The Long Term Investor

Hello.......Jwalker. Welcome to the thread and board. This is the BEST investing board on the net. PLEASE keep us up to date on your investing experiences. Feel free to post........any time.

Nice advice and reasoning above......A55.

Here is a little article with some good little bits of information. NOT particularly posting this for the Tesla info. I like the other content of this article as it relates to the investing environment today.

Nasdaq stocks led by Tesla continue their blistering run while chill envelops rest of the market

https://www.cnbc.com/2020/07/11/nas...-while-chill-envelops-rest-of-the-market.html

(BOLD is my opinion OR what I consider important content)

"This stock market is like the old line about having one foot in a bucket of scalding water and the other in a bucket of ice, netting out to a neutral, if not comfortable, temperature.

There’s the blistering Nasdaq, with its unassailable technology gatekeepers and a combustible frenzy in Tesla stealing much of the market’s oxygen. Then there’s the chill enveloping smaller stocks, vestiges of the physical consumer economy and legacy financial institutions.

Together they have the inclusive S&P 500 in a tight and tidy trading range, last week refusing plenty of excuses to break down, finishing at a one-month high and even showing signs of giving the benchwarmer value stocks a chance to play with Friday’s broader rally.



The crucial question swirling around the Nasdaq’s ascent and refusal of the Big Six stocks to take anything but a quick rest for months is whether investors are in danger of overpaying for the perceived certainty of secure cash flows, durable growth and entrenched franchises in the digital economy.

There is no denying both that the Nasdaq complex in the short-term appears technically stretched and over-loved, while large-cap tech is getting richly valued.

Over-loved tech?
SentimenTrader.com notes that about three-quarters of Nasdaq stocks are above their 200-day moving average, the shorthand definition of a longer-term uptrend, while only about 40% of S&P 500 names are in that position. This gap in breadth is either rare or unprecedented:


The Nasdaq 100 has pushed more than 22% above its 200-day average, according to Baycrest Partners’ Jonathan Krinsky, the most extreme spread with the index at a high since 2000.

And the S&P tech sector has returned to its peak price-to-sales ratio from the March 2000 tech-bubble market top.


Source: FactSet

For sure, today’s tech companies are more profitable than those of two decades ago. And while the five largest S&P 500 stocks are all from the Nasdaq and in the tech or Internet realms (Apple, Microsoft, Amazon, Alphabet and Facebook) now make up a 20-year high 21% of the S&P 500, they also kick in a commensurate portion of the index’s free cash flow, as this breakdown from Fred Alger Management shows.




And as wild as the Nasdaq’s surge and outperformance have been, it simply hasn’t piled up the amount of easy riches that it had in the late-’90s run. In the five and ten years through the end of 1999, the Nasdaq Composite had gained 440% and 800%, respectively. The comparable gains over the past five and ten years: up 111% and 380%.

Admittedly, arguing that the current market is not as expensive, frothy or beloved as the most overvalued, overextended and overestimated market in many decades is not exactly a ringing endorsement. And indeed we may never see a close rerun of that period. But, as argued here a few weeks ago, stocks can be stoutly valued and priced for subpar future returns without representing an unstable bubble or dangerous misallocation of capital.

Another qualitative distinction between today’s outsized Nasdaq contribution to the market’s climb and the one that culminated 20 years and four months ago: The crowding into the mega-cap elite names today is a defensive instinct, investors gravitating toward steadiness and predictability rather than blue-sky hopes of galloping growth rates and innovative disruption to come. As long as corporate-debt yields remain so low and cash-flow streams are seen as very scarce, what might upend this part of the market beyond nasty short-term corrections and shakeouts.

Missing the Wall Street hype
Back in the late ’90s, the market was implicitly over-extrapolating massive growth rates for many years in companies more cyclical than appreciated, such as Cisco Systems and Intel (along with Microsoft, Oracle, Yahoo and other graybeards of Silicon Valley).

