| | | Hi John, good to hear from you! As you may know I abandoned technical analysis last fall. I still hold certain macroeconomic views but they don't much influence the way I think about companies or valuations. So I may not be a source of much interesting conversation on these topics, simply because I don't read what the ECB is doing every day. I guess when the market is going down everyone is a macroeconomist and when the market is going up everyone is a fundamentalist - but in my case the latter is probably here to stay.
As a fundamentalist, what I see are my favorite companies (mostly tech stocks) at modestly overvalued levels. I don't look much outside this area these days since only a handful of nontech companies are growing their tangible book on a nonlevered basis at above single digits. If anyone has one, please send it my way.
GOOG is a stock I still like OK at the current price, but I like other things more. AMZN is a company I have never understood as a value investor, and I don't expect that to clear up anytime soon. Google is a natural monopoly with no meaningful competition in its core operation. Amazon is a retailer - and in retail either you are eating someone else's lunch or they are eating yours. 30 years ago WMT was eating everyone else's lunch - now their lunch is being eaten. This doesn't mean retailers are bad businesses to own - Berkshire owned Walmart - but it does mean that Amazon's future profit margins are by no means guaranteed, a potential problem when almost all of the present valuation is based on those future margins. Like Standard Oil, their margins depend on killing everyone, and such a sterile environment is hard to maintain. I don't feel the need to soul-search about why I missed the Amazon joyride - there were a lot of other companies where success was easier to predict, and I'm much happier owning those. To date noone has given me a succinct explanation of why Amazon was a sure thing 10 years ago, although maybe Bezos knew.
The current market environment reminds me a lot of the mid-90s, although there is no particular reason for it to pan out the same way. Commodities were tanking, growth was unimpressive in a lot of other sectors of the economy, and tech was the one light in the dark so everyone jumped on the bandwagon.
Rather than make predictions when I know I can't, my approach has become essentially: (1) arrange your affairs in such a way that you always have steady cash flow to invest regardless of market action (2) look for companies growing at a steady clip and retaining their earnings, regardless of what the general market is doing (3) restrict purchases to companies selling at or below intrinsic value. It is quite alright to build up cash when valuations are high - but it is an unforgivable sin to run out of cash when valuations are low. A portfolio like that will decline in a downturn - but over 10 years, the results are likely to be far from unsatisfactory. |
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