The Long Term Investor

Andyvds said:

"studying coming IPO's is important - but a lot of work.
so what are the starting Apple's, Amazon's, Microsoft's, Samsung's and Google's right now?"

Welcome Andyvds. ACTUALLY myself.......I NEVER buy an IPO. The HYPE is too strong and there is no way to know how some over sold, over hyped, over priced, IPO is going to do. MANY.........if not MOST........never turn into anything long term.

The stocks that I have owned that are CATEGORY KILLERS.........and.........portfolio MAKERS........the kind of companies that you hold for 10-20 years and give you the kind of gains that PROPEL you to BEAT the market averages......are:

Microsoft (in the early years and again now with their new and improved management)
Nike
Costco
Starbucks
Amazon
Google
Apple
Home Depot
Intel

In my opinion you DO NOT identify and buy any of these at the IPO......you buy them 4-10 years down the road when they are STILL very young growth companies.........AND........the handwriting is on the wall. Think about any of these. Microsoft had a monopoly on PC operating systems around the world in 1990 and as far as you could anticipate looking forward in time.. Costco was a new retail concept early on and had perhaps one competitor in their niche. Same with Nike. Starbucks was about the ONLY national game in town for espresso. Home Depot.....only one real competitor......Lowes. Back when I owned Intel it was them and AMD........and .........Intel was the leader by far. Amazon and Google and Apple.......I bought a little bit later in their history as public companies but still plenty early to get some really BIG gains........AND.......when I bought them it was CLEAR that they were DOMINANT.

You have to use your business common sense to see these companies. They are right there in front of everyone's face. Myself, I look at product DOMINANCE. Market dominance. Explosive growth....that is REAL.......not just HYPE. I really like companies with visionary founders that stick with the company. I dont think you will find many of this sort of company just looking at financials. You find them by using common sense and business intuition. OFTEN you find them because you are shopping at them or using their products......as is EVERYONE you know.

That is about half the issue. The other issue is bringing yourself to invest in them once you find them. The VAST MAJORITY of people just can NOT pull the trigger. The OTHER issue that potential investors have is.....they have NO investable money. Even if they see an opportunity....they dont have any money. MOST people just DO NOT have the right kind of thinking.......you have to have really good business intuition and at the same time be very clinical in looking at a business.

 

HERE is a repeat of the portfolio model.......as usual:

I am once again posting my PORTFOLIO MODEL. My initial criteria to start the process to consider a business are.......BIG CAP, AMERICAN, DIVIDEND PAYING, GREAT MANAGEMENT, ICONIC PRODUCT, WORLD WIDE LEADER IN THEIR FIELD, LONG TERM HORIZON, etc, etc, etc.

PORTFOLIO MODEL

"Here is my "PORTFOLIO MODEL" for all accounts managed which is the basis for MUCH of my discussion in this thread. I am re-posting this since I often talk in this thread about my portfolio model. My custom in the past on this sort of thread was to re-post my portfolio model every once in a while since I will tend to talk about it once in a while. I "manage" six portfolios for various family including a trust. ALL are set up in this fashion. If I was starting this portfolio today, lets say with $200,000. I would put half the money into the stock side of the portfolio, with an equal amount going into each stock. The other half of the money would go into the fund side of the portfolio, with an equal amount going into each fund. As is my long time custom, I would than let the portfolio run as it wished with NO re-balancing, in other words, I would let the winners run. Over the LONG TERM of investing in this style (at least in my actual portfolios), the stock side seems to reach and settle in at about 55% of the total portfolio and the fund side at about 45% of the total portfolio over time. That is a GOOD THING since it tells me that my stock picks are generally beating the funds over the longer term. AND....since the funds in the account generally meet or beat the SP500, that is a VERY good thing.

As mentioned in a post in this thread, I include the funds in the portfolio as a counter-balance to my investing BIAS and stock picking BIAS and to add a top active management fund that often beats the SP500 (Fidelity Contra Fund) and a SP500 Index Fund to get broad exposure to the best 500 companies in AMERICAN business and economy. The funds also give me broad diversification as a counter-balance to my very concentrated 10 stock portfolio. At the same time the funds double and triple up on my individual stock holdings............that I consider the BEST individual businesses in the WORLD.

