The Long Term Investor

A few posts about AMZN lately....here is a good one.

Amazon: Deep Dive Analysis Reveals Excellent Long-Term Value

https://seekingalpha.com/article/4567441-amazon-deep-dive-analysis-reveals-excellent-long-term-value

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

Summary

• Amazon continues to operate as the market leader in almost all business segments the company pursues.
• Strong profit generation from its AWS subsidiary should provide for significant future cashflow diversification.
• Difficult retail environment hurting e-commerce profitability.
• Damaged fiscal margins have not compromised an outstanding business model and operations structure.
• Low share-price and negative market sentiment have led to a great opportunity for long-term value investors

Investment Thesis

Amazon.com Inc (NASDAQ:AMZN) is a global name in e-commerce and cloud server technologies. Its operational prowess and devotion to ensuring an excellent customer experience has allowed the firm to operate on a truly unimaginable scale.

Historically high share valuations combined with negative macroeconomic conditions have led to a mass sell-off which has seen the firm's stock price drop more than 50% YoY.

This leaves the company in a potentially attractive place for long-term value investors who seek to understand what true future cashflow generation is in store at Amazon.

Company Background

Amazon is an American e-commerce and cloud/web service provider which dominates almost every market in which they operate. Their economic and social influence is realized across the globe through various business segments which give the company significant breadth and economic moat.

The bulk of Amazon’s revenues arise from their e-commerce sales with Amazon Web Services (AWS) being their second primary source of sales. Significant revenues are also realized through their Prime subscription service and through their offering of digital advertising solutions.

The immense scale on which Amazon operate has allowed the company to develop an ingrained presence in the lives of most Americans and Europeans.

The breadth of services offered by the firm makes it almost impossible for the average person to live their life without benefitting from Amazon related products or services in one way or another.

Recent bearish sentiments towards the firm combined with a significant previous overvaluation of the firms’ shares have left the company’s stock in ruins. After posting a YoY loss of -50%, could it finally be time to build a position in the mega-moat company that is Amazon?

Economic Moat – In Depth Analysis

Amazon has been the market leader in e-commerce services in most western nations for a good portion of the past two decades. Their continued innovation in the sector and focus on providing customers with great value has allowed the firm to remain the flagship store most consumers pivot to when purchasing products online.

Amazon harbors a true mega-moat status as their breadth of services and product offerings create significant long-term value opportunities for the company.

This huge economic moat is primarily built upon their e-commerce prowess and their market leading AWS digital services provisions.

When analyzing Amazon’s e-commerce segment, it is undeniable that they are the market leader. Approximately 50% of all products sold on Amazon are sold by their own fulfillment services. Amazon also allows third-party retailers to list items for sale on their e-commerce website thereafter taking a commission fee when their products sell.

This diversified approach to product listings has allowed Amazon to generate a truly incomprehensible catalogue of items which provides consumers with the most holistic and extensive shopping experience possible.

It is exactly this approach to offering customers the possibility to purchase almost anything at the click of a button which has propelled Amazon ahead of its brick-and-mortar competitors. Consumers and humans in general seek to find the simplest method of achieving a goal or desire. Amazon’s e-commerce business offers just that.

The lack of physical store-space to manage and sales personnel to employ allows Amazon to sell the same products as brick-and-mortar competitors but at a lower price. Furthermore, their controlled expansion into physical retail outlets (particularly with the Whole Foods brand) is allowing the company to recognize the growing importance of omnichannel supply networks.

In 2019, Amazon surpassed Walmart (WMT) as the world’s largest retailer. The huge scale on which Amazon operates their e-commerce business has allowed the firm to take advantage of significant economies of scale in their operations.

These efficiencies are realized across their entire operations structure all the way from their server capacities to the unit economics of purchasing delivery vehicles.

Quite simply, Amazon continues to exhibit an operational masterclass delivering close to 8 billion packages annually. This absolutely earns their core e-commerce business the status of a wide moat.

Furthermore, Amazon complements this business with their Prime membership subscription model. With Prime, customers have access to faster and free shipping with their purchases, as well as a video and gaming streaming service. Prime currently costs $14.99/month or $139/year in the US, with European pricing varying around the €8.99/month or €89/year mark.

Prime offers significant benefits to users and further ties consumers into the Amazon ecosystem. By being a subscriber, consumers also have access to more features in other smart-devices offered by Amazon such as their Alexa smart-home hubs or Kindle e-reader tablets.

This integration into consumer lifestyles makes cancelling the subscription service psychologically difficult for customers which helps Amazon develop an even deeper-moatiness for their business.

While the fiscal merits of Prime video warrant an entirely separate article of its own, from a moat perspective it undoubtably adds value to the Prime ecosystem. The platform has significant power in attracting new customers to the service through exclusive shows and movies.

The significant revenues and earnings generated by Amazon’s e-commerce business has allowed the firm to devote significant resources towards R&D.

Their strategy of “innovating on-behalf of the customer” entails generating new concepts, services and product offerings which improve the experience for a consumer, perhaps even without the consumer knowing they needed such an improvement.

