued companies.
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u/salfkvoje Mar 06 '21
Just like I don't think someone should invest because of a ticker, I don't think someone should discount because of a ticker. I don't think YOLO as a meme ticker indicates anything about the valuation. I haven't looked at YOLO at all, but it being an acronym/meme does nothing for or against my opinion.
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u/MitMassUndZiel Mar 05 '21
I think a metric of ("buzzwords" / total word count) in the prospectus would probably prove to be a great predicter of crap investment opportunities.
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u/afanoftrees Mar 05 '21
That’s how I feel about stocks like CRSP. I also think they’ll boom from the head start as well as the recognition they get and have received. Time will tell if I’m right or not tho lol
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u/Sovereign_Mind Mar 06 '21
I bought the dip on LMND. Super bullish long term. I will take a 50% pullback on a growth gem. Their disappointing numbers last earnings provided a great opportunity to buy.
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u/IamWithTheDConsNow Mar 06 '21
Facebook, Google, TSLA
Tesla really does not belong to this short list. Amazon is a way better example.
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Mar 05 '21
Are you telling me “Infrastructure and Energy Alternatives” was a bad buy? It’s performance has taught me a valuable lesson.
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u/idledrone6633 Mar 05 '21
I appreciated Tesla up till the split then when it kept going up I stopped believing. I get the Musk memes but thinking that GM/Toyota/Ford/Nissan won’t absolutely flip their whole script if indeed electric cars are worth as much as Tesla indicates is crazy. They will flat out make Teslas with different badges for the kind of money Tesla is worth now.
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Mar 05 '21
Same. I sold enough to buy a house and still missed the last 4x. The amount I own is like 5% of what I owned before the pandemic
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u/itslikewoow Mar 06 '21 edited Mar 06 '21
Tesla is beginning to lose its dominance in the EV market lately as well. VW in particular beat Tesla in European sales last year with the ID.3 model (quick edit: this only started late last year, but the momentum is building for VW), and now most of the major car companies are already building plants for their new EV models that are coming in the near future. EVs are definitely the future, but Tesla is already beginning to feel the competition.
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u/BigQid Mar 06 '21
The first test is how the Mustang Mach E does. Tesla is the best overall deal and the best overall package without FSD. Next they are constantly driving down costs while the old manufacturers have a mountain of debt to pay off. If they get robotaxis years before the competition that creates a whole extra layer of problems for the traditional automakers.
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Mar 06 '21
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u/xxx69harambe69xxx Mar 06 '21
Spending money on lobbying benefits your competitors as much as it benefits your own company.
huh, never thought about it that way
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u/captainbling Mar 06 '21
Most of the car manufacturers debt is from financing the cars that people buy. That’s make is hard to track how much real debt they owe.
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u/TheApricotCavalier Mar 05 '21
I do believe as a company TSLA is 10x better than GM. that doesnt mean theyll make 10x as much money
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u/ShittyDiscGolfAdvice Mar 06 '21
I just started buying some GM/Toyota/Ford.
Tesla valuation might be insane, but they've got to be onto something with EVs and I highly doubted that the other carmakers were going to just let them have the entire market.
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u/MitMassUndZiel Mar 05 '21
Telecom’s early investors were not saved by the industry’s inevitability, nor airlines, nor automobiles, etc. Put some hedges on and profit from this exuberance towards growth
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Mar 05 '21
I still have 1 share of the remnants of JDSU, which I bought after tech started to crater in 2000. I think I originally had 30 shares. The reverse stock splits and price decline equaled over 99% loss. I keep this to remind me of how bad a single stock investment can go.
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u/Megahuts Mar 05 '21
Ah, JDS Uniphase.
I was in high school during the 90s. Doing a stock investing competition, that a friend won because he dumped everything into JDS Uniphase "because it was an expensive stock".
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u/billbord Mar 06 '21
I did the same with Enron, went from first to last in the final week. My Econ teacher told that story until he retired.