STOCKS:

Alphabet Inc
Amazon
Apple
Costco
Home Depot
Honeywell
Johnson & Johnson
Nike
3M
Microsoft
Proctor & Gamble
Tesla (small position)

MUTUAL FUNDS:

SP500 Index Fund
Fidelity Contra Fund

CAUTION: This is a moderate aggressive to aggressive portfolio on the stock side with the small concentration of stocks and the mix of stocks that I hold and with the concentration of big name tech stocks. Especially for my age group. (70). So for anyone considering this sort of portfolio, be careful and consider your risk tolerance and where you are in your life and financial needs. I am able to do this sort of portfolio since my stock market account is NOT needed for my retirement income AND I have a fairly HIGH RISK TOLERANCE. In addition I am a fully invested, all the time, LONG TERM investor. (LONG TERM meaning many years, 5, 10, 20, years or more)"

MY COMMENT

This portfolio is HIGHLY CONCENTRATED on the big cap side of things. OBVIOUSLY between the funds and my eleven stock holdings there is MUCH doubling and tripling up on the stocks. THAT is INTENTIONAL. I strongly subscribe to the view of Buffett and some others that TOO MUCH diversification kills returns. I do NOT believe in the current diversification FAD that most people seem to now follow.......or think they are following. I DO NOT do bonds and think the current level of bonds held by younger investors.....those under age 50.....is extremely foolish.I DO NOT do market timing or Technical Analysis.

 

You will see in the above post with my MODEL PORTFOLIO that I have made one change. I SOLD ALL shares of the Dodge & Cox Stock Fund and put ALL those funds into the Fidelity Contra fund and the SP500 Index Fund. I had been planing to do this for a while. Looking back over my data Dodge & Cox Stock Fund was not quite keeping up with the other two.......for the past 10 years.

I first got into Fidelity Contrafund when William Danoff took over management in 1990. I was looking for a place for my mutual fund money after Peter Lynch left fidelity Magellan.

https://www.investopedia.com/articles/investing/031316/fcntx-overview-fidelity-contrafund.asp

IF you look at the BOLD in the article below and you know anything about my investing style......you will see why I have liked this fund for 30 years now.

"The Fidelity Contrafund (FCNTX) is the largest actively managed mutual fund in the world, with more than $112 billion in assets under management (AUM) as of March 25, 2020. Contrafund is managed by Fidelity Investments, one of the largest mutual funds in the world.

Key Takeaways

• Fidelity's Contrafund is among the most widely held funds by 401(k) plans and other retirement plans.
• The Contrafund makes its returns by picking growth stocks with a high probability of capital appreciation.
• Because of the fund’s enormous size, it tends to focus on U.S. large-cap stocks with market values greater than $10 billion.
• The fund requires a minimum investment of $2,500.

Naming and Investment Objective
When it was first launched in 1967, the fund was named Contrafund for its original investment objective, which was to take a contrarian view by investing in out-of-favor stocks or sectors. In the 1980s, Fidelity was catapulted into the top tier of investment management funds when legendary stock picker Peter Lynch drove the Magellan Fund to huge success. In the 1990s and beyond, it was William Danoff’s turn to carry the torch as the fund manager for the Fidelity Contrafund.

Since Danoff began managing the fund, its objective has changed to simply achieving capital appreciation by picking good growth stocks. The fund managers use bottom-up fundamental analysis to find companies they believe are poised for sustained, above-average earnings growth not reflected in the stock’s price.

Investment Manager
William Danoff joined Fidelity in 1986 as a securities analyst and portfolio manager. He graduated from Harvard University in 1982 and went on to earn a master of arts degree and an MBA from the University of Pennsylvania. He took over management of the Contrafund in 1990 when it was considered a contrarian fund.

Danoff gradually changed the fund’s mission into investing in fair or undervalued, well-managed, “best-of-breed” companies with good prospects for earnings growth. In the last 25 years, his stock-picking prowess has attracted more than $100 billion in assets, making the Contrafund one of the most successful growth funds of all time.

Portfolio Holdings
The fund invests primarily in large-cap U.S. stocks, but it has a small number of foreign securities. The fund favors the technology sector with historically around a third of their assets allocated there, followed by communications, healthcare, and financials. As of March 25, 2020, the fund's top five holdings are in Facebook Inc., Amazon.com, Microsoft Corp, Berkshire Hathaway Inc., and Visa Inc. The top ten holdings in the fund account for almost 45% of their portfolio.

Investor Allocation
The Contrafund is considered an outstanding core holding for long-term, growth-oriented investment portfolios. Due to the fund's exposure to domestic large-cap growth stocks, it should not make up the majority of an investor's portfolio. The fund is around 92% invested in domestic equities versus around only 7% invested overseas. For a more diversified stock portfolio, the Contrafund should be complemented by an international stock fund due to its low foreign holdings."