Such innovations in delivery vehicles, route selections, cloud-server infrastructure and website design further help to drive Amazon’s profitability. It also helps to further differentiate Amazon as an e-commerce site making their concept and execution even more difficult for rivals to mimic.

AWS is another significant source of moatiness and profitability for the company. This subsidiary of Amazon provides on-demand cloud computing platforms and APIs to individuals, companies, and governments, on a metered, pay-as-you-go basis.

Amazon essentially created the concept of enterprise cloud computing infrastructure-as-a-service. By being first to the market and through continued technological innovations, Amazon has outpaced fierce rivals such as Microsoft’s Azure product to become the outright leaders in the segment.

Once again, through offering a great product to enterprise level consumers, AWS has managed to obtain many high-profile clients such as Disney, Samsung, and The Vanguard Group.

The product of AWS pay-as-you-go cloud infrastructure presents companies with the opportunity to significantly reduce their own IT departments complexities. This incentivizes organizations to adopt AWS technologies.

Once incorporated in the AWS network, it would be almost prohibitively complex for a company to switch to a different product such as Azure by Microsoft or Google Cloud. Furthermore, firms with significant online media presence who rely on AWS would risk potential disruptions to consumer user experiences if issues were faced during a change in provider.

Therefore, it is absolutely evident that AWS generates a significant moat for Amazon thanks to its innovative product offering and high user switching costs. This is exhibited through AWS generating almost 60% of total profit in FY21.

Finally, it is worth briefly discussing Amazon’s advertising business. While the firm discloses little information about the business segment, it continues to grow at a rapid pace.

When the concept of digital advertising is combined with AWS technologies and the vast databases of consumer habits and preferences generated by their e-commerce platform, the opportunity for future value generation is clear.

Whether or not Amazon will pursue this segment as aggressively as AWS did with cloud-infrastructure services is yet to be seen. However, an expansion in their digital advertising business would act to increase the breadth of Amazon’s already hyper-expansive economic moat.

Financial Situation

Amazon has been a hugely profitable firm for much of their existence. Their consistent EBITDA margins of 12% combined with a 10Y average ROIC of 12.7% are just the first indicators of the profit generating prowess the company holds.


Seeking Alpha | AMZN | Financials

In FY21 Amazon generated revenues of $469B with YTD totals amount to over $500B. Their 2021 figures represented a growth rate of 21% compared to the previous year with current estimates showing FY22 values to be growing at around 7-10%.

While this growth rate has slowed slightly, the guidance for FY22 incorporates a 460 basis point hit due to foreign exchange rate impacts, something not even Amazon is able to shy away from. Furthermore, a softer than expected Christmas shopping season is expected to slightly impact total sales.


Amazon Investor Relations

Approximately 67% of Amazon’s revenues are sourced from their e-commerce operations with around 47% of those sales coming from third-party commissions and fees. Growth in Q3 of FY22 compared to FY21 has slowed with little growth being realized in their e-commerce segment.

Given the difficult macroeconomic environment and the continuing strains rising interest rates and inflation have placed on consumers, I do no find this plateauing in growth alarming. While it is not the ideal news shareholders would have liked to see, it is not a sign of Amazon struggling with their business operations.

The primary element responsible for Amazon’s total revenue growth this year is the continued strength of their AWS subsidiary which has seen FY22 Q3 growth of 25% compared to the same period last year. This growth rate is replicated approximately across each quarter.

Amazon continues to excel in promoting and executing their cloud-infrastructure as-a-service product. AWS’s operating margins as a % of net sales for the first three quarters of FY22 averages at approximately 31%. Most of AWS revenue streams are also tied-up in long-term contracts which have a weighted average remaining life of 3.8 years.

This is welcomed news for the already profitable AWS segment as it guarantees a certain level of future returns.


Seeking Alpha | AMZN | Earnings

EPS for Q3 beat consensus estimates by $0.07 representing a GAAP actual value of $0.28/share. While revenue surprise missed estimates by -$365M, this was once more primarily due to softening consumer spending.

Estimates for future EPS growth moving into 2030 predict YoY growth to be around 35%. Equally, while revenue growth is expected to be soft moving into 2023, the average YoY growth rates of approximately 13% will most likely return moving into 2024.

Of course, it is also important to note that should the expected 2023 recession be avoided, it is widely expected that technology and consumer discretionary stocks should bounce back with rapid force as spending picks up once more.

Even if the recession does arise, Amazon’s incredibly broad reach across varying markets should allow the company to remain competitive and profitable throughout.

From an overall profitability perspective, Amazon has not managed to generate the same growth in FY22 as they have seen in FY21 or the previous 10 years as a whole. Nonetheless, their business model remains sound and their revenue dependency on the cyclical e-commerce segment is decreasing each quarter thanks to the stellar growth of AWS and their advertising business.

While CAPEX was incredibly high in 2020 and 2021 to ensure their delivery network could match the incredible levels of demand, such exuberant spending is not expected to continue into the future.

It is equally important to note that this spending was not reckless and has allowed Amazon to build a truly first-class delivery network which takes advantage of vertical integration to reduce costs.