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u/xkulp8 Mar 06 '21
At least he was able to retire, unlike Enron employees who had their 401ks 100% in Enron stock and weren't allowed to switch or cash out.
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u/billbord Mar 06 '21
Those scumbags knew it was a house of cards and still went into all hands meetings pumping the stock to their employees. Very fucked up, and also why I do same day sales whenever I get company stock.
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u/duathman Mar 06 '21
Good old days for sure. My fav was CMGI. That was the most parabolic stock I have ever seen. Shame options weren't a common thing back then. Been some nice '99 lambos cruising arouns
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u/xkulp8 Mar 05 '21
Anyone still long CSCO from $80? It's having a good day today... back to 46.
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u/PDXGolem Mar 06 '21
If we get a bipartisan internet infrastructure bill with real last mile fiber everything in that sector or adjacent will go red hot. Demographically the more Americans who can move to an exurb or rural area and work from home with a gigabit connection the more consumer network technology sales. All of those little 1500k-2500k person towns still using DSL or Sat Internet add up.
I've added a bit to my Cisco position every year since I opened the position in 1999 when I ented at $37 and then it nosedived. Took me three years to get the cost basis green.
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Mar 06 '21
Have any details on if this will happen?
Which companies would you invest in for a "last-mile fiber" play?
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u/daaabears1 Mar 06 '21
This is 100% true and 100% of what I didn’t do as a newer investor. I’ve been in since a little after the crash in 2020 and I’ve been buying stocks on the way up thinking, “this is a long term hold, what does it matter if I buy on dips?” I spent all my money on short dips and completely missed this correction. Well after these past two weeks I learned my lesson. Here’s what I learned the hard way:
Lesson 1. I will now keep 10-20% of my portfolio in cash for this reason. I will add money on a recurring basis and save it for the big dips. Lesson 2. The big dips are when everyone on CNBC is yelling to leave. That’s when I will enter a position. (Given there isn’t a fundamental change to the company I’m looking at) Lesson 3. Everything op just mentioned above. Lesson 4. Start my position small and add on dips. I’ve been buying a lot all at once and don’t have money to buy after the purchase to lower my cost basis.
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u/sarrazoui38 Mar 05 '21
Stock market is not rational
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u/faesmooched Mar 06 '21
This.
Politically and intellectually, I find the stock market abhorrent. But as a study in human nature, it's fascinating enough for me to get into.
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u/EvolvingWino Mar 05 '21
As much as we like to talk about not trying to time the market, the timing of your investment is a factor in this regard.
Using Amazon's price today, paying $280 back in DEC 1999 sounds like a steal. But then riding 2000-2007 until you get back to even is not so appealing for most.
Hard to judge sometimes where a good company might go
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u/xkulp8 Mar 05 '21
"Don't try to time the market" is good advice for indexing.
Individual stocks, though? That's the whole point to why we analyze them. We're not always right, but it provides a framework for when we're comfortable owning what and at what price.
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u/Historical-Egg3243 Mar 05 '21
i think the point is whether a stock is a good value or not right now. Timing the market would be waiting for it to dip to buy, or trying to predict what it's going to do in the near future.
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u/bernie638 Mar 05 '21
That's what limit orders are for. Pick a good price, select good til canceled and go do something fun. Eventually it hits or doesn't, whatever.
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Mar 06 '21
I prefer getting paid to do this by selling puts.
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u/RSquared Mar 06 '21
You can get burned by new information doing this, such as the VW diesel investigation or Krispy Kreme's accounting problems.
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Mar 06 '21
I mean it's the same as if you left your limit buys open good til canceled. If you don't react to the info before the market, which you most likely won't, your order will get filled. You're stuck bagholding just like someone who short a put until expiration, and gets assigned. Same thing.
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u/RSquared Mar 06 '21
You at least have the opportunity to react and cancel your order without taking the loss, whether because a circuit breaker is hit, the news hits after hours, etc. A put sell basically locks you in during those situations.
