The Long Term Investor

LOL.......I'M BAAAAAAAAACK.

Looks like the NSDAQ has improved some. I actually have a stock UP....GOOGL.

I really dont see much real belief in the drop today in the markets. There is really nothing causing the drop today. It is just an overreaction to....nothing. Fear based on fear itself.

A classic overreaction.....and.....a reflection of traders, speculators, and those that are not long term taking their profits in NVDA prior to earnings. Probably a good idea if you are short term regarding the stock. It will be nearly impossible for earnings to meet expectations....even if they are BLOW OUT.

 

I am slowly improving today.....I now have three stocks UP today....HD, COST, and GOOGL.

Looks like the market finally woke up to the fact that the HD earnings were a BEAT. Plus the guidance is in reality....pretty positive.

Considering the open today....if I can end the day with 3-5 stocks in the green......I will be happy....even if I have a loss.

NO.....I have not sold anything....and....I continue to be fully invested for the long term as usual.

 

So glad that I closed out my little PLTR momentum trade and took my 104 FREE SHARES. I tend to do well on these sorts of trades over the years when I do them.....but....I am not cut out to be a trader.

Since my shares were basically FREE....I still have a good gain in spite of the over 5% drop today.....to a price well below where I sold out of the trade.

In this sort of trade....I tend to be a little jumpy about taking a positive exit point.....and cashing in. I might leave a bit of money on the table....but....I hate to lose. I am definately adverse to GREED in this sort of situation. In the end....it is a good thing. It is also a good thing that I only do this sort of trade.....once in a rare while.

 

OK....I am happy to end the day with three stocks in the GREEN. I had a nice solid LOSS today. The three positive stocks....HD, COST, and GOOGL. I also got beat by the SP500 today by 1.17%.

At least with the ridiculous gain that I have year to date....I have some room to give back money.

 

I expect that tomorrow will be another potential hostile day for investors. The NVDA earnings after the bell will be the primary market freak-out during the day. I have no clue what the earnings will be....I dont even try to guess.

The question will be........did the stock drop enough in anticipation of earnings to have some market strength on Thursday or Friday?

 

MEANWHILE.....back in reality.

Wall Street thinks stocks have room to run even higher than originally thought

https://finance.yahoo.com/news/wall...higher-than-originally-thought-193020903.html

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

"The high-water mark for Wall Street's S&P 500 (^GSPC) predictions has moved up yet again.

The benchmark index has hit new record highs to kick off 2024. The surge in stocks has alreadyput the S&Pabove the average Wall Street strategist year-end target less than two months into the year. And now, two strategistsare boosting their projections for how far stocks can run in 2024.

Last week, Goldman Sachs boosted its year-end target from 5,100 to 5,200. On Tuesday, UBS also boosted its target. The UBS Investment Bank equity strategy team led by Jonathan Golub now sees the S&P 500 ending this year at 5,400, up from a prior call of 5,100. This reflects nearly an 8% increase from Tuesday's opening price.

"Despite our bullish outlook, it appears we were not bullish enough," Golub wrote.

Both Goldman Sachs and UBS expressed a more upbeat outlook for corporate earnings this year than previously forecast when describing why they see further upside in stocks.

Their new predictions come as earnings for S&P 500 companies are now expected to grow 3.2% in the fourth quarter, up from a 1.9% projection a month ago, per FactSet. For the full year 2024, analysts project the S&P 500 will grow 10.9%.

In a research note boosting the bank's S&P 500 projection on Feb. 16, Goldman Sachs chief US equity strategist David Kostin wrote earnings growth will be "the primary driver" of remaining upside for stocks during 2024.

Kostin noted that the more upbeat outlook on earnings stems from "upgraded outlooks on US economic growth and mega-cap profit margins." Specifically, Goldman's call on earnings growth stems from megacap companies.