Seeking Alpha | AMZN | Profitability

This fundamental solidity in their operations models and continued profitability has earned the company an A+ Profitability rating by Seeking Alpha’s Quant. Nonetheless, I await the FY22 results to consolidate this year’s performance for the firm and to better gauge what FY23 holds for the company from a management perspective.

Amazon’s balance sheet looks to be in relatively healthy shape much akin to their income statement. Their total current assets for the TTM are $131.4B while current liabilities amount to $140.4B. This mean their debt/equity ratio is 0.93.

Their quick ratio (current assets minus inventory divided by current liabilities) is just 0.68.

While these fiscal stability metrics might indicate that Amazon technically faces illiquidity, the possibility of a scenario arising where this becomes an issue is incredibly minute.


Amazon Investor Relations | FY21 Report

Amazon also has $48.7B in long-term debt as of December 31, 2021. By 2026, only $15.3B will be maturing. However, a large portion of their debts are on variable rates which has left Amazon particularly vulnerable towards the high interest rates currently prevailing in the economy.

Nonetheless, Amazon’s management has shown significant fiscal restraint to be deemed as having a stable financial status. Furthermore, the recent uptick in long-term debt by almost $10B is largely due to the firm increasing delivery capacity by over 50% as a reaction to the post-pandemic demand boom.

Therefore, it is safe to say the company’s balance sheets and overall liquidity do not raise any concerns, although they don’t raise any merits either.

Valuation

Seeking Alpha | AMZN | Valuation

Seeking Alpha’s quant assigns a D- Valuation rating for Amazon, which I find to be a rather pessimistic perspective given their current share price and company value. The firm is currently trading for historically low P/E ratios of 76.46 and an equally low P/CF ratio of 21.69.


Furthermore, with their revenues continuing to grow and a stable net margin of around 4.3%, I believe the share price fails to reflect the true value of Amazon’s business.


Seeking Alpha | AMZN | Summary

From an absolute perspective, Amazon shares are now cheaper than they were during the pandemic crash of 2020. The last time stable stock prices for the firm were around the $84 mark was back in 2018. At the time, revenues were less than half of those experienced in 2022.

The future for Amazon’s revenue streams looks increasingly positive as the firm is able to increase the revenues and profits generated by their AWS subsidiary. Significant investment into key supply network infrastructure should also allow Amazon to unlock increased operating margins in their e-commerce business too.

In the short term (3-10 months) it is difficult to say exactly what the stock will do. I believe the stock will continue to exhibit some bearish tendencies moving towards the first quarter of FY23. However, thereafter much depends on the macroeconomic conditions and the ability of the US and Global economies to achieve a soft landing on inflation.

In the long-term (2-4 years) I fully expect their position as a leader in the industry to become even stronger. Their unique industry knowledge combined with the potential for significant future growth places little doubt in my mind over the almost undoubtable returns the company should be able to provide to shareholders.

From a pure value perspective, it is absolutely possible to argue a historic undervaluation is present in Amazon. The negative sentiment currently present in the marketplace is largely unfounded and rooted in outdated information and speculation.

Risks Facing Amazon

The primary risks facing Amazon arise from the risk of failed execution of future innovations and development strategies. The company must continue to innovate market-leading products while expanding both their online and physical commerce businesses to ensure the competition is not given the opportunity to catch-up.

From an ESG perspective, Amazon must ensure their employees are better protected moving into the future to avoid negative social sentiment towards the company. Recent allegations of worker mistreatment and poor employment conditions have placed the company in hot water with pro-union social groups.

Mass-scale unionization of their warehouse and delivery workforce could harm short-term operating margins as wages and salaries would most likely increase. However, the long-term benefits of a workforce content with their positions would undoubtedly result in increased operational efficiencies.

Amazon’s current turnover rate for their delivery staff of eight months is incredibly short and suggests something is amiss in their employee management style. This could mean future hiring may become more difficult as the firm could fail to attract a younger, more socially conscious workforce.

AWS also harbors some more unique risks for Amazon due to the incredible amounts of data their servers process both on individual shoppers and their commercial customers. Ensuring the possibility of a cyber-security breach is mitigated should remain a top priority for the firm.

Summary

Amazon has had an incredibly impressive history from an investor standpoint. Their robust business fundamentals, borderline monopolistic foothold in the e-commerce segment combined with the capital necessary for significant growth has placed the company in an attractive position for potential investors.

Current share prices have left the company trading at a relative undervaluation to the company’s past and expected future value. The promise of strong cashflow generation combined with a diversified revenue generation portfolio should mean significant returns are on the horizon.

As a short-term investment, I believe there is some volatility in-store for the stock as negative sentiment combined with tricky macroeconomic conditions continue to dominate the marketplace. However, in the long-term I believe their undeniable position as a market leader places Amazon in the perfect position for a much-awaited rebound.


I will most likely begin building my position in Amazon once share prices hit the $82 mark. If you are looking for a blue-chip stock trading at discount prices, Amazon might just be a pretty good choice."

MY COMMENT

Keep in mind this is one person's opinion.....but much of this content makes sense. I continue to say....it is MANAGEMENT...that will be the key going forward. the above shows that all of the key pieces are in place for the company to remain dominant. The question is.....will the new management screw it up.

