The Long Term Investor

YES......some times the short term markets are simply IRRATIONAL. That is happening right now as the recent good earnings are being IGNORED. Money in the bank going forward.

SO I simply.......continue to be fully invested for the long term as usual.

 

HERE is a perfect example of the fact that you do not have to take wild risk in investing.

I own all the BIG TECH names.....MSFT, AAPL, GOOGL, AMZN, NVDA. YET......the second largest holding in EVERY account that I own or manage is......COST.

This company has been a WORKHORSE for me. Great management and a great business model. Really superb employees. A perfect company to own for the long term and reinvest all dividends and special dividends and simply let it compound over time. They are not sexy....they do not talk about AI.....they simply perform.

 

I see that NIKE is giving us all and the markets the middle finger today. With most of the darling stocks of the tech world down today.....and in spite of all the bad mouthing of NKE on here lately......of course, they are UP today.

Do I care.....NOPE. Do I anticipate buying this stock in the future.....probably not. I would need to see new management and a change in the company culture. Not to mention new and exciting products.

I also think NKE has a real issue with their endorsement programs. The professional athletes they depend on to drive sales are.....in my view....losing their connection to real people and their ability to drive sales.

 

I have talked about CISCO on here a few times. I invested in the stock back in the 1990's. When the dot-com collapse started I held onto that company since I thought they were significant enough to be somewhat immune to the carnage. My initial investment in the company was $25,000. I rode the wave on the stock up to a high of about $250,000. I continued to ride the wave all the way back down and when I finally got rid of the stock it was back at about $25,000.

What Cisco Teaches Us for Today’s AI Darling, Nvidia

https://www.wisdomtree.com/investme...cisco-teaches-us-for-todays-ai-darling-nvidia

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

"Nvidia’s recent meteoric rise evokes memories of Cisco’s ascent during the dot-com era.

Both were tech behemoths powering significant technological shifts.

Both companies represented the heartbeats of transformative technological revolutions.

In the late ’90s and early 2000s, Cisco was more than just a tech giant; it was the backbone of the burgeoning internet. As the world began to realize the internet’s potential, Cisco’s routers and switches became indispensable, turning digital dreams into tangible realities. Its hardware served as critical infrastructure in the foundation of the modern internet.

Similarly, Nvidia, initially renowned for its prowess in graphics processing units (GPUs), has positioned itself at the forefront of another digital paradigm shift: artificial intelligence (AI).

AI, with its vast applications ranging from data analysis to autonomous vehicles, requires intense computational power. Nvidia’s GPUs have been repurposed beyond mere gaming and now power the computations behind the most advanced AI applications.

Figure 1: Price-to-Sales (P/S) Ratios of NVDA and CSCO Reaching Similar Levels at Their Peaks



At their peaks, both companies commanded towering valuations, captivating investors with seemingly boundless growth potential.

However, as the tech landscape evolved, Cisco had to face competitors like Arista, Brocade and Juniper as they emerged.

These up-and-comers demonstrated rapid sales growth, often outpacing Cisco post the dot-com bubble. While Cisco’s sales growth since 2003 was 5.15% per year, Juniper and Brocade grew at 12.08% and 10.15%, respectively. Arista, since 2015, reported an impressive 28.34% annual sales growth.1

For Nvidia investors today, recent news might bring some doubts that it can keep its dominating market share and, therefore, also sustain its sales growth long term.

Advanced Micro Devices (AMD) plans to release its MI300X chip later this year, a direct competitor to Nvidia’s chips. It will likely not eat into much of Nvidia’s market share but still signifies increasing competition and an adapting landscape. AMD also plans to invest around $400 million in India over the next five years, building its largest design center in the tech hub of Bengaluru.2

Intel, another formidable player in the chip industry, recently announced a massive €80 billion investment across Europe over the next decade, with a significant portion dedicated to building semiconductor manufacturing facilities in Germany.3

These moves are expected to bolster AMD and Intel’s presence in the AI chip market, directly challenging whether Nvidia’s dominance can translate to other parts of the globe. While Nvidia currently holds a dominant position in the AI GPU market, its competitors are strategically positioning themselves to challenge this dominance, especially in regions where Nvidia’s influence is still growing.