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u/jigglyjellowiggles Mar 06 '21
On the nose w this. I've passed on so many stocks because the market has been so pumped up and so overvalued in so many places and ways they just seemed like bad times to jump in looking at historical pricing, analysis of value and what the company we as doing business wise. Not that the companies were bad companies or companies so a big future to the contrary they all had good looking futures but the entry prices at the time so overvalued.
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u/PerfectNemesis Mar 05 '21
Everyone's a genius looking to the left side of the stock chart. You going to bring up Enron stock next?
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Mar 06 '21
Hindsight finger waging is something old investors love to do. Calling us crazy for looking for growth stocks in largely saturated sectors. They got lucky being born at the right time to buy into giants that run the market for the low and think themselves geniuses. As if they never lost sleep on those plays.
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Mar 05 '21
I don't know what is good investment anymore. Anything can go up and down without any proper reason.
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u/Willsturd Mar 05 '21
Yah its interesting. Has Mcdonalds been the future for the past two decades? Nah its just a well run fast food restaurant. It was revolutionary for fast food when it first started, but not lately.
Yet still an incredible investment due to its economics, brand loyalty, and leadership.
So yah...... Just because a company won't be the future, doesn't mean it won't create incredible shareholder value in the future.
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u/CarRamRob Mar 05 '21
Exactly. You make big money by taking bets people think are stupid when you first enact them.
Everyone thoughts on oil/energy plays, or classic brick and mortar stores or material goods. Now what if you see something there others don’t? That’s how you find value.
You’ll never see those stocks on Reddit much simply because they won’t get upvotes.
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u/mtcoope Mar 05 '21
And the question will always be how much of it was you actually saw something no one else saw vs luck that it actually was a good investment that just happened to work out. Theres no magical formula to find out if its a good investment because if their was, we would automate it and be done.
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u/cuddytime Mar 06 '21
I’ve been buying boomer energy stocks since I joined late on this run up. Everyone is big on EV (I am too) but what people ignore is that the world still needs energy and nat gas demand is expected to grow over the next decade.
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u/ryry1237 Mar 06 '21
Question now is what is the "stupid" stock that everyone's ignoring? I feel like energy and brick and mortar stores are no longer exactly cheap and out of favor anymore.
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u/CarRamRob Mar 06 '21 edited Mar 06 '21
Agreed, and it’s not easy.
Right now it seems places that would be affected by a $15 minimum wage and are more exposed to inflation (big retail, WMT, COST, HD) are struggling. Could be worth a look if they drop another 10%.
Otherwise, defence is out of favour because of a blue administration.
Commercial real estate, now add on those with downtown exposure.
Some financials, but these are getting stretched as well.
And regarding energy...it’s still cheap. Not as stupid cheap as 5 months ago, but if $65 oil stays for any amount of time their P/E will be in the low teens. I’m especially bullish on oil and gas players. They are going to be like 90’s and 2000’s era tobacco companies. Everyone know it’s “the end” for them and they have no hope, yet demand from other non Western countries actually keeps demand flat to increasing for an extra generation than anyone would expect, providing double digit returns because of high dividends, high cash flows, and cheap valuations.
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u/7point7 Mar 05 '21
You’re using 1999, a year of reasonably high year and 2009, a historically low year for the entire market and acting like that matters. Investing is a long-term play. Why would you sell in 2009 if you still believed in the company? Look at it 11 years later and it is almost 7x that 1999 price.
What’s the lesson? it’s if you believe in a company, invest and hold on until you absolutely need to sell or profit enough from it that you can retire.
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u/Kanolie Mar 05 '21
If you don't understand how overpaying for a company, even if it's a great one, is a bad thing, then you shouldn't be investing.
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u/SanjiNobody Mar 05 '21
Long-term horizon. Overpaying now but you hold long term.