In the past three months, earnings estimates for the "Magnificent Seven" tech stocks — Apple (AAPL), Alphabet (GOOGL, GOOG), Microsoft (MSFT), Amazon (AMZN), Meta (META), Tesla (TSLA), and Nvidia (NVDA) have increased by 7%. Meanwhile, margin expectations have been revised up 86 basis points. This contrasts trends seen across the other 493 stocks, which have seen a downward earnings revision of 3% and 30 basis point downward revision in margins.

This leads Goldman to believe the Technology (XLK) and Communication Services sectors (XLC), which include five of the seven Magnificent Seven stocks, will lead the earnings growth in 2024.

"We expect demand drivers including AI growth and consumer strength will support revenue growth in these sectors, while margins will continue to expand as these companies focus on operating efficiency," Kostin wrote.

He added: "The rest of the S&P 500 should also improve margins in 2024, but to a much smaller degree."


Goldman Sachs projects an outsized portion of the S&P 500's net profit margin growth in 2024 to come from two sectors: Information Technology and Communication Services. (Goldman Sachs Global Investment Research)
Of course, there are still many risks to the stock market rally. One that has weighed on stocks in recent days is the prospect of sticky inflation. Stocks sold off on Feb. 13 in reaction to a hotter-than-expected inflation report that sparked fears that the Federal Reserve may not cut interest rates as soon as hoped.

But UBS'sGolub points out that sticky inflation might not be all bad for corporates.

"Returns and profits are measured in nominal dollars. Put differently, higher inflation tends to be a positive for stock prices," Golub wrote. "While the market sold off on more robust [Consumer Price Index] and [Producer Price Index] reports last week, our work indicates that these demand-driven readings are constructive for future returns."


A graph from UBS shows that "earnings benefit from higher inflation." (UBS Investment Bank)"

MY COMMENT

Looks like these estimates are pushing toward my 2024 prediction. I think I predicted either 5400 or 5500. Personally....I am now going to say....5800.

 

As to earnings.....clearly strong this time around....WELL DONE.

EARNINGS INSIGHT

https://advantage.factset.com/hubfs...k/Earnings Insight/EarningsInsight_021624.pdf

"Key Metrics

 Earnings Scorecard: For Q4 2023 (with 79% of S&P 500 companies reporting actual results), 75% of S&P 500
companies have reported a positive EPS surprise and 65% of S&P 500 companies have reported a positive revenue
surprise.

 Earnings Growth: For Q4 2023, the blended (year-over-year) earnings growth rate for the S&P 500 is 3.2%. If
3.2% is the actual growth rate for the quarter, it will mark the second-straight quarter that the index has reported
earnings growth.

 Earnings Guidance: For Q1 2024, 59 S&P 500 companies have issued negative EPS guidance and 26 S&P 500
companies have issued positive EPS guidance.

 Valuation: The forward 12-month P/E ratio for the S&P 500 is 20.4. This P/E ratio is above the 5-year average
(19.0) and above the 10-year average (17.7)"

MY COMMENT

A GREAT earnings reporting season this time around so far. ALL the numbers above look good to me. BUT...I give no credence to the guidance numbers.....I prefer to wait for reality.

 

Well ZUKODANY....I agree about business.

I found as a business owner that two things were critical. First the ability to project and see the future....realistically....in your head and thinking. An ability to see out up to five years or more in terms of managing business finances. Second....the ability to simply do the same thing over, and over, and over.....once you hit on a winning formula.

As a business owner I had really good ability to....VISUALIZE and PROJECT from the present to the future.....accurately.

 

I like the philosophical issues in this little article.

Questions

https://alhambrapartners.com/2024/02/20/weekly-market-pulse-questions/?src=news

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


"Reports that say that something hasn’t happened are always interesting to me, because as we know, there are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns—the ones we don’t know we don’t know. And if one looks throughout the history of our country and other free countries, it is the latter category that tends to be the difficult ones.

-Donald Rumsfeld, 2002

It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.