So.....do you see me in that fund?

I am.......a BIG CAP investor. I do NOT like over diversification. I do NOT do any International investing. I stick with American companies. I tend to like and look for young, long term, growth companies. I LOVE the cream of the crop companies.......best of breed. Etc, etc, etc.

AND

The Fund BEATS the SP500 total return for.......ONE YEAR.......THREE YEAR.......FIVE YEAR.......AND TEN YEAR.......TIME PERIODS.

Total returns for those times are

1 year 17.91%
3 year 16.42%
5 year 14.05%
10 year 15.57%
Life of Fund 12.64%

 

AND.....for every business person there comes a time when the hassle of running a business and paying all the overhead and taxes and government BS and paperwork just is NO LONGER worth it. Or....for many it becomes an issue of funding retirement or estate planing.

 

The OVERHANG of the election and somewhat earnings are a BIG SHADOW on the markets today and going forward for the next 3+ months. It should be a pretty crazy October with the election ONLY weeks away and earnings being reported.

I CONTINUE to be a BIG fan of the SP500 Index for the average investor. I suspect that many are aware of this information......BUT.......just in case here it is:

Opinion: The hidden risk in your S&P 500 index fund

https://www.marketwatch.com/story/t...ur-sp-500-index-fund-2020-07-17?mod=home-page

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

"How much of your retirement savings are you now gambling on the fortunes of just six companies?

If you’re holding them in an S&P 500 SPX, 0.03% stock market index fund, the answer is: About a quarter.

That’s how much the so-called “FANMAGs”—Facebook FB, -0.52%, Apple AAPL, 0.38%, Netflix NFLX, 1.12%, Microsoft MSFT, 1.40%, Amazon AMZN, 2.87% and Google (“Alphabet”) GOOG, 1.10% — now account of the blue chip U.S. index by value. And that’s how much of each $1 you hold in an S&P 500 index fund, like the State Street SPDR S&P 500 Trust SPY, 0.02%, you are investing in just this half dozen enterprises.

(Just Apple, Microsoft, Amazon and Google account for 21% of the index.)

Yes, these companies are gigantic and global. But this nonetheless raises serious questions over the claims that the S&P 500 alone gives you a broad diversification of your investment risk. It also throws doubt on whether the index somehow represents the entire U.S. economy, and explains why the index has levitated so far this spring, even while the economic rebound has flatlined (or worse).

“The performance of stock markets, especially in the United States, during the coronavirus pandemic seems to defy logic,” notes Yale’s Nobel Prize-winning economist Robert Shiller. “With cratering demand dragging down investment and employment, what could possibly be keeping share prices afloat? The more economic fundamentals and market outcomes diverge, the deeper the mystery becomes…”

And as he points out elsewhere, the index right now is valued at 30 times average per-share earnings of the past decade. Prior to this year, it has only matched or exceeded that level twice since records began in the 1880s: In 2000, and 1929.

Ah yes, good times.

Yet a lot of this is driven by just those six stocks, plus some other growth-oriented companies.

This is why the total dividend yield on the S&P 500 is just 1.8% — but according to a FactSet screen, the average company in the index is yielding 3%.

Of the index’s gains since the March 23 low, no less than 30% has come from just those six stocks. Most of the rest of the blue-chip index—the S&P 494?—has still been singing the blues. Since the brief market euphoria peaked early last month, for example, casino stocks have fallen 18% on average, department stores 19%, hotels, resorts and cruise lines 25%, and airlines 28%, according to market data provider FactSet. American Airlines AAL, -3.15% has fallen 40%, United UAL, -3.01% 35% and Southwest LUV, -3.03% 18%. MGM Resorts MGM, -2.74% has lost a third of its value. Carnival CCL, -1.86%, another 40%. Macy’s M, -3.83% is down another 30%.

And note: Those aren’t the stock falls since the crisis began in late February. These are the declines just since the early June “recovery” rally. Measured from the start of the year their declines in many cases are catastrophic.

Small-company stocks and midsize stocks, which are often seen as a better indicator of Main Street economic health than the mega caps, have also been lagging the S&P 500, and badly. (Adding to the broader sense of gloom about the rebound has been the plunge in long-term interest rates as well. A 10-year Treasury note now pays just 0.63% a year—a third less than it did early last month. All this, even after Uncle Sam and the Fed have flooded the economy with about $5 trillion in “free” money.)