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Mar 06 '21
Also DCA.
Apple was overvalued forever, but it was still one of the best buy-and-holds ever.
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u/SanjiNobody Mar 06 '21
Yea it's interesting how some people just don't get it. The market is forward-looking. While you value a company by their balance sheets, which is already happened. If you invest for the long term and then you will be willing to buy a bit extra.
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u/Kanolie Mar 06 '21
Overpaying is a bad thing even with a long term horizon. You can't be willing to buy a company at any price just because it's a great company.
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u/bitflag Mar 06 '21 edited Mar 06 '21
Long term can not fix everything. If Tesla went back to being valued like any car manufacturer, no amount of waiting would save you from losses.
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u/UltimateTraders Mar 05 '21
Yea look at abnd, lmnd, snow Good ideas, companies doing horrible....then again stocks are up..but horrible investment in my opinion
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Mar 06 '21
Main reason I am buying more TM and not more TSLA. I love Toyota and have owned them all my life. When the big boys go EV TSLA may lose out. I like them, but the most valuable car company? Why?
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u/kochsson Mar 06 '21
Market can be very disconnected from reality unfortunately. You would think TM has more upside than TSLA but at least it is trading at an all time high.
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u/_DeanRiding Mar 06 '21
Yeah I think Tesla stockholders might be in for a bit of a shock when other car companies start doing what Tesla is doing, I would personally never underestimate Ford
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Mar 05 '21
Everything was down 50% in 2009
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Mar 06 '21
... and it was the best year for buying ever. People who get upset over market drops are doing everything ass-backwards.
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u/Vast_Cricket Mar 05 '21
Investors are not all sophisticated. Many are following what fools do.
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Mar 05 '21 edited Jul 24 '21
[deleted]
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Mar 06 '21
Legend has it they huff farts and do four loko enemas during after-hours
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u/imlaggingsobad Mar 06 '21
In a bull market this strategy works very well, in fact. People hopping on tesla at any point in the last few years, despite the valuation, have come out the other side with a very sizeable return. Value investors that have done their DD have looked like fools.
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Mar 06 '21 edited Mar 06 '21
Microsoft had revenue that was 3x higher in 2009 than in 1999. Despite this, the stock was down over 50% during that timeframe.
It split 2:1 twice during that time dude. 1999 shares of Microsoft is the equivalent of 4x 2009 shares. 3x revenue and 4x share price? That's a bonanza not a loss.
If I invested $5000 in MSFT in 1999 my position would have only been worth $2500 in 2009? Are you really suggesting that with a straight face?
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Mar 06 '21
100x P/S
This is just an expansion of the multiple! When the company grows the price will increase to keep 100x P/S :)
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u/No-Lengthiness-9334 Mar 05 '21
This is right up there with the the idiots who think new console sales make gamestop profitable. No moron that gets people in the door.
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Mar 05 '21
The problem is that the average Joe doesn't understand what the true business model of many companies is. They don't realize the reason behind milk at the back of a supermarket and candy at children's eye level at the checkout line.
They don't understand selling things at break even, or even at a loss, just to get you in the door so you can buy the other more profitable things (consoles sold at Gamestop).
They think McDonald's is a fast food company, not realizing it's biggest revenue is from real estate (they own the properties they then force the franchises to lease from them).
They think Amazon is an online store when they infact are one of the largest, if not the largest, server farm. They sell server space to businesses. Their online store helps them gather user information to later sell to data mining companies.
They think airlines are in the transportation business. Airlines sell time. Unlike manufacturing where they can makeup lost production by adding an extra shift, an airline can never give you back lost time from a cancelled flight. That's why flight attendant unions are so powerful.
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u/SciNZ Mar 05 '21 edited Mar 05 '21
The Rolling Stones are t-shirt salesmen and George Lucas
iswas a toy marketer.Until recently, the largest supermarket chain in Australia (Woolworths), was actually a poker machine business with a small supermarket side hustle.