There is an unusual situation now in which the tech darlings have been barreling higher largely on macro fears and heavy liquidity flows rather than product hype or Wall Street salesmanship. In fact, the consensus analyst price targets for Apple, Microsoft and Amazon are all below the stocks’ current quote, according to FactSet.

Does this show a helpfully cautious analytical corps serially underestimating today’s best companies — a sturdy wall of worry built by Wall Street itself? Or is it a sign the market has carried them beyond even the sell side’s typically rosy calculus of fundamental value?

Who knows, Friday’s mean-reversion action, with banks, energy and small caps retaking a sliver of the territory dominated by tech, is the start of a rebalancing of the market. The levitation in secular-growth sectors has arguably been the market’s way of deploying ample liquidity to stay supported as the country backslides on Covid containment and the economy fitfully tries to recover.


It’s tough to deny that big chunks of the Nasdaq are in the sway of overheated speculation. Tesla, to take the obvious example, has gained $108 billion in market value in two weeks. More than $34 billion worth of the stock traded on Friday alone, twice the turnover that day in Amazon – a company whose market cap is more than five times as large.

This is fevered, heedless action, feeding on itself and punishing the disciplined. And the more it goes on or spreads to other stocks, the harder it will become to make the case that this is a market unappreciated by a skeptical investing public.

MY COMMENT

It is difficult to avoid the thoughts that we.........and especially the NASDAQ.......are in bubble territory right now. BUT....considering the amount of stimulus money and actions SLOSHING around in the world economy as well as the fact that we are STILL not back to the prior market highs by the SP500 and the DOW.....perhaps some of this bubble is justified. I BEILEVE it is true that investors are moving to the CREAM OF THE CROP companies as a DEFENSIVE reaction. I say......"investors''..........intentionally to separate out the growing number of stock day traders and speculators.

It is interesting that the SP500 is now DOMINATED by five companies......Amazon, Microsoft, Google, Apple, and Facebook. BUT this is nothing new. Companies move in and out of the top weighted five in the index. That is ONE reason i prefer the SP500 as the PREMIER single index. It contains the PREMIER 500 companies in the AMERICAN economy and with the weighting it reflects the dominant, booming, companies that are successful at a particular moment in time. As a long term investor, i like the fact that I can invest in a single index and at any point in time, I will own the five or ten most successful companies in the world as a BIG CHUNK of my investment.

I CONTINUE to be fully invested for the long term as usual. I ALSO continue to talk about and post many many short term topics and events in the investing world on here daily. I am interested in business and investing and the events that happen and drive the markets........short, medium, and long term. BUT......when it comes to actual INVESTED MONEY........LONG TERM INVESTING is the ONLY way to financial success for the vast majority of people.

 

HERE is yet another word of CAUTION for all those young males DRIVING the current stock trading frenzy. Of course.......no one will be open to this sort of information since this does NOT apply to them and we are in........yet another.......how many has it been over the last 15 years.......NEW NORMAL. There is NO NEW NORMAL. It is ALL just a repeat of age old human behavior and the impact of brain wiring. Markets may change, stocks may change, the economy may change, etc, etc,.......BUT.......how humans respond is simple and set in stone. Human behavior DOES NOT CHANGE.

Robinhood Has Lured Young Traders, Sometimes With Devastating Results

https://www.nytimes.com/2020/07/08/technology/robinhood-risky-trading.html

(BOLD is my opinion OR what I consider important content)

"Its users buy and sell the riskiest financial products and do so more frequently than customers at other retail brokerage firms, but their inexperience can lead to staggering losses.
Richard Dobatse, a Navy medic in San Diego, dabbled infrequently in stock trading. But his behavior changed in 2017 when he signed up for Robinhood, a trading app that made buying and selling stocks simple and seemingly free.

Mr. Dobatse, now 32, said he had been charmed by Robinhood’s one-click trading, easy access to complex investment products, and features like falling confetti and emoji-filled phone notifications that made it feel like a game. After funding his account with $15,000 in credit card advances, he began spending more time on the app.

