Consumers are stretched - but that narrative has been true for more than a year. Breaking point now? It's possible but I don't see it.
The overvaluation seems to really only be around AI with mega-cap tech stocks keeping the indices afloat so you need to back those out and see where the market really lies.
Just take ANF now at multi-year highs - it's a "classic" cyclical company and yet they've generated close to $350m in cash flow or $223m in free cash flow in 9mo (so about 8x ocf on a run-rate basis). Consumers have been resilient and I don't see them dropping off a cliff despite everyone making that claim.
Personally, I bought into a cyclical company this week - SKX. Lots of cash, affordable and comfortable footwear, with management investing for the future. Not fool-proof, but close.
In fact, you can buy loads of cyclicals at "cheap" valuations - low single-digit multiples of cash flow, paying a dividend with little debt. Hard to go wrong because eventually (maybe now, a year, five years...) market conditions will ease and multiples will expand. Classic contrarian investing. You, yourself, are involved with QRTEA - selling because a consumer recession may occur would be throwing all of your hard work down the drain. Correctly (I think), you hold this position open.
Further, Buffett made the claim if he were operating with $1m he'd make 50%/annum AND be fully invested. He made that claim in 2018 - market conditions were "bubbl-y" at that point, too.
My largest mistake thus far has been keeping a cash buffer which hasn't been earning anything. My second mistake has been trying to predict short-term earnings. I think if you take a longer term view whilst being fully invested in clearly undervalued companies you cannot really go wrong.
In essence, own companies you're willing on to crash because they're already so sexy.
Finally, my opinion is that macro always looks pretty bad (plenty of doomsayers out there looking to be the next Burry, Tudor Jones etc) but you have to look past it and find the value. Many people called the housing bubble or the dotcom bubble but not all of them made a profit. Be mindful of the excess, but keep buying. Unless you're operating with a "material" amount or you're working with OPM, you should be as aggressive as possible. |