– Mark Twain, Josh Billings, and/or several other people you’ve never heard of

I saw the Rumsfeld quote again recently and it got me to thinking (as many things do). In investing, do we really have known knowns, things we know we know for sure? There are certainly known unknowns and unknown unknowns (black swans) but do we really know anything for sure when it comes to investing? I’ve been doing this for 30 years and so many things have happened that never happened before or weren’t supposed to happen during my career that I’ve come to believe that we don’t know anything for sure.

2 years ago, we knew that an inverted yield curve was an omen of recession. Now, not so much. Maybe the recession signaled by the inverted curve is just around the corner but we don’t know that either. I’ve seen a number of research reports recently that now that the real yield curve (rates adjusted for inflation) has inverted that the recession could come soon. How soon? Well, in the past recession followed an inverted real yield curve by between 7 and 27 months. If you think that is nigh on to useless as a recession indicator you are correct.

In June of 2022, Larry Summers said:

We need five years of unemployment above 5% to contain inflation — in other words, we need two years of 7.5% unemployment or five years of 6% unemployment or one year of 10% unemployment (to bring inflation down). There are numbers that are remarkably discouraging relative to the Fed Reserve view.

That was a very conventional view of how to reduce inflation. I’ve had someone tell me repeatedly over the last couple of years that for inflation to come down, unemployment had to go up. When I asked why he just said, well that’s the way it’s always been – recession kills inflation. And yet, here we are with inflation almost down to the Fed’s target and unemployment is up from 3.4% all the way to 3.7%. Turns out it doesn’t take a recession to kill inflation. One more thing we knew for sure that just wasn’t so.

The only things we know for sure in investing are the things we can directly observe. I can tell you that the 10-year Treasury yield is in an uptrend that started in the summer of 2021. I can also tell you that the rate is essentially unchanged since October of 2022, roughly 16 months ago. I can also tell you that the dollar is unchanged over the last year and that, despite some ups and downs, it is essentially unchanged since May of 2022 but that, despite that, the long-term trend is still up. The movements of interest rates and the dollar are, at least in my opinion, the most important information for investors to track. You can’t predict either one but you can at least observe the present trend and act accordingly. And by accordingly, I mean based on how markets have performed in the past when similar conditions prevailed. That isn’t a crystal ball though because things didn’t always act the same in the past and certainly won’t in the future. The fact that value stocks have performed better in a rising dollar environment in the past does not mean they always did or that they always will. But given a choice, if you know that 2/3 of the time in the past, value stocks rose with the dollar, that’s the bet you make.

But most things can’t be observed in real time and can’t be predicted even though they may have a large impact on your portfolio. These are the known unknowns and there are a lot of them today. I think it is important to ask ourselves, on a regular basis, about these known unknowns, to make a list of things for which we are awaiting answers. That way we can, hopefully, know what to do when they are resolved. Here’s my list:

• Do high stock market valuations today indicate lower future returns or higher earnings growth than currently anticipated by analysts? US stock markets are highly valued today with large-cap stocks the most expensive at around 20 times expected 2024 earnings. We know that stock prices track earnings – with some variations around the trend – so are stocks telling us that we’re being too pessimistic about earnings? If so, why? Is the productivity surge we saw over the last year sustainable? Or do high valuations today just mean that a lot of future returns have been realized in the present?
• Is inflation dead or just taking a nap? Inflation has fallen rapidly toward the Fed’s 2% target but we don’t know that it will get there or stay there. There are a number of factors that will determine the outcome. I’ve written about them in a couple of longer-form articles you can download on our site: Dawn of a New Era and The Times They Are A-Changin’. Demographics will play a large role and I don’t agree with the consensus that an aging population means deflation; no we’re not all turning Japanese. I suspect that the Fed’s 2% inflation target is going to be more like a floor rather than the ceiling it has been for so long. If I’m right and inflation is more volatile – and generally rising – in the future, bonds are going to have a tough time. If I’m wrong, it’s ZIRP and QE here we come.
• Will commercial real estate be the catalyst for a financial crisis? That is a popular belief but one that I don’t share. Yes, there are banks that have too much exposure to some asset types and there are real estate operators who were too leveraged coming into a rate hiking cycle. That is as it has always been after a period of easy money. But there’s still a lot of cash out there waiting for bargains to emerge, for sellers to get desperate enough to sell at a big discount. There’s approximately $500 billion sitting in private equity funds dedicated to real estate (and more in distressed funds; SL Green just raised a $1 billion fund with no problem). All that cash has to be put to work and because there are so many players flush, the discounts they’re all looking for probably won’t emerge. Or maybe the most anticipated banking crisis in history is just around the corner.
• Is reshoring or deglobalization or whatever they’re calling it this week really happening? Are US companies actually going to bring production back to our shores? Or is manufacturing just shifting out of China to other low-wage countries? Our imports from China are basically unchanged over the last 10 years but our imports overall have continued to climb as we import more from Mexico, Vietnam, and Korea (among others). How much of those new imports are just Chinese companies shifting production out of China or rerouting products through third countries to avoid tariffs? That’s unknown but we know it isn’t zero. This needs to be watched because both political parties today seem to believe they can use tariffs to force companies back to the US. If they are successful the likely outcome is higher prices and, eventually, lower quality goods. Anyone remember how awful American cars were in the 1970s?
• Are oil prices poised to rise? A big rise in US production over the last few years has been essentially offset by lower Saudi production but US production may be peaking. Production rose by over 1 million bpd last year but the US Energy Information Administration just cut its growth estimate for this year to a mere 170,000 bpd. If that is correct, the balance of power in the oil market seems likely to shift back to OPEC+ and I don’t imagine the Saudis and Russians want lower oil prices. The US has more capacity, by the way, but not the will to drill. US energy companies are more concerned with cost control and returning cash to shareholders, which is why we continue to own energy stocks. It is hard to gauge the impact of higher oil prices on the US economy today with the US as the world’s largest producer. In the past, rising oil prices were often a precursor to recession. Is that still true? Good question.
• Will the application of artificial intelligence raise productivity? Is it already raising productivity? I am generally a skeptic of new technologies or at least the timeline that usually accompanies such things. New technologies usually take years or decades to realize their potential. I don’t have a good answer for this but I worry that we will overreact to the potential problems and strangle it in the crib. I also worry that we won’t overreact.
• Will the push for electric cars continue to flounder and if it does, how much of the capital invested in new capacity will turn out to be wasted? More generally, will the government continue this new push for industrial policy? The Biden administration just handed out $1.5 billion to Global Foundries -and another $1.6 billion in Federal Loans – and is poised to hand out another $10 billion or so to Intel. Will these subsidies pay off? And what exactly does that mean? More jobs? With unemployment under 4%, I am mystified as to where the workers would come from, especially when both parties seem hostile to immigration.
• Will companies force workers back to the office? Should they? Office vacancies are high but the problem is concentrated in places like NYC, Boston, Chicago, and San Francisco. The south and the midwest have largely returned to the office – with more flexible schedules. There does seem to be a more concerted effort to get workers back in the office as management dislikes WFH every bit as much as workers love it. CB Richard Ellis, the commercial real estate services company, announced better-than-expected earnings last week and said they are “cautiously optimistic” that the worst is over for office leasing. That may depend on what interest rates do from here. Another leg up in rates is not going to be positive for CRE.
• Will goods production pick up now that the inventory correction appears to be over? The Philly Fed survey released last week was a positive number for the first time since last August and only the third time in the last 21 months. New orders improved to -5.2 from -17.9, capex rose to 12.7 from 7.5 and business conditions rose from -4 to +7.2. On the other hand, employment and prices paid both worsened. The NY Fed report was similarly mixed but a big improvement from last month. Inventories to sales ratios are generally low with retailers below the level that prevailed for the entire decade prior to COVID. Goods consumption continues to rise so it seems that production – or imports – will have to ramp up to meet continued demand. That is not consistent with widespread expectations for an economic slowdown this year. How will that impact Fed policy and market sentiment?
• Will our politicians ever get their spending under control? Ok, this one I know, and the answer is no. It doesn’t matter who wins the elections this year, who controls Congress or the White House. The budget deficit will persist. How long can that go on? Is there a debt level that makes the world say enough? Probably not for a long time. Private debt to GDP, by the way, has been falling since COVID so the total debt to GDP ratio isn’t much higher now than it was in 2008.

