TomB16 investing blog

Discussion in 'Investing' started by TomB16, Aug 7, 2019.

  1. TomB16

    TomB16 Well-Known Member

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    The WBI currently sits at an irrelevant 190.65.

    I've been out spoken against trading and yet I have done a couple of things that look like trading. This is a shallow dive into that thought process.

    Buying a stock and reacting to micro-fluctuations in market cap is gambling. I have long said that investing means owning a company and looking at that as a 5+ year business partnership. The goal is to profit from the business, not exploit the random number generator we call a stock exchange.

    But, what if:
    1) you do analysis on a bunch of companies and that process boils down to a pair of companies that show reasonable value
    2) you buy both companies with the intention of holding them 5+ years
    3) one company takes an irrational leap to extreme valuations, out-stripping your value model

    At that point, it would make sense to get rid of the non-value company and move the windfall into a company that shows value.


    The real world

    Tesla was valued at $850B. There is a strong possibility Tesla will end up with a real valuation of 1T, at some point. Many people can see a path to this valuation, in the coming years. Less likely, but still plausible, is that Tesla could end up achieving a real valuation of 2T. I'm one of the people who believe this is possible.

    Let's put these numbers into perspective.

    If Tesla could be worth 2T in the next 10 years, possible but unlikely IMO, that would be 2.35x above the peak valuation a couple of weeks ago. That would be less than 9% return on what would be a Cinderella story.

    What are the odds Tesla will take a market cap hit from one or more of: some bad publicity, production problem, political obstacle delaying a Giga Factory opening, BitCoin price fluctuation, another company creates a better battery, war, Elon has a heart attack, etc.? I place the odds at 100% that something bad will happen. Tesla can weather some problems and setbacks. Tesla can probably even do OK without Elon but it cannot thrive, at this time, without Elon. They just can't face too much headwind on the road to a 2T valuation.

    I'm in love with Tesla, even now that I don't own it. I just don't see the value in it. I can earn 9% with any number of other companies that I perceive to have lower risk. What's more, the other companies pay me a dividend that I can take to the store and buy bread, milk, and condoms.

    Conclusion

    I owned Tesla for less than 5 years. Some of that holding came from early 2019, so it was less than two years old. Because I bought it with the intention of holding for a decade, I do not view it as trading. At the very least, the moves were not gambling.
     
    #601 TomB16, Feb 24, 2021
    Last edited: Feb 24, 2021
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  2. T0rm3nted

    T0rm3nted Moderator
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    I know I've asked you before and I'm too lazy to scroll back through, but at what price would you find good enough value to hop back in? I forgot to add an alert titled "Tom would buy back into TSLA here". Were you tempted yesterday at $614?
     
  3. TomB16

    TomB16 Well-Known Member

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    This is a follow on thought, loosely related to the previous post.

    When I mentioned I had purchased Tesla, back in 2016, the forum response (a different forum) was pretty severe. Two people thought it was a cool company but wouldn't risk their money on it. The response from others varied between entirely negative to vitriol. A couple of folks said I should not be allowed to have an investment account. I received a couple of private messages from people I didn't know that were a scathing indictment on me and my family tree. One had the subject, "Hey, SHIT FOR BRAINS."

    Meanwhile, analysts were brutal on Tesla, hedge funds and others made Tesla the most shorted stock, and media became brutal to Tesla. I could see value in Tesla. It was obvious. They were structuring to dominate the EV industry that was clearly going to be the main form of transportation in the future.

    Every analyst was wrong. It was weaponized ignorance.

    These days, Tesla is in fashion. Big organizations are loading up on Tesla. They are buying this dip. Several analysts are showing valuations beyond $1000. Let's think about that. They are valuing Tesla beyond 1T when they made a half million cars in 2020.

    The grade 4 math in my previous post is pretty clear that Tesla, as a company, is going to struggle to return 2.3x in the next decade. Sure, the stock could go up 100x but that is an arbitrary number.

    Conclusion

    - Analysts, with extreme few exceptions, are not capable of critical thinking.
    - Nobody likes to do research.
    - An independent thinker can do very well in this environment, but only if they are able to ignore crowd think.
     
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  4. TomB16

    TomB16 Well-Known Member

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    Tempted: yes
    Bought back in: no


    I'm able to achieve 4x return every decade, from established companies. It's not difficult, actually. Because of this benchmark, I need to see the potential for a 10x return for a growth company over a decade.

    If 2T is the stretch valuation for $TSLA in 2031, that puts the value price in the low $200 range.
     
  5. TomB16

    TomB16 Well-Known Member

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    This is related to my trading for a living post.

    Here is an inventory of investing styles versus results that I've watched, over the years.

    Trading - Every trader I know makes tons of money without effort but they are all working careers and, on average, retire later than people I know who don't trade. I do not know a single retired person who lives off trades.

    Long hold companies - I know lots of these people and they have all done very well. Many retired with this strategy and ended up having a surplus of money to give their children. Retirement communities are full of people who have gotten there and stay there based on long term hold.

    Long term index investing - I don't know too many index investors but, the ones I know have been successful. I only know two retired index investors, so my sample set is low, but they are doing very well.