I will watch and wait for at least a couple of years and see how it all sorts out. This is too dominant of a company to sell anytime soon.

 

Yes......being a glaciar....when investing is a good thing.

Looks like Costco might have a good day to close out the week.

Stocks moving after hours: WWE, Costco

https://money.yahoo.com/stocks-moving-after-hours-wwe-costco-231337851.html

"Costco (COST)

Shares of the bulk retailer are moving more than 2% higher in after-hours following the release of December sales data. Costco's revenue last month came in at $23.8 billion, up 7% year-over-year. Total comparable store sales grew 5.5%, beating Wall Street expectations of 5%. Excluding gasoline and foreign exchange, comp sales increased 6.4%."

 

I like this little article.....with it's long term content.

How to be a better investor in 2023

https://www.cnn.com/2023/01/05/success/better-investor-2023

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

"If you’re planning to invest your hard-earned money in stocks, bonds and other assets this year, let humility be your guide.

After all, markets were rocked in the past three years by events few predicted: The pandemic. Several, sometimes violent, threats to democracy. Russia’s widely condemned invasion of Ukraine. The list goes on.

In response, stocks and bonds, which typically don’t move in the same direction, moved down in tandem in 2022, with both ending the year deep in the red. Crypto, meanwhile, imploded.
Some stock analysts, meanwhile, think tech stocks — which got hammered last year, sending the Nasdaq down more than 30% — may be in for a much better year.

As for real estate, there is no consensus. Economists and housing watchers predict everything from home prices growing by as much as 5% to prices falling 20% below their peak.

But whatever the prediction, don’t take it as gospel when it comes to managing your portfolio.


Instead, try this:

Have a plan

It’s hard to invest well for your life if you’re not clear about what you need and when you need it.

“It is imperative that individual investors first create a financial plan that outlines their goals and financial situation before they create or rebalance their portfolio,” said Taylor Wilson, a certified financial planner and president of Greenstone Wealth Management in Forest City, Iowa.

That means also being honest with yourself about how comfortable you are taking risks while also understanding that some risk is necessary to fulfill your longer-term goals — especially in a time of high inflation.

“Every well-diversified portfolio has winners and losers in it, but the key is taking on just enough risk to reach your financial goals,” Wilson said.

Ignore the noise

Whether 2023 is great or awful for stocks — or, more likely, both at different times — that shouldn’t sway your investing decisions.


“When it comes to success in investing, “It’s not about timing the market. It’s about time in the market,” Wilson noted.

The best way to prevent that is to have a simple, regular routine of putting away a certain amount of money each month across a diversified portfolio of stocks and bonds.

What a sensible portfolio might look like

If you have a reasonably long time horizon but not a huge appetite for risk, a balanced portfolio of stocks to bonds might suit you well in the next year.

Given recession concerns, Wilson noted that value stocks, which represent companies with strong fundamentals but are considered underpriced,tend to perform better during economic downturns. Theytypically pay ahigher dividend, maintain strong earnings and have a lower price-to-earnings ratios.

Higher-yielding bonds might also be an attractive option, Wilson said.

For those with a long time horizon and a high tolerance for risk, Wilson suggests looking for buying opportunities among stocks that have been hammered. “Look for good companies that have been oversold, and avoid companies that may not have the earnings or balance sheet to survive this possible downturn.”

And for those close to or in retirement, for whom preservation of assets is critical for the money needed in the next five years, he recommends creating a CD or bond ladder, since yields are at their highest levels in more than a decade.

Treat crypto with extreme caution

The crippling “crypto winter” of 2022 pushed bitcoin down nearly 65%last year. The stablecoin TerraUSD fell to just 2 cents, a 98% drop from the US dollar to which it was supposed to be pegged. Meanwhile, several key crypto platforms like FTX, Voyager and Celsius collapsed amid allegations of mismanagement and fraud.

Whatever your views of crypto’s long-term potential, it is still a very unregulated, uninsured space, which leaves individual investors highly vulnerable to losing their shirts when things sour. Don’t invest money you can’t afford to lose.

Certified financial adviser Ryan Sterling, founder of Future of You Wealth, advises his clients — who typically have at least $500,000 of assets in their portfolios — to keep their exposure to all crypto combined below 3% of their overall portfolio.

And if their exposure falls below their initial allocation, Sterling wants them to leave it be. “In other words, if bitcoin was 3% of a client’s allocation and [it fell to] 1% … I am advising them to … not rebalance back to 3%.”

Know your limitations

No matter how smart or well educated you are, you probably are not a great investor. Don’t worry – it’s not you, it’s your species.

That’s because humans easily fall prey to certain tendencies that can hurt their bottom line, according to behavioral finance expert Daniel Crosby.

Being stressed or elated, focusing more on negative information, assuming you know enough to pick a winner and preferring the familiar over the unknown can distort your investment decision-making.


But by acknowledging those tendencies and working around them you can negate their effect.

Here’s a fuller explanation about how those biases work to undermine you, and what you can do to counteract them."

MY COMMENT

Good basic food for thought for any long term investor.