I have opinions about most of these things but I don’t know what will happen; the future is inscrutable. Some of my opinions will turn out to be right and some will turn out to be wrong. All we can really do is observe the trends in the markets and try to determine when sentiment has reached an extreme that might trigger a reversal. Those extremes actually don’t happen very often so big changes in your portfolio shouldn’t either. In the meantime, we invest based on what we know, not what we think we know."

MY COMMENT

Many of the above are questions of politics, government, policy, regulation, etc, etc, etc. They are also questions of economics.......and.....may or may not have any real impact on actual investing, especially for the long term.

There is only one way to deal with the above sorts of issues and that is to allow it all to smooth out over the long term. There is also only one thing that i can be pretty sure of over the short term and the long term....although it is hindsight.....that is business earnings and fundamentals.

I do know that getting too caught up in all the above sorts of issues and questions....for which there is never an answer.....leads to investor PARALYSIS.

 

No....I am not going to spend any time on NVDA today....all will be clear after the close today....at least for another three months till the next earnings freak out.

 

I like this little article.

A Primer on P/Es and This Young Bull Market
Valuations aren’t all they are cracked up to be.

https://www.fisherinvestments.com/e...ry/a-primer-on-pes-and-this-young-bull-market

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

"Are stocks worth their price? With the S&P 500 hitting new highs, valuations—price-to-earnings (P/E) ratios in particular—are returning to the headlines. The mission seems to be divining whether stocks are cheap or pricey near record index levels, all with an eye toward projecting markets’ next move. The trouble with this logic? Valuations don’t predict stocks’ direction. Cheap stocks can always get cheaper and seemingly pricey stocks pricier.

Most focus lately is on forward P/Es—based on analysts’ next 12-month earnings estimates—which we think makes more sense than using trailing 12-month earnings. Investors own stocks for their share of the future profits firms are likely to generate. You can’t buy past earnings—they are already priced in. Note here, too, that the Cyclically Adjusted P/E (CAPE) ratio, which averages the last 10 years’ earnings—and then bizarrely inflation adjusts that ‘E’ in comparison to the non-inflation-adjusted ‘P’—makes even less sense in this regard. The profits you earn from owning stock aren’t inflation-adjusted—they are regular dollars—and they aren’t averaged over 10 years.

Valuations tend to hit headlines when they are high by some arbitrary standard, so it is no shock that the S&P 500’s forward P/E crossing 20 for the first time in two years roused some attention. But valuations have never predicted future returns—including allegedly forward-looking forward P/E ratios. Exhibit 1 shows one way to see this. From May 2020 to January 2022, the S&P 500’s forward P/E exceeded 20. Yet the S&P 500’s return during that time was 63.8%.

Exhibit 1: No Problem Rallying With P/Es Above 20




Source: FactSet, as of 2/20/2024. S&P 500 price index and 12-month forward P/E ratio, 12/31/2018 – 2/16/2024.