Just as Cisco faced stiff competition from emerging players in the early 2000s, Nvidia must now navigate a landscape where its competitors are making significant inroads in new markets.

Figure 2: Sales Growth of the S&P 500, Tech Sector and Cisco since March 2000



Even against the competition, though, Cisco’s status as a tech titan was undeniable, and it was even able to maintain an annual sales growth rate of 9.9% for the decade after it reached its peak P/S valuation in March 2000—almost triple the markets at 3.4%.

Over the next 22 years, Cisco’s sales growth slowed, and it currently stands at about 6.2% annually, which is still much higher than the market’s 4.2% and the Tech sector’s 5.4% annual sales growth.

However, despite strong growth and continued, albeit shrinking, market dominance, its stock has still not recovered to its early-2000 highs.

Another factor that contributed to Cisco’s downfall was its misjudgment of demand and supply dynamics.

In the early 2000s, Cisco was overly optimistic about the continued growth of the internet and its role in it, even when competitors and suppliers started to lower their growth estimates. This optimism led it to place large orders with its contract electronics manufacturers (CEMs) since, at the time, it had more orders coming in than it could fulfill, expecting that the future demand would hold. However, as the dot-com bubble burst and the industry’s growth forecasts started to decline, Cisco found itself in a precarious position.

Its CEMs, which benefited from extra production regardless of the demand, had ramped up production. But with the slowing demand, Cisco was left with an excess supply. This miscalculation culminated in a massive $2.25 billion inventory write-down in 2001.4

Fast forward to today, and Nvidia is echoing a similar sentiment, claiming that chip manufacturers can’t keep up with the soaring demand for its products.

The August 2023 UBS Nvidia report stated that the demand for these chips is outpacing supply by “at least 5–10x.” While the AI boom is undeniable, the tech landscape is rife with uncertainties, and extra concerns arise regarding the uncertain future economic environment, as well as new competition. If Nvidia’s forecasts fail to account for all these factors in this volatile environment, it could find itself in a similar situation as Cisco. As history has shown, even tech giants aren’t immune to the repercussions of such miscalculations.

Figure 3: Return for S&P 500, Tech Sector and Cisco from February 1990, Normalized at Vertical Line or March 2000 (Maximum P/S Valuation for Cisco)



The aftermath of Cisco’s dot-com era peak is a testament to the fact that groundbreaking innovation isn’t the only key to sustained success in the tech world.

Beyond the products and services, it’s also important to accurately gauge market demand, navigate shifting dynamics and anticipate competition. While Cisco was a staple company in the internet’s early days, its difficulty approaching its all-time high more than 20 years ago proves the importance of these market nuances.

The Tech Titans of March 2000

While Nvidia mirrors Cisco in various facets, broadening our lens to encompass the top tech stars of March 2000 might offer further insights. These were the businesses at the epicenter of the dot-com frenzy, bearing valuations that mirrored the unbridled optimism of the age. What became of them, and what does that spell for Nvidia?

Figure 4: Subsequent Returns and Sales Growth for Largest 20 Tech Stocks + Amazon in 3/2000



Only two companies from the largest 20 tech stocks in 2000 outperformed over the next 20 years: Microsoft and Amazon. Microsoft delivered nearly 10% sales growth a year for two decades, while Amazon delivered nearly 30% a year.

One potential explanation for this is that these companies are so large, and their income is well diversified, protecting them from sudden shifts in competitive landscapes destroying their value. They are also the two leaders in public cloud computing infrastructure.

While Microsoft and Amazon’s diversified income streams have made them more resilient, Nvidia appears to be navigating narrower straits. Nvidia’s most recent income statement shows that its $26 billion income comes mainly from two product segments, around $15 billion from computing and networking and $11 billion from graphics.5

Figure 5: Nvidia Sales by Country



This dependence on a few main drivers becomes more apparent in figure 5, which shows that a significant chunk—almost half—of its revenue is rooted in China and Taiwan. Such a concentrated revenue stream, especially from regions embroiled in intensifying geopolitical tensions, brings into sharp focus the potential geopolitical risks and exposure to China that is intrinsic to an Nvidia investment.