Where does this leave the ordinary index fund investor? In a nutshell: Possibly exposed to fundamental index risks that they may not realize. They’re betting heavily on the FANMAGs. (If skyrocketing Tesla TSLA, -0.19%, now valued at nearly $300 billion, joins them maybe we can call them the FATMANGs)

“The notion that equity indexes are somehow risk-free states has to my mind always been a dangerous fallacy which has been amplified by the rise of passive investing,” comments Mark Urquhart, money manager at Baillie Gifford in Edinburgh, Scotland. “Actually, all three of the significant market crises which my career has contained—technology, media and telecoms (TMT), the financial crisis and now the coronavirus—have been linked by so much damage being done to particular parts of the index that it demolishes the thesis that index investing can diversify away such risk.”

There are two possible risks. The first is that we see an economic rebound in the coming quarters, and index fund owners miss out, because these big super-stocks have already had their rally. We saw something of that on Wednesday, when news of a possible vaccine sent “Main Street” stocks booming 10% or more, while the overall index rose less than 1%. The second risk is that we don’t see an economic rebound…and investors decide that these gigantic boom stocks are overvalued in a downturn.

That’s what happened after the dot-com bubble of 1999-2000. The big indexes, like the S&P 500 (and the Nasdaq Composite COMP, 0.72% ) tanked. But those who had shunned the fashionable names, and held cheap and unloved value stocks, made out like bandits.

The poster child for the dot-com mania in many ways was telecom equipment giant Cisco CSCO, -0.37% At the peak of the madness it was valued at triple-digit forecast earnings, peaking at around 130 times. Afterward people wondered what they’d been thinking."

MY COMMENT

Personally.......I am not concerned in the slightest. I intentionally double and triple up on certain stocks in my portfolio and the funds in my portfolio. BUT....people need to be aware of the workings of the SP500 and any other index that they invest in. I happen to .......LIKE......the fact that this index represents SUCCESSFUL companies in the fashion that it does.

YES......21% of the index might be in six stocks.....but the other 80% is spread among 494 other stocks in ALL areas of the economy. In my mind......the way the SP500 is weighted........it REWARDS owners of the index with good exposure to those companies that represent the cream of the crop and most significant CHUNK of the economy at any moment in time. Companies will fall.....in and out......of the top of the SP500 as they get more successful or fade out.

The KEY to managing risk......especially in the context of this article.....is LONG TERM INVESTING. With the DOUBLE WHAMMY of the election and third quarter earnings in October........as well as whatever happens following the election.......short term speculators........ and short term investors.........and traders.........are going to be in a VERY DANGEROUS time period over the next six months from now to the end of the year.

 

WELL......more.......as to the SP500 post above.........I say..........DUHHHH.

That is EXACTLY what I like about the SP500 Index. If I wanted to, I could buy an equal weighted SP500 Index Fund. Why......why.....why, would I do that.....so I can have more of my money in the bottom 200-300 companies in the list of 500 greatest companies in the AMERICAN economy? NO.....I want a good chunk of my SP500 money in the top 50----or 25----or 10 companies in THE WORLD. YES.......it is just AMERICAN companies....but odds are that the top 50 or more are the BEST in the world.

That weighting fits EXACTLY what I would want. It is not like Microsoft, Facebook, Apple, Amazon, Netflix, Google, and all the other 20-50 top holdings are some sort of RISKY new, unproven, companies. These are all established, proven, businesses that reflect and drive the AMERICAN ECONOMY...........and will do so for a long time to come.

They seem to.......ALL.......be doing pretty well today......as does Tesla. Looks like a lot of people are betting on the earnings Wednesday. The way the "betting" seems to be going it makes you wonder if the numbers have leaked a little bit.

Earnings.....IBM......is the big one today.

I owned this company for a long time. It is amazing when you look back.....they SQUANDERED one of the greatest tech company names and businesses. They gave away the operating system franchise to every PC made in the world. NO.....not only did they give it to Microsoft.......they paid them to take it. They were THE DOMINANT......BIG NAME.....in the computer business. Through mismanagement and ARROGANCE they LOST OUT in every aspect of tech. A CLASSIC lesson in corporate culture, management blindness..........and.....as I said arrogance. I used to deal with them for my business in the early 1990's. Their REPS were insultingly arrogant. In 1990 we were buying $50,000 of equipment from them......it was nearly impossible to get them to show any interest at all. They acted like we were doing them a big favor. We went with them for the quality and dominance of their technology and product..........regardless. Within about 7 years.......we NEVER bought another IBM product........and.......never looked back. They had been passed up by all the young up and coming computer companies like Dell and Gateway and many others.