There isn’t any magic valuation threshold stocks cross that tells you where they will go next. Consider the reason forward P/Es soared from 13.1 in March 2020 to 23.4 in September 2020. As Exhibit 2 shows, analysts were furiously slashing their 12-month forward earnings estimates—after stocks had already tanked, pre-pricing the actual earnings decline from COVID lockdowns. Then, stocks moved on. The S&P 500 troughed late that March and then rallied sharply before analysts reversed course and began raising their earnings estimates. The ‘P’ jumped while the ‘E’ was still struggling. That wasn’t unique to 2020 but rather normally happens in a bear market’s aftermath, which is why forward P/Es often seem elevated in bull markets’ early stages. It is simple math, not a sign stocks are actually overvalued. It just means analysts are playing catch up as they slowly fathom the new bull market.

Exhibit 2: Stocks Price in Earnings Beforehand




Source: FactSet, as of 2/20/2024. S&P 500 total return, 12-month forward earnings-per-share (EPS) estimates and trailing 12-month EPS, 12/31/2018 – 2/16/2024.

The broader lesson here: Valuations say so little because stocks price in expected earnings in advance—well ahead of consensus. They are exceedingly good at this. Exhibit 2 shows 2020’s February – March bear market sensed the lockdown-induced earnings drop two months before analysts did—and five months before earnings actually troughed. Stocks didn’t wait—or care about elevated P/Es. Similarly, 2022’s bear market started seven months before analysts had an inkling that corporate profits would struggle. Then the current bull market (green line) started October 2022, four months before earnings estimates (yellow) turned up and eight months before earnings reports (blue) really registered a recovery.

It isn’t where earnings have been, but where they are going against what is priced in now—which present valuations echo. Notice trailing earnings remain below their 2022 peak, yet stocks are making new highs—already anticipating forward earnings’ ascent. Current valuations, even those based on analysts’ future earnings projections, can only reflect present thinking and market movement, not what earnings will actually do—reality. And that gap between reality and expectations is what drives stocks most.

Extreme moves in valuations can signal sharp sentiment swings, but even then, they aren’t a great timing tool, and there is no magic threshold. Because P/Es incorporate past prices—and past prices never predict—they won’t tell you where stocks are headed. Fundamentally, forward-looking markets’ longer-term direction depends on what isn’t priced. How earnings evolve over the next 3 to 30 months based on new, incoming information versus present perceptions will determine stocks’ broader path, wiggles along the way notwithstanding.

Eventually expectations will likely get too high, setting up disappointment. But we seem to be early in that progression today, with sentiment only gradually becoming less skeptical. In our view, there is much more bull market to go before earnings expectations become impossible to reach."

MY COMMENT

There is no magic guideline for investors. No magic formula. Especially with the INSANE 24/7 media that we are totally absorbed with now. Nothing is truth....nothing is accurate. It is all totally infected with opinion and politics.

I welcome the current skepticism. I welcome the current fear and fear mongering. The old wall of worry. Good indicators of the staying power of the current bull market.

AND.....I dont try to time the market anyway. It makes no difference to me how old the bull market is or how long it will last.....I will simply be fully invested for the long term....regardless....i dont have to know when or if it will end.

I know there will be bear markets, I know there will be bull markets, I know there will be corrections and recessions. They are.....ALL....part of the NORMAL investing process.

 

I will be so glad to get past the NVDA earnings today....we can than move on. The media is simply INSANE on this issue. The traders and speculators....LOVE IT.

 

I am seeing some good results at this moment in my stocks. In the GREEN.....COST, HD, GOOGL, AAPL, AMZN. In the RED....NVDA, MSFT, and little PLTR.

I will take it.....not that I have a choice.

 

Probably a positive for AMZN shareholders. I assume now any DOW Index Funds will have to add the stock.

Amazon addition helps Dow stay 'relevant'

https://finance.yahoo.com/news/amazon-addition-helps-dow-stay-relevant-170415376.html

CONGRATULATIONS Amazon.

 

I had four stocks UP today and four stocks DOWN. But the down ones included NVDA so I ended the day with a medium level LOSS. I also got beat by the SP500 by 1.00% today.

Thank goodness we will soon be done with the IDIOTIC fear mongering and commentary on NVIDIA earnings.