As he repeatedly lost money, Mr. Dobatse took out two $30,000 home equity loans so he could buy and sell more speculative stocks and options, hoping to pay off his debts. His account value shot above $1 million this year — but almost all of that recently disappeared. This week, his balance was $6,956.

“When he is doing his trading, he won’t want to eat,” said his wife, Tashika Dobatse, with whom he has three children. “He would have nightmares.”

Millions of young Americans have begun investing in recent years through Robinhood, which was founded in 2013 with a sales pitch of no trading fees or account minimums. The ease of trading has turned it into a cultural phenomenon and a Silicon Valley darling, with the start-up climbing to an $8.3 billion valuation. It has been one of the tech industry’s biggest growth stories in the recent market turmoil.

But at least part of Robinhood’s success appears to have been built on a Silicon Valley playbook of behavioral nudges and push notifications, which has drawn inexperienced investors into the riskiest trading, according to an analysis of industry data and legal filings, as well as interviews with nine current and former Robinhood employees and more than a dozen customers. And the more that customers engaged in such behavior, the better it was for the company, the data shows.
More than at any other retail brokerage firm, Robinhood’s users trade the riskiest products and at the fastest pace, according to an analysis of new filings from nine brokerage firms by the research firm Alphacution for The New York Times.

In the first three months of 2020, Robinhood users traded nine times as many shares as E-Trade customers, and 40 times as many shares as Charles Schwab customers, per dollar in the average customer account in the most recent quarter. They also bought and sold 88 times as many risky options contracts as Schwab customers, relative to the average account size, according to the analysis.

studies have shown. The returns are even worse when they get involved with options, research has found.

This kind of trading, where a few minutes can mean the difference between winning and losing, was particularly hazardous on Robinhood because the firm has experienced an unusual number of technology issues, public records show. Some Robinhood employees, who declined to be identified for fear of retaliation, said the company failed to provide adequate guardrails and technology to support its customers.

Those dangers came into focus last month when Alex Kearns, 20, a college student in Nebraska, killed himself after he logged into the app and saw that his balance had dropped to negative $730,000. The figure was high partly because of some incomplete trades.

“There was no intention to be assigned this much and take this much risk,” Mr. Kearns wrote in his suicide note, which a family member posted on Twitter.

Like Mr. Kearns, Robinhood’s average customer is young and lacks investing know-how. The average age is 31, the company said, and half of its customers had never invested before.

Some have visited Robinhood’s headquarters in Menlo Park, Calif., in recent years to confront the staff about their losses, said four employees who witnessed the incidents. This year, they said, the start-up installed bulletproof glass at the front entrance.

“They encourage people to go from training wheels to driving motorcycles,” Scott Smith, who tracks brokerage firms at the financial consulting firm Cerulli, said of Robinhood. “Over the long term, it’s like trying to beat the casino.

At the core of Robinhood’s business is an incentive to encourage more trading. It does not charge fees for trading, but it is still paid more if its customers trade more.

That’s because it makes money through a complex practice known as “payment for order flow.” Each time a Robinhood customer trades, Wall Street firms actually buy or sell the shares and determine what price the customer gets. These firms pay Robinhood for the right to do this, because they then engage in a form of arbitrage by trying to buy or sell the stock for a profit over what they give the Robinhood customer.

This practice is not new, and retail brokers such as E-Trade and Schwab also do it. But Robinhood makes significantly more than they do for each stock share and options contract sent to the professional trading firms, the filings show.

For each share of stock traded, Robinhood made four to 15 times more than Schwab in the most recent quarter, according to the filings. In total, Robinhood got $18,955 from the trading firms for every dollar in the average customer account, while Schwab made $195, the Alphacution analysis shows. Industry experts said this was most likely because the trading firms believed they could score the easiest profits from Robinhood customers.