In figure 6, even the losers on the list more than doubled the sales growth of the S&P 500 over the coming 10- and 20-year periods. But the high starting valuation was an anchor and dragged down their future returns.

Figure 6: Averages for Largest 20 Tech Stocks + Amazon on 3/2000 Bucketed by Relative Performance to Market



These narratives remind us that leading in innovation doesn’t guarantee perpetual success. For Nvidia, the task ahead is twofold: to fend off rising competitors and accurately anticipate the evolving market landscape. Remember, competitors can be other chip players like AMD, or they can be large companies venturing into designing their own customized chips. The market, in general, is not in favor of a single supplier of AI computational power.

For investors, it’s a reminder to stay grounded and look beyond the present hype to consider the long-term viability of success for a stock at such high valuations."

MY COMMENT

Some good food for thought here. Look at that list of the 20 top tech companies in 2000. The majority did NOT end up how people expected......now that we are 23 years down the road.

I did own CSCO back in the 1990's up to the dot-com crash. It was a dominant company.....but....not in the same category as MSFT back than. It was certainly considered a dominant company.......but..... Microsoft was in a class by itself.

BUT the lesson here is......if NVDA goes up like a rocket for some period of years......it is important to realize that these things do not last forever in the tech world. It is never a bad thing to take profits or at times diversify profits into other holdings. The trick of course is TIMING......something that is nearly impossible for humans. Remember even the MONSTER company of that era....Microsoft......fell on hard times for at least a decade or more before the current management took over.

 

A little more food for thought.

August once again lives up to its dismal reputation for stocks

https://www.cnbc.com/2023/08/24/aug...eputation-as-a-downbeat-month-for-stocks.html

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

"Key Points

• The S&P 500 is down more than 3% this month, on pace to snap a five-month advance.
• The broad market index is also on track to post its worst monthly performance since December — when it lost 5.9%.
• But this behavior at this time of the year isn’t out of character.

Wall Street is really suffering through the dog days of August.

The S&P 500 is down more than 3% this month, on pace to snap a five-month winning streak. The broader market index is also on track to post its worst monthly performance since December, when it lost 5.9%.

The Nasdaq Composite is also headed for its biggest one-month loss since December, falling 5.2%. The Dow Jones Industrial Average has declined 3% in August.

These pullbacks are a contrast to the market rally seen earlier this year. The Nasdaq Composite had its best first-half performance in 40 years in 2023. The S&P 500′s gains over the first six months of the year marked the index’s best start to a year since 2021.

There are several things pressuring Wall Street now, ranging from seasonal factors to concerns about the global economy and the Federal Reserve. Here’s a breakdown.

August — historically a tough month

This behavior at this time of the year isn’t out of character.

Over the past 10 years, the S&P 500 has averaged a gain of just 0.1% for August — making it the third-worst month for the index, CNBC Pro analysis of seasonal trends showed. Go back 20 years and the performance gets worse: The S&P 500 has averaged a monthly 0.1% loss in that time.

There are several reasons the market tends to see lackluster performances this month, including:

• Lower trading volumes: Trading tends to decline in August as traders and investors go on vacation before the summer ends. This can lead to more volatile swings in prices.
• Booking profits before September: While August is a tough month for Wall Street, it has nothing on September — historically the worst of all months for the market. The S&P 500 has averaged a 0.5% loss in September over the past 20 years. Over the past 10 years, the S&P 500 has fallen an average of 1% each September.

“The S&P 500 continues to track its seasonal tendency,” Oppenheimer technical strategist Ari Wald wrote earlier this month. “For S&P 500 levels, we see 4,400 as the start of support (50-day average) that extends down to 4,200 (Feb. peak).”

China’s struggles

Economic data out of China has been lackluster, to say the least. The world’s second-largest economy earlier this month reported much weaker-than-expected retail sales growth for July, while industrial production also rose less than expected.

A slowdown in China’s economy could spell trouble for markets around the world, including the U.S., given the sheer number of major corporations that rely on the country as a strong source of revenue.