 

A GREEN open today....but already starting to fade. this is relatively meaningless with the entire day ahead of us.

 

I like this little followup to the above.

To make money, avoid these common mistakes

https://www.cnn.com/2022/12/01/success/investing-biases-behavioral-finance/index.html

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

"No matter how smart or well educated you are, and no matter how successful professionally, when it comes to investing you still might not make the best decisions.

That’s because you’re human, which means you’re hardwired to respond in certain ways that serve you well in many parts of your life, but tend to work against you when it comes to making smart investment decisions, according to psychologist Daniel Crosby, author of “The Behavioral Investor.”

“Not only is high intelligence not an insulation [against bad financial decisions], it might be a red flag,” Crosby said.

But here’s the thing: If you’re aware of your mediocrity when it comes to the markets, it can actually help you be a better investor.

Based on decades of leading behavioral research, Crosbysaidinvestors easily fall prey to four inherent biases.But when you’re mindful of them you can take steps to either mute their effect, or harness them to your financial advantage.

1. Ego bias

Everyone has an ego. It protects us in many ways, in part by creating a sense of confidence – and often overconfidence – in our own abilities and judgments.

“Ego gets us out of bed in the morning,” Crosby said.

Those who become very sure of themselves are more likely to be resilient and find professional success. “People who are overconfident are often happier and more likely to be successful business people and politicians. And [a strong] ego can buffer us against setbacks, disappointment and loss,” he said.

But when it comes to investing, too muchself-confidencecan cost you real money.

For example, Crosby said, most of us would rather find information that confirms what we already believe rather than seek out information that challenges our beliefs. Hecitedresearch showing that even when presented with facts that directly contradict what we believe, thanks to our ego, we may become even more entrenched in those faulty beliefs.

One way this might play out when you’re investing is that you may feel sure that a given company or new asset class – like crypto – will win the future. So you throw a disproportionately large amount of money at your can’t-lose-idea.

But research suggests cherry-picking what you believe to be future winners in place of investing in the broader market may hurt your returns in the long run. Crosbycited statistics showing how active stock fund management performedless well than passive indexing more than 80% of the time over five- and 10-year periods. And that’s before accounting for the higher fees an investor pays for actively managed funds.

2. Conservatism bias

Investing always involves risk. But people’s desire to stick with the familiaror take the adage “invest in what you know” too far canactually increase that risk.

Crosby used an example of someone who works in the tech industry, buys a home in a tech hub like San Francisco and invests primarily in tech stocks. The upshot: Her financial prospects will be disproportionately dependent on the health of the tech sector because she is devoting most of her time and money to it through her job, her property and her portfolio. When the tech sector takes a hit, she could get clobbered financially.

Another way investors often default to the familiar is to primarily invest in US stocks in the belief that non-US stocks are too risky.

3. Attention bias

Humans tend to pay disproportionate attention to bad news or high-drama, low-probability events (e.g., shark attacks or planes flying into buildings). Both can distort our perception of risk.

What’s more, information overload – whether from data or research or news – can lead to misguided decisions because too much information makes it hard to see the forest for the trees, Crosby noted.

4. Emotion bias

Our emotions and intuition can protect us in some difficult situations, or they can help guide us. For instance,you might finally picka good partner after years of dating others who were never quite right for you.

But they can also cause us to act rashly in the moment, and override what we normally know we should do.

Think donuts, Crosbysuggested. You may have gotten all the nutritional counseling in the world, but under peak stress you will invariably reach for the powdered donuts, not the asparagus.

How emotion plays out in the markets can be costly. If your fear is activated, you can panic and sell at the wrong time. Or if you’re elated,your optimism may distort your sense of how much risk you’re really taking on with an investment.

Strategies to beat back our biases

Investors can seek to override their inherent biases in many ways, Crosby said.Among his suggested strategies:

Tune out the noise. Don’t check your investment accounts daily. Don’t fixate on every gyration in the market. Don’t drown yourself in metrics. And don’t let negative events disproportionately drive your investment decisions.

Have humility. You can’t predict the future. And you will never have perfect information to make a sure bet on a single stock or sector.

Diversify your holdings. Crosby put it this way in his book: “Diversification is … the embodiment of managing ego risk. [It]’s a concrete nod to the luck and uncertainty inherent in money management and an admission that the future is unknowable.”

For example, to counter so-called home bias in your investments, Crosby suggested you shouldn’t invest much more in domestic stocks than their percentage of the world market. Depending on how they’re measured, US equities represent anywhere from 45% to 60% of the global equity market. But average US investors typically have a much larger share of their equity holdings in US companies, and very little in foreign stocks.

Put a system in place. Automating your savings and investing across a diverse portfolio regardless of market conditions often works well. The same goes for automatically putting away a certain amount of savings for near-term goals and emergencies.

“It’s less about the perfect process and more about having a process,” Crosby said.

One example is the idea of “set it and forget it” with retirement savings. Employees who choose the option in their 401(k) plan to automatically increase their savings whenever they get a raise do better than if they have to make decisions every month about how much to save.