 

Yes....TSLA earnings is Wednesday. I have that down on my calendar. I JUST.....cant wait.......so I am trying to rush it by a day.

AS to IBM.....TomB16.....agree completely. My entire time as a business owner from 1977 to 1999 they were arrogant a**holes.

BUT.......today.......YES. BIG green today and I got back ALL the recent losses to the SP500 today with a BEAT of the SP500 by 1.74%. THE big cap tech rally is back......at least for one day.

AS TO......IBM and their earnings. It is pretty good when you are down by 31%......and....that is considered GOOD NEWS. Why is this important....because we are starting out this earnings reporting period on a good footing the past couple of weeks and we might just SLIDE RIGHT ON BY another earnings reporting period with little to no impact on the markets. That is......in fact.....what I expect to happen. I EXPECT that the current reports of quarterly earnings will have little to no impact.........to the negative.

IBM rises as earnings and revenue beat expectations despite coronavirus decline

https://www.cnbc.com/2020/07/20/ibm-earnings-q2-2020.html

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

"IBM shares rose more than 5% in extended trading on Monday after the company reported second-quarter earnings that were better than analysts had expected.

Here’s how the company did:

• Earnings: $2.18 per share, adjusted, vs. $2.07 per share as expected by analysts, according to Refinitiv.
• Revenue: $18.12 billion, vs. $17.72 billion as expected by analysts, according to Refinitiv.

Adjusted earnings per share were down 31% on an annualized basis in the quarter, and revenue declined 5%, according to a statement. It’s the company’s second consecutive quarter of revenue decline as the coronavirus hit the company’s results.

The company’s net income, which came out to $1.36 billion, was down 46%.

IBM did not update its full-year guidance. In April IBM withdrew its guidance for the full year because of the pandemic.

Revenue from IBM’s Global Technology Services category totaled $6.32 billion, down almost 8% year over year and above the FactSet consensus of $6.24 billion.

IBM’s Cloud and Cognitive Software segment, which includes Red Hat, produced $5.75 billion in revenue. That’s up 3% and barely above than the $5.74 billion FactSet consensus.

The Global Business Services unit had $3.89 billion in revenue, which is down 7% and slightly higher than the $3.87 billion consensus.

In the quarter IBM announced cloud business from Movius and Prysmian Group, and it told the News & Observer newspaper in North Carolina that it was cutting a number of employees. And Arvind Krishna started his job as IBM’s CEO on April 6.

Executives will discuss the results with analysts on a conference call starting at 5 p.m. Eastern time.

Excluding the after-hours move, IBM stock has fallen 5% so far this year."

 

THIS week will be a BELL-WEATHER week. AND.....not just because Tesla reports earnings tomorrow. It will be.......because.......a BROAD swath of BIG name companies report this week. We will have a very good view of how.........or if.........earnings are going to have any impact on the general markets by the time this week is over.

Reporting this week......Tesla, Microsoft, Coke, Phillip Morris, Constellation, Intel, ATT, Verizon, Honeywell, American Express, etc, etc, etc. A VERY broad SWATH of the American economy.

ACTUALLY.....it DOES NOT seem to me that anyone is paying much attention to earnings at all. AT LEAST........so far today.....we are making some money

 

OH YES.......nearly forgot......CUE the......dancers......confetti........champagne......the goody bags....THE SP500 is POSITIVE for the year. As I type this the SP500 is NOW positive by.............+1.10%.

 

OK, another day, another dollar.......lost. Yes.....RED today, but not too bad. SP500 got me today..........by .56%. I have noticed over the past 2-3 weeks that even on the RED days, my accounts are holding their value pretty well. ALL accounts are very close to new pre-covid highs right now. From this level.......looks like to me......we have another POTENTIAL 10-18% gains left that we might tack onto the averages this year before year end. Good potential to see ALL the averages hit new record highs by year end.

BUT.......lets be clear......"potential" is NOT probability......it is possibility. I DO believe that the general markets are in a little consolidation phase right now....digesting earnings and the recent gains. I believe this is TOTALLY NORMAL and is actually a good thing. What is happening right now WILL set up the next leg of the current BULL MARKET.

Oh yes.......did I mention that we are in a BULL market? Well we are in my opinion. I see very little risk that we will retest the prior lows........absent some BIG BLACK SWAN event.