Additionally, concerns over another real estate crisis in China are developing. Heavily indebted Country Garden Holdings fell to a record low and was removed from the Hang Seng stock index in Hong Kong. Evergrande, another Chinese real estate giant, filed for bankruptcy protection in the U.S. last week. All this led the Chinese central bank to cut interest rates this month.

“The country needs a good U.S.-style restructuring of its real estate market, where apartment prices are slashed, debt is restructured, and new equity investors are brought in as grave-dancers,” Ed Yardeni of Yardeni Research said in a note earlier in August. “Until then, we’re left watching the wreckage unfold.”

Higher Treasury yields

Another source of market pressure this month has been concern that the Fed will keep its benchmark lending rates higher for longer than anticipated. Earlier this week, that drove the 10-year Treasury note yield to its highest level since 2007.

In a summary from its July meeting, the Fed noted that central bank officials still see “upside risks” to inflation — which could lead to more rate hikes. Specifically, the central bank said: “With inflation still well above the Committee’s longer-run goal and the labor market remaining tight, most participants continued to see significant upside risks to inflation, which could require further tightening of monetary policy.”

This all comes as new data appears to show inflation is moving closer to the Fed’s 2% target. The consumer price index, a widely followed inflation gauge, rose 3.2% in July on a year-over-year basis. That rate is well below last year’s pace, when CPI peaked at 9.1%, the highest in 40 years.

Investors will get more clues on the potential for future Fed tightening on Friday, when Chair Jerome Powell delivers a speech at an annual economic symposium in Jackson Hole, Wyoming."

MY COMMENT

A little 3-5% drop is not a big deal. But the question is where are we headed short term over the rest of the year?

 

Today......a wasted and dismal day for the markets. Even with the NVDA earnings....the stock ended basically where it was before earnings.

I was in the RED of course. Everything down except for the extremely slight gain in NVDA. I also got beat by the SP500 by 0.02%.

What a waste of a big earnings BEAT.

 

LOL....it is amazing how often the old sayings from the Wall Street past are accurate. "Buy the rumor....sell the news". Seems to be operating perfectly with NVDA.

BUT....since typing this it has gone positive.

 

I have to go car shopping today so I might not be posting much....at least early in the day. Here is the market open.

Stocks rise as investors await Powell’s Jackson Hole speech

https://www.cnbc.com/2023/08/24/sto...powells-jackson-hole-speech-live-updates.html

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

U.S. stocks rose Friday as Wall Street looked toward Federal Reserve Chairman Jerome Powell’s Jackson Hole speech.

"The Dow Jones Industrial Average gained 183 points, or 0.5%. The S&P 500 gained 0.4% along with the Nasdaq Composite.

Disney and Boeing led the Dow higher, while the S&P 500 energy sector outperformed.

The Jackson Hole Economic Symposium in Wyoming brings together central bankers and key financial officials from across the world. During last year’s gathering, stocks fell following Powell’s hawkish speech. The chair used the forum to warn of “some pain” ahead in the battle against inflation.

This year, the event’s stated topic is a focus on “structural shifts in the global economy.”

“As always, investors will be parsing comments from Powell and others about the likely road ahead — mainly whether interest rates may remain at relatively high levels for an extended period of time, even if inflation continues to decline from current levels,” said Zachary Hill, head of portfolio strategy at Horizon Investments.

The strategist believes any market volatility resulting from Powell’s comments, which begin Friday at 10:05 am ET, will be short-lived.

“We expect volatility and position adjustments around events like Jackson Hole, but we broadly view the recent action across equities and fixed income as more of a healthy correction than a new trend,” Hill said.

Wall Street is coming off a downbeat session, with the S&P 500 and Nasdaq failing to hold an early rally sparked by strong Nvidia earnings. Both benchmarks had their biggest one-day losses since Aug. 2, while the Dow suffered its biggest pullback since March.

Despite Thursday’s declines, both the S&P 500 and Nasdaq are holding on to weekly gains of 0.2% and 1.3%, respectively. If the two averages manage end the week in the green, they would break a 3-week losing streak."

MY COMMENT

At least we get this out of the way early......10:05ET. Than we can move on to an orderly close to the week at the end of today. This emphasis on the FED is just INSANE.......but.....what can you do.....NOTHING.