Use emotions to your financial advantage: One study Crosby citedshowed that low-income parents were likely to save twice as much money when they had an envelope earmarked for savings that has a picture of their children on it.

Realize no investment is perfect. Many people get their exposure to the stock market through their 401(k)s, specifically through target date funds that their employers offer as the default investment.

While target date funds have their critics, Crosby said, “Every investment is imperfect. … And [target date funds] are so much better for the average person than what the average person is doing.""


MY COMMENT

EVERYTHING in investing in some way or another comes down to investor BIAS. We all have varied lives and events in our lives....and we are all impacted in our investing by our habits, baggage that we carry, personality, genetic brain behavior, emotions, etc, etc, etc.

This is why....even after 50+ years of being an investor.....I STILL start out any new portfolio and keep in my old portfolio's a good chunk of the money in a SP500 Index Fund and......for me....Fidelity Contra fund. these two funds give me much needed diversification in my very concentrated portfolio. More importantly they serve as a balance to my inherent investor BIASES.

EVERY INVESTOR....must be aware of their own BIAS.

 

Poor TESLA.....they are currently being punished for every business decision.

Tesla stock falls 6% after company cuts prices in China

https://finance.yahoo.com/news/tesla-stock-falls-6-after-company-cuts-prices-in-china-140505801.html

MY COMMENT

Read if you wish. BUT.....I see this as a potential POSITIVE business decision. A company is smart to broaden their potential customer base. They are smart to try to grab more market share. If they can make these sorts of discounts and STILL make money on the cars......and achieve other business goals in the process......good for them. Pricing power is a good thing.

The media is currently negatively obsessive about this company. Jumping to the conclusion that this will be bad for earnings is simply a knee jerk reaction.

 

HERE are the markets so far today.

Stocks mixed after December jobs report

https://finance.yahoo.com/news/stock-market-news-live-updates-january-6-2023-125139275.html

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

"U.S. stocks charged forward Friday morning — then stumbled off of their highs — after December employment data showed strong job growth last month, while wages rose at a slower pace than expected.

The S&P 500 (^GSPC) advanced 0.6%, while the Dow Jones Industrial Average (^DJI) was up 0.7% as of 10:05 a.m. ET after each index jumped 1.1% at the open. The technology-heavy Nasdaq Composite (^IXIC) rose 0.3%. All three major averages were on pace to round out the first week of 2023 with losses unless Friday's gains hold and place the indexes in positive territory.

The Labor Department's final jobs report of 2022 showed the U.S. economy added 223,000 payrolls last month while the unemployment rate fell to 3.5%. Economists expected readings of 200,000 and 3.7%, respectively.

Employment has moderated in recent months, but hiring remains momentous despite the Federal Reserve’s efforts to quell a tight labor market that has placed upward pressure on wages and contributed to stubborn inflation.

"With over 1.8 unfilled jobs for every unemployed person, investors should expect higher rates for longer after today’s release," Lazard Chief Market Strategist Ron Temple said in a note. "As long as the labor market remains this tight, the Fed cannot rest assured that inflation will return to its 2% target."

In specific stock moves, beleaguered Tesla (TSLA) shares resumed their recent slide, falling 6.5% in morning trading after the electric carmaker slashed prices in China following a December drop in deliveries.

The starting price for Model 3 was cut to 229,000 yuan, or around $33,000, while prices on the Model Y have been lowered to 259,900 yuan, or $37,886, according to Tesla's website.

Elsewhere in markets, World Wrestling Entertainment (WWE) shares surged 13.5% after the company announced former chief executive Vince McMahon will return to explore a sale of the business. McMahon retired in July 2022 following a misconduct probe. The Wall Street Journal first reported the planned return late Thursday.

Bed Bath & Beyond (BBBY) slid another 24% Thursday morning after revealing in a statement the previous day that the company was exploring bankruptcy as it runs out of cash. On Wednesday, shares tanked 30% following the announcement.

Costco (COST) stock gained more than 5%, emerging from a six-month low after the bulk retailer released upbeat December sales data. Revenue last month came in at $23.8 billion, up 7% year-over-year, while total comparable store sales grew 5.5%, beating analyst expectations of 5%. Costco was Yahoo Finance's company of the year.

In commodities markets, oil prices steadied Friday morning after a gloomy start to the year that saw crude futures plunge nearly 10% this week. West Texas Intermediate (WTI) crude futures, the U.S. benchmark, were trading around $73 per barrel Friday morning.

Outside of the main monthly jobs report, a bevy of other labor market updates this week suggested hiring remains strong and job openings are still high. For investors, the figures suggested labor conditions remain tight enough for the Federal Reserve to keep raising interest rates, sending stocks lower.

In the previous trading session, all three major averages shed more than 1% after the ADP National Employment report showed private payrolls grew by 235,000 jobs in December, while filings for unemployment insurance fell to the lowest since September.


"Last year, it was the Fed versus the markets — they needed valuations to come down, they wanted equities to go down, they wanted bonds to go down, they wanted housing prices to go down — they got that," David Waddell, CEO of eponymous firm Waddell and Associates told Yahoo Finance Live on Wednesday. "This year, it's going to be the Fed versus employers, and what the Fed has told employers is, 'We're not going to stop until you fire two million people.'""