    Option investing - I know several option investors. All work jobs. None seem to be flush with cash but they all talk big. It's a tiny sample set so perhaps conclusions should not be drawn. Also, option investing strategies vary from low to infinite risk so this category could probably stand to be broken into multiple different option investing strategies. Perhaps one day, I will take a dive into the various option strategies and what I see as the risk/return of each.
     
  6. TomB16

    TomB16 Well-Known Member

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    A quick note about bonds.

    Our bonds were substantially up, a month ago. They are now back to face value.

    For us, bonds are an "In case of emergency, break glass." tool. We have them only for piece of mind and in the smallest quantities possible.

    It never occurred to me to sell them when the valuations were high and I won't sell them when valuations go down, either. They will probably all be held to maturity and it is looking unlikely any will be reinvested back into bonds.
     
  7. TomB16

    TomB16 Well-Known Member

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    Yesterday, I picked up a rather large volume of my second favorite company. The buy happened on a long term limit buy order I've kept in place for the last several months.

    I have buy orders that are probably longer term than most Stockaholics' investment horizons. :biggrin:

    The interesting aspect of the transaction is that Yahoo shows a trade volume that is wildly lower than the number of shares I personally transacted, yesterday.

    The transaction price is also outside of Yahoo's posted high/low for the day.

    Perhaps these shares came from a dark pool. Perhaps Yahoo is not posting the correct telemetry for this stock, as it is a small and obscure equity.
     
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  8. T0rm3nted

    T0rm3nted Moderator
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    I always knew you were a billionaire
     
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  9. TomB16

    TomB16 Well-Known Member

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    :biggrin:

    Obviously, I'm not a billionaire but even a small time operator, like myself, can have an impact on some stocks. The equity in question shows "80" for one of the last five days. It also has two days of no activity. Assuming 80 board lots, that's only 8000 shares.

    If someone wanted to pick up a significant amount of a stock like mentioned in the last paragraph, they would be well advised to use long term limit orders and collect the stock over a large period of time.

    The same goes for selling a stock like that. I had a junior oil that took a couple of months to divest.

    These type of positions are not for people who need liquidity in their portfolio. For someone like me, who buys the company, this isn't an issue on either end of the transaction.


    Further....

    Someone who is at retirement scale and wants to buy a company with a $30M market cap should be aware they may find themselves on the radar of the company they buy. It may not be something you care about but if you find yourself owning more than 0.5% of the market cap of a company, don't be surprised if you get an unsolicited phone call, at some point, soliciting your vote.

    One of the publicly traded companies I worked for ended up sending people to personally discuss a merger with every shareholder down to 1% hold. That's only $300K, in the case of a $30M company.

    There is a company that specializes in identifying shareholders of companies. They are co-located at the exchanges and can usually figure out who is buying/selling what, for all of the bigger players, in real time. IBM knew Warren Buffett sold his shares immediately and gave Mr. Buffett a call. Mr. Buffett mentioned it in an interview and said he had no idea how IBM figured it out. These guys are out there and working with every major listed company.
     
  10. TomB16

    TomB16 Well-Known Member

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    Even further...

    When I ponder how "wired up" the markets are, it makes me mad at the Elizabeth Warren's of the world who want to shut down Wall Street Bets. This isn't about any other aspect of Mrs. Warren's politics. I believe she is a good person. It's about someone wanting to stop an artillery battle because a 12 year old who wandered into the combat zone may have a nail clipper in his pocket.
     
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  11. T0rm3nted

    T0rm3nted Moderator
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    So THAT'S how you got on the board of Tesla?
     
  12. Rustic1

    Rustic1 Well-Known Member

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    Tom is SATOSHI. :cool2: The superlative ELONgate investor. :D
     
  13. TomB16

    TomB16 Well-Known Member

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    This is direct, specific, advice for someone looking to create a retirement for themselves. If you don't know where to start, this is it...

    - if you have more than 10 years before retirement, buy a broad index
    - if you have not been able to beat the S&P 500 (this is pretty much everyone), buy a broad index
    - if you like trading, buy a broad index
    - if it is obvious that only a fool would not take action in the face of new market information, buy a broad index

    My modelling shows that it's possible, although highly unlikely, that someone can use a somewhat specific technique of distributions, bond ladders, and [cough] perhaps even *ULTRA-CONSERVATIVE* options to create a retirement cash flow that will perform better than a broad index during the spend down phase. It is clear, most who try will fail and it's not like they can go back to work at 80 years of age so this is for people with massive egos, knowledge, experience, and a good portion of risk tolerance.

    One of my friends and two friends of my wife tried their hand at "portfolio management" during their retirement years. All three men are bristling with hubris and, in each case, they are the smartest person they know. Two of the three men are working again and the third is looking for a job. It's hard to find a job when you're in your late 60s.

    You have been warned.

    There are also other techniques to mitigate market volatility during the retired years. The most obvious being to keep a good amount of cash. I keep two years of normal living money in cash or near cash (money market fund). The money market fund currently pays 0.25%, so it's about the same investment as cash.