Vlad Tenev, a founder and co-chief executive of Robinhood, said in an interview that even with some of its customers losing money, young Americans risked greater losses by not investing in stocks at all. Not participating in the markets “ultimately contributed to the sort of the massive inequalities that we’re seeing in society,” he said.

Mr. Tenev said only 12 percent of the traders active on Robinhood each month used options, which allow people to bet on where the price of a specific stock will be on a specific day and multiply that by 100. He said the company had added educational content on how to invest safely.

He declined to comment on why Robinhood makes more than its competitors from the Wall Street firms. The company also declined to provide data on its customers’ performance.

Robinhood does not force people to trade, of course. But its success at getting them do so has been highlighted internally. In June, the actor Ashton Kutcher, who has invested in Robinhood, attended one of the company’s weekly staff meetings on Zoom and celebrated its success by comparing it to gambling websites, said three people who were on the call.

Mr. Kutcher said in a statement that his comment “was not intended to be a comparison of business models nor the experience Robinhood provides its customers” and that it referred “to the current growth metrics.” He added that he was “absolutely not insinuating that Robinhood was a gambling platform.”

Robinhood was founded by Mr. Tenev and Baiju Bhatt, two children of immigrants who met at Stanford University in 2005. After teaming up on several ventures, including a high-speed trading firm, they were inspired by the Occupy Wall Street movement to create a company that would make finance more accessible, they said. They named the start-up Robinhood after the English outlaw who stole from the rich and gave to the poor.

Robinhood eliminated trading fees while most brokerage firms charged $10 or more for a trade.It also added features to make investing more like a game. New members were given a free share of stock, but only after they scratched off images that looked like a lottery ticket.

The app is simple to use. The home screen has a list of trendy stocks. If a customer touches one of them, a green button pops up with the word “trade,” skipping many of the steps that other firms require.

Robinhood initially offered only stock trading. Over time, it added options trading and margin loans, which make it possible to turbocharge investment gains — and to supersize losses.

The app advertises options with the tagline “quick, straightforward & free.” Customers who want to trade options answer just a few multiple-choice questions. Beginners are legally barred from trading options, but those who click that they have no investing experience are coached by the app on how to change the answer to “not much” experience. Then people can immediately begin trading.

Before Robinhood added options trading in 2017, Mr. Bhatt scoffed at the idea that the company was letting investors take uninformed risks.

“The best thing we can say to those people is ‘Just do it,’” he told Business Insider at the time.

In May, Robinhood said it had 13 million accounts, up from 10 million at the end of 2019. Schwab said it had 12.7 million brokerage accounts in its latest filings; E-Trade reported 5.5 million.

That growth has kept the money flowing in from venture capitalists. Sequoia Capital and New Enterprise Associates are among those that have poured $1.3 billion into Robinhood. In May, the company received a fresh $280 million.

“Robinhood has made the financial markets accessible to the masses and, in turn, revolutionized the decades-old brokerage industry,” Andrew Reed, a partner at Sequoia, said after last month’s fund-raising.

Mr. Tenev has said Robinhood has invested in the best technology in the industry. But the risks of trading through the app have been compounded by its tech glitches.

In 2018, Robinhood released software that accidentally reversed the direction of options trades, giving customers the opposite outcome from what they expected. Last year, it mistakenly allowed people to borrow infinite money to multiply their bets, leading to some enormous gains and losses.

Robinhood’s website has also gone down more often than those of its rivals — 47 times since March for Robinhood and 10 times for Schwab — according to a Times analysis of data from Downdetector.com, which tracks website reliability. In March, the site was down for almost two days, just as stock prices were gyrating because of the coronavirus pandemic. Robinhood’s customers were unable to make trades to blunt the damage to their accounts.

Four Robinhood employees, who declined to be identified, said the outage was rooted in issues with the company’s phone app and servers. They said the start-up had underinvested in technology and moved too quickly rather than carefully.