MY COMMENT

The obsessive negativity and obsessive second guessing every data point and every company decision continues in 2023. In other words....all is as expected and continues just like 2022 in the new year. that is how the......short term.....works. The long term filters out all that......"stuff".

 

That is a good little anecdotal report on hiring and jobs in companies that you are aware of Smokie. I am totally out of touch with that world since I have not worked in the business world since 1999.

 

GO MAN GO.....the markets are strongly up for now. I had to go out and do some running around and it is nice to come home to a booming market so far today.

On another topic......I did my MUSIC summary for my taxes a few nights ago. We did 82 shows last year. Pre-pandemic we would usually do about 100-120 per year. The pandemic really put a crimp on live music. Hopefully it will build back up from here. I know a lot of musicians that got pandemic benefits. I never applied since I did not need the money and was not willing to take money that might be better spend with others.

We have a couple of shows this weekend....one tonight and one tomorrow. The usual little 200 mile road trip on each one.

 

If you are interested in the opinions of a FED member on inflation and 2023....here you go....in his own words.

St. Louis Fed’s Bullard Presents “The Prospects for Disinflation in 2023”

https://www.stlouisfed.org/news-rel...esents-the-prospects-for-disinflation-in-2023

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

"ST. LOUIS – Federal Reserve Bank of St. Louis President James Bullard presented “The Prospects for Disinflation in 2023” (PDF) on Thursday at an event hosted by CFA Society St. Louis.

Bullard noted that GDP growth appears to have improved in the second half of 2022 and the labor market performance remains strong. Inflation remains too high but has declined recently, he added.

While the policy rate is not yet in a zone that may be considered sufficiently restrictive, it is getting closer, Bullard said. In addition, front-loaded Fed policy has helped market-based measures of inflation expectations return to relatively low levels, he continued.

“These factors may combine to make 2023 a disinflationary year,” Bullard said.*

GDP Growth Improves

“Real GDP growth now appears to have been stronger in the second half of 2022 than previously thought after puzzling readings in the first half of 2022,” Bullard said.

Third-quarter 2022 real GDP growth is now estimated to have been 3.2% at an annual rate, and fourth-quarter 2022 tracking estimates now suggest the economy grew at an above-trend rate as well, he said. Year-on-year growth is slowing, according to incoming weekly data, and the output gap remains positive, he noted.

“Perhaps the best interpretation is that real GDP growth is slowing to be in a neighborhood just below the potential growth rate of about 2% on a year-on-year basis after stellar growth in 2021,” Bullard explained.

Labor Market Performance Remains Strong

In discussing the performance of the labor market, Bullard noted that the number of job openings per unemployed worker remains at a high level and that unemployment insurance claims in 2022 generally remained at levels below those experienced during pre-pandemic years.

“Viewed in historical perspective since the 1980s, the current labor market situation is unprecedented, with measures of labor demand significantly exceeding measures of labor supply,” he added.

Inflation Remains Too High but Has Declined Recently

Bullard noted that the Federal Open Market Committee (FOMC) has a 2% inflation target specified in terms of headline personal consumption expenditures (PCE) inflation. Headline inflation has declined, but it can be inordinately influenced by fluctuations in energy and food prices, he said.

Measures of inflation that strip out volatile price movements, such as core PCE inflation and the Dallas Fed’s trimmed mean inflation measure, have also declined but by less than the headline measure, he explained.

He also noted that inflation expectations are back to relatively low levels.

“In part due to front-loaded Fed policy during 2022, market-based measures of inflation expectations are now relatively low,” Bullard said. “According to standard macroeconomic theories, inflation expectations are a key determinant of actual inflation.”

Policy Rate Is Closer to Sufficiently Restrictive

Bullard then discussed an updated version of a chart developed for a talk he gave in November. The chart shows a zone for one conception of a “sufficiently restrictive” policy rate, along with the actual level of the policy rate. The policy rate isn’t yet in this zone but is getting closer, he noted.

“It now appears that the policy rate will move into the sufficiently restrictive zone during 2023,” Bullard said.

2023: A Year of Disinflation?

Bullard said the real side of the economy seems to indicate GDP growing faster than previously thought during the second half of 2022 plus a labor market with unemployment below its longer-run level. “A natural forecast is that the pace of quarterly growth will now moderate and unemployment will rise to return to its longer-run level,” he continued.

Bullard noted the FOMC has taken aggressive action during 2022, with ongoing increases in the policy rate planned for 2023. This action has returned inflation expectations to a level consistent with the Fed’s 2% inflation target.


“During 2023, actual inflation will likely follow inflation expectations to a lower level as the real economy normalizes,” he said.

*Note: Disinflation refers to a decrease in the rate of inflation toward the Fed’s 2% inflation target."

MY COMMENT

I dont see that the FED has achieved much at all.....but I do like the tone of the above. The economy will continue to normalize regardless of the FED.

 

WOW....yes the are. Costco at this moment is UP by $31.85 per share.

I was at one of their stores yesterday and it was packed.