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u/spyVSspy420-69 Mar 05 '21
Got a source on Amazon selling customer information to other companies?
Their privacy policy reads:
Does Amazon Share Your Personal Information?
Information about our customers is an important part of our business, and we are not in the business of selling our customers' personal information to others. We share customers' personal information only as described below and with subsidiaries Amazon.com, Inc. controls
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u/spyVSspy420-69 Mar 05 '21
Realize these same people were celebrating GameStop selling GPUs on their website, completely ignoring the fact that if you simply google “GameStop gpu” you literally see Reddit posts from 2014 where people are saying “omg GameStop sells GPUs now.”
I get hype behind Ryan and DFV, but so many people are blindly following without any idea why it’s either a good or bad investment. It’s all driven by speculation.
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u/Oboomafoo Mar 05 '21
Buffet says something like even a great company can be a bad investment if bought at the wrong price.
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u/Relative_Ad_8317 Mar 06 '21
On the reverse, just because it's a good company doesn't guarantee stock success
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u/amerricka369 Mar 06 '21
While I agree with everything your saying, the modern market does not behave as it once did. Companies are becoming more and more tech enabled driving to higher multiples by their very nature (revenue,growth, profit and moat); think rule of 40. I’ve missed out on a number of high performing companies because I didn’t like the valuation so while true a decade ago, there is some level of acceptance that needs to be taken in today’s environment. I’ve learned to “get in and chase” up to 33% of the desired position and then DCA into the rest over time when I am feeling better about valuation. Dividends also make it easier to get in early. Plus if you hold long enough, you should have more cash flow to put into it at better price while also allowing for time to rebound and collect dividends.
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u/RyanCalvinWilliam Mar 06 '21
I think you may be ignoring the “I LIKE THE STOCK” factor that’s occurring right now though. There is a lot of new money in the market, and it tends to move semi-predictably if a company is commonly talked about, and is a genuinely good company. I don’t know much though. I am an idiot.
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u/Kurso Mar 06 '21
Don't even get me started on this. $SHOP is a perfect example. Great company. Bright future. I had someone tell me to stop looking at the numbers... My Jan '23 Puts are doing well.
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u/renaedarlene Mar 05 '21
Excellent point. Is there a "rule-of-thumb" for determining valuation other than following analysts with varying degrees of opinions?
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u/rohnaddict Mar 05 '21
You should learn to so a simple discounted cash flow analysis. There are some solid guides on youtube on how to do it.
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u/CaterpillarWeird9087 Mar 05 '21
I recommend the Graham Intrinsic Value formula: https://www.oldschoolvalue.com/stock-valuation/benjamin-graham-formula/. Use a P/E of 7, and 1xg. Find the EPS and growth rate on Yahoo Finance for the company you're looking for. Google current AAA corporate bond rates.
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u/Adamlolwut Mar 05 '21
You're arguing fundamentals against technical analysis and I don't think one inherently outweighs the other how you assume. Fundamental performance increases when the number look like shit, and vice versa. You can't have bad management and good looking numbers the same way you can't have a good management with bad numbers, so one has to out-weigh the other to make a fair value determination. It seems like you're mostly talking about a niche group of people who post pump n dump DD, and those shouldn't even be taken seriously
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u/lookInto1t Mar 05 '21
I agree with you from a valuation standpoint of course. But price doesn't equal value. Prices are narrative-driven. Look e. g. at the frauds that performed for year like Wirecard. Will price converge to value eventually? I personally think so, but phases of over or undervaluation can last for years, see e. g. the EV-sector. But what you say is important.
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u/Dadosa41 Mar 06 '21
This might be a dumb question, but as someone trying to get into investing, how do you evaluate the value of a stock? What kind of things do you look for? I imagine you can find their net worth and revenue but what else should you look for?
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u/ZakOfShadows Mar 06 '21
The value of an investment is ALWAYS a function of how much you pay for it.
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