Mr. Tenev said he could not talk about the outage beyond a company blog post that said it was “not acceptable.” Robinhood had recently made new technology investments, he said.

Plaintiffs who have sued over the outage said Robinhood had done little to respond to their losses. Unlike other brokers, the company has no phone number for customers to call.

Mr. Dobatse suffered his biggest losses in the March outage — $860,000, his records show. Robinhood did not respond to his emails, he said. A Robinhood spokesman said the company did respond.

Mr. Dobatse said he planned to take his case to financial regulators for arbitration.

“They make it so easy for people that don’t know anything about stocks,” he said. “Then you go there and you start to lose money.”"

MY COMMENT

POSTING this as a public service.........

It is interesting that this speculative trading company now has more customers than a long time discount brokerage like Schwab. It is ALSO interesting that these millions of "young traders" are embracing and using a company started in response to and inspired by the OCCUPY WALL STREET MOVEMENT. AND.....promoted as a way to empower people to get their share of the pie......ie: social justice and inequality......."stuff".

ANYWAY......I will not spend any more time on "my comment".....it is talking to the wind. This sort of situation just has to run its course, with the USUAL, INEVITABLE, RESULT.

 

I Agree Jwalker. Being a CPA you probably have a pretty good grasp of financials as a starting point.

 

WELL......A55.......I have always used a number of definitions of LONG TERM. Most importantly for me long term means for life. Till I die. Talking about putting money that might or will be needed for something into stocks and funds rather than safer vehicles........has most of my life meant a minimum 3 years with 5 years being better. I STILL see long term as......for life.....even at age 70.

Long term or buy and hold investing DOES NOT mean FOREVER. I wish it did. It means that you will hold that stock or fund as long as it meets your criteria. OBVIOUSLY my long term portfolio is very different today than it was 20-30 years ago. In the old days my long term portfolio would have........at various times......... held:

Phillip Morris
IBM
Kraft
Coke
Pepsi
Chevron
Colgate
Proctor & Gamble
3M
Johnson & Johnson
General Electric
Intel
Microsoft
Amgen
Cisco
Starbucks
Nike
Costco
Walmart
Home Depot
Dell
AMD
Exxon

SOME.......like Nike, Costco, 3M, Johnson & Johnson, Home Depot......I have pretty much held for over 20 years. Others like...... Microsoft......I held in the past for about 12 years from 1990 to 2002, than, sold out and now own it again. Many of the above I held for many years and sold out when management changes happened.....IBM, GE, SBUX, etc, etc. I have always held about 10-15 stock holdings. I prefer QUALITY to QUANTITY.

I TRY to hold anything that I buy for multiple years.....minimum. BUT.....if something fails to perform I will sell it without hesitation. I have ZERO personal or emotional connection to my holdings......they are SIMPLY a way to make and compound money.....a financial tool. My holdings have evolved over the years as companies change. My portfolio STYLE and investing GOALS has remained the same for over 35 years. If you went back to the old MSN Money Boards in the mid 1990's.....you would see me posting the same stuff about long term investing. I am a.......BROKEN RECORD. (if you dont know what that means ask your parents) I do the same thing over, and over, and over, and over.I TOTALLY stick with what works for me.......I DO NOT care about the latest investing FAD. I have the same GOALS now that I had 30 years ago.........average 10% or more over the long term.......try to beat the SP500 each year.

 

Yes.....Ricks......I am familiar with that company. I have read a number of articles about them over the years in various business magazines. In fact there is one near a place we play and once in a while the manager will invite us to come over when we are done playing. We have never taken him up on it.........we just want to pack up and get out of there.

As to RISK......I am willing to take risk and have once in a while over the years. BUT.....it is always has to be a very special business.

 

Well I have played in some strip..........well, make that......Gentlemen's Clubs over the years. Get your mind out of the gutter......I am talking about playing music. I always thought it was strange to have live music in a strip club.