 

Treasury yields are important to the rally today......the lowest yields in 2023.......but, come on.....we are only into the year by...FOUR days.

Treasury yields plummet after signs of broadening weakness in economy

https://www.marketwatch.com/story/t...weakness-in-economy-11673026675?siteid=yhoof2

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

"Friday’s raft of U.S. economic data produced a cascading drop in rates across the Treasury market, pushing the policy-sensitive 2-year and benchmark 10-year yields to their lowest levels of the new year.

The 2-year yield TMUBMUSD02Y, 4.274%, which moves in coordination with expectations around the path of Federal Reserve policy, plummeted 15 basis points to below 4.3% after December’s U.S. jobs report included signs of slowing wage growth. The 10-year rate TMUBMUSD10Y, 3.554% reacted about 90 minutes later, dropping below 3.6% after a barometer of U.S. business conditions at service-oriented companies sank last month. Those moves were then followed by the 30-year rate TMUBMUSD30Y, 3.681% plummeting to around 3.7%.

Taken together, Friday’s data gave the financial market reasons to hope that disinflationary forces are on the horizon and the world’s largest economy is slowing by enough that the Fed can shift away from its focus on combating inflation through rate hikes. The 2-year yield was on course for its biggest one-day drop since November and trading near levels last seen on Dec. 21. Meanwhile, fed funds futures traders boosted their expectations for a smaller-than-usual 25-basis-point rate hike in February and March — as well as for rate cuts toward the end of this year — though the market and policy makers have long been at odds over the appropriate direction of monetary policy.

“The payroll number was good for the front end” of the bond market — producing demand for shorter-term government debt that pushed down the 2-year yield — “because the wage number was pretty benign,” said Tom Graff, head of investments at Baltimore-based Facet Wealth, which oversees $1.5 billion.

“But the services report was a bigger deal,” Graff said via phone. “There had been a thesis out there that while goods spending was weakening, services spending was still strong — and this flies in the face of that. This is pretty strong evidence that companies on the services side of the economy see weakness and, if that’s true, points to broader weakness in the economy.”

The bond market, usually one of the first places in the financial market to size up the most likely outlooks for the economy and the trajectory of Fed moves, has been vacillating between two narratives. Only a day ago, traders were at least willing to reconsider the possibility that the Fed’s main policy target could get above 5% by March. Now, they see fresh reasons to doubt the Fed will be able to keep rates high, with Friday’s economic data only reinforcing the narrative that policy makers will be forced to pivot and cut rates toward the end of the year.

That’s the case despite more comments from Fed officials on Friday to the contrary. Federal Reserve Gov. Lisa Cook said, “Inflation remains far too high, despite some encouraging signs lately, and is therefore of great concern.” Her colleague Raphael Bostic told CNBC the central bank needs to stay the course and that December’s jobs report didn’t change his view on monetary policy.

Bonds rallied even with the robustness of December’s payrolls report, which showed the U.S. created 223,000 new jobs, because traders were more focused on the modest rise in hourly earnings last month and slowdown in wage increases over the past year, according to head trader John Farawell with Roosevelt & Cross, a bond underwriter in New York. Hourly pay rose a modest 0.3% in December, while the increase in wages over the past year slowed to 4.6% from 4.8% — numbers which produced a rally in both bonds and equities.

As of Friday afternoon, rates on 6-month bills through 30-year Treasury bonds were all lower, led by a 21-basis-point drop in the 3-year rate. Meanwhile, all three major U.S. stock indexes were high, as the Dow Jones Industrial Average DJIA, 2.26% jumped more than 560 points or 1.7%.

“In general, we’ve been in an environment where good news is bad news for markets, and bad news is good news,” said EY Parthenon Chief Economist Gregory Daco, based in New York.

“The markets’ reaction likely indicates the belief the Fed may need to be less hawkish than previously thought, and that we are in an environment in which wage pressures are easing and the Fed can step off the ledge of large incremental increases in the fed-funds rate even if policy makers will not back down on their hawkish rhetoric,” Daco said."

MY COMMENT

MY VIEW is these low rates after the extensive rate hikes by the FED shows that the FED has done nothing. BUt....I am always happy to see these Treasury rates down....it usually means a good day in the markets.

 

A BRILLIANT day in the markets today......and....an EXCEPTIONAL end to the week. COURAGE and ENDURANCE won out this week.

ALL ten of my stocks were UP in the green today. PLUS......a nice beat on the SP500 on a big day by....0.76%.

COSTCO shined today with a gain of over $32 per share. A great start to 2023 and a great end to the short, first week of the year.

 

For the week and the year.

DOW year to date +1.46%
DOW for the week +1.51%

SP500 year to date +1.45%
SP500 for the week +1.47%

NASDAQ 100 year to date +0.93%
NASDAQ 100 for the week +0.97%

NASDAQ year to date +0.98%
NASDAQ for the week +1.02%

RUSSELL year to date +1.79%
RUSSELL for the week +1.76%

ALL......the averages are now......YTD.....positive. This might be the first time this has happened in a year. I dont know if this was ever the case in 2022......I dont remember it being so. We are off to a GREAT start to the new year....even though the markets are still very erratic and very tentative.