    In our case, that cash will be stretched to three years in the face of a big down turn. I've been living in austerity mode my entire life so it's difficult to imagine switching on austerity mode but we have gotten loser with money the last few years so there is a bit of fat we can trim. Instead of flying business class, we can fly economy. We can take less trips. We can delay the purchase of a new car. This will give us three years before we have to sell anything into a down market, even if all distributions stop. That's an ultra-conservative position but I don't want to be forced back to work like our friends.

    If you decide to set up a portfolio of distributing companies, I suggest you start 5 or 10 years before retiring. If you haven't done it by the time you retire, don't do it.

    Lastly, I suggest considering a strategy that minimizes the time in front of your screens after you retire. Go outside. Take your wife for a walk. Spend time with good people. There are better things in life than looking for opportunities to make money.
     
  14. WXYZ

    WXYZ Well-Known Member

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    Glad to see you posting again on this thread. Even if it is just once in a while. Some SOLID advice above for anyone....but....especially for those near or in retirement.

    As an EARLY retiree....living off personal assets for 21 years until my income annuities (plus social security) kicked in with a life-time income.....I had to carefully manage those assets for long term security. It is EXTREMELY difficult for people to look out and project money over a long period of time. I saw the EXTREME danger of what you are talking about since my first three years of early retirement.......(I retired in May of 1999).......saw total returns for the SP500 of:

    year 2000 (-9.10%)
    year 2001 (-11.89%)
    year 2002 (-22.10%)

    That definately gets your attention.....when your account is DOWN over 40% in your first three years of a very long retirement time span. When I first retired I was keeping 5 years of living money in safe, CD's. Over time I saw that I could reduce that to three years. BUT.......I never stopped considering worst case scenario.....no matter how unlikely......when projecting the future.
     
    #614 WXYZ, Mar 31, 2021
    Last edited: Mar 31, 2021
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  15. TomB16

    TomB16 Well-Known Member

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    The WBI is now over 196. Our cash level is currently below 20% and it will go down another 2%, or so.

    What happened to the cash? I found a company that I believe has a lot of value. It will take 5 years to determine if I have a clue, or not. This is not a get rich quick company, by any means.

    Our cash will be replenished by a real estate sell down so I expect to be back above 40% cash by the end of the year, unless there is a sale on companies.

    Twenty years ago, I would have been horrified at the thought of having this much exposure to the market. At this point, it's all part of the plan.
     
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  16. Rustic1

    Rustic1 Well-Known Member

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    Thats a good signal to me. I'm 70% invested and focusing more on long than trading. 30% cash is to start new positions or to fortify existing ones. Naturally, if I see a decent retrace, I will rotate with the sectors.

    Otherwise I will write weekly calls to obtain the forced dividends.
     
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  17. Bridget Mallory

    Bridget Mallory Active Member

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    Same question
     
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  18. TomB16

    TomB16 Well-Known Member

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    I was tempted by $550 but did not pull the trigger. So, something below that number.

    For me, owning Tesla was like dating Carry Fisher. I was with her from A New Hope to Return of the Jedi. It was fantastic. Someone else can have her for The Last Jedi.
     
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  19. Rustic1

    Rustic1 Well-Known Member

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    Very well said. The love story is the TESLA thread, "great read"the relationship had its moments, thru better, thru worse. His investment actually plateaued and he exited at the precise moment.
    I pick and jab at him for kicks and giggles. :cool2:
    Truth be known, his due diligence process is very impressive. He now can take his well earned reward and employ it in ways that will be more dividend friendly, via stable and safer investments without any concerns. :booyah:


    Someday he will understand, I can outrun the S&P on a near daily basis X3 using my favorite leveraged bull/bear tools in the box with approx 85% accuracy. :D :thumbsup:
     
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  20. TomB16

    TomB16 Well-Known Member

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    Rustic1, there is no need to put me on a pedestal, unless you're into that sort of thing, in which case, I will not judge you.

    I've been investing for 38 years. Over that time, my portfolio has been influenced by:

    Market gains / losses
    Good decisions / bad decisions
    Good luck / bad luck

    After the fact, it's not difficult to compare myself to the market. In this aspect, I am reasonably objective.

    Decision quality is far, far more subjective. When I buy something and it goes up, I must subtract the general market force. That can be done. I must also consider there will be times a good decision will go badly for unknown reasons that I will attribute to luck.

    I could have randomly purchased GameStop, thinking it is going to double in 10 years, have it go up 20x in a week, sell making a ton of money, and declare myself the smartest man in the world but the truth is I just got lucky because I had no idea GameStop was going to shoot up like Lou Reed at the Austin Folk Festival. That would make it a lucky decision, not a good one.

    Alternately, I can make 10 good decisions, have 8 of them work out well, but I still made 10 good decisions.

    Judging this is a slippery slope but it must be done as objectively as possible in order to improve my process.

    While I'm pleased with my performance over the years, you don't know what that performance is and I don't know what your performance is. For all we know, you are a better investor than I am.

    So, there is no need to turn me into any sort of hero. I'm just a guy with a long term vision and more patience than remaining life.
     
    #620 TomB16, Apr 8, 2021
    Last edited: Apr 8, 2021

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