Hi Multis
I hope you had a great week. To round it off, or to start it, here’s a new Overview Of The Week. We’ve got quite a bit to cover, so let’s start right away.
Articles In The Past Weeks
This is the fourth article this week. Let’s look back at the three previous articles.
In the first article this week, we saw that the numbers Hims & Hers posted were actually much better than they appear at first glance. It shows why deep research matters.
In the second article of the week, I showed which position I trimmed and the ten stocks I bought.
Yesterday, I published the third article of the week. This time, we looked at a stock that I rate a strong buy.
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Memes Of The Week
Here’s the fresh harvest of the best stock market memes.
Here is the first one already.
And this one went viral as well.
Multi Bep made this great one specifically for Potential Multibaggers. At the same time, I think it’s very generally applicable.
Multi Rule No.2 posted this one, a variation on a classic.
The last one was posted by Multi Julien. It’s not an actual meme, but sometimes, reality feels like a meme.
Interesting Podcasts Or Books
This week, I listened to an episode of David Senra. He interviewed Rick Rubin. I love music and Rubin has produced some of the best work of the best artists.
He worked with the Beastie Boys, Slayer, Metallica, Public Enemy, Run DMC, LL Cool J, Red Hot Chili Peppers, Johnny Cash (the legendary American Recordings series), Nine Inch Nails, Tom Petty, System Of A Down, Sheryl Crow, Rage Against The Machine, Macy Gray, Jay Z, Slipknot, Neil Diamond, Justin Timberlake, Linkin Park, Weezer, Lana Del Rey, Lady Gaga, Eminem, Kayne West, Neil Young and many, many more.
But he is not just a producer. Sometimes, he resembles a zen master. His life takes are fantastic. You can listen to the episode here.
The markets in the past week
So, what did the markets do in the past week?
Once more, the indexes were up. The S&P 500 was up 1.47%, the Russell 2000 was up 1.75% and the Nasdaq 2.39%.
In exactly two months (March 31 to now), the Nasdaq is up a whopping 29.71%.
That’s crazy. And unsustainable.
I hate the word correction, because it implies that the market has done something wrong. But right now, I think a correction would be welcome.
The Greed & Fear Index remained in Greed territory once more.
Quick Facts
1. The Most Expensive Market Ever
I’m still torn about this market.
On the one hand, the valuations are crazy. Just look at this chart, for example.
So, if you combine all of these valuation methods, we have the most expensive market ever. So, sell, right?
Well, not so fast.
First, I think quite a few of the used metrics are flawed. Market cap to GDP, for example. It’s often called The Buffett Indicator because Buffett called it “probably the best single measure of where valuations stand at any given moment.” And look where we are right now.
232%. If you know that 100% is considered fair and anything above 120%-130% (opinions differ) expensive, what is this market? Nonsense?
Well, not so fast.
First, the market has been expensive, based on this indicator, since 2012. If you had used it for market timing purposes, you would have lost a ton of money. This is how $10K has done since that ‘overvaluation’ started.
There are multiple reasons for the disconnection and for why the Buffett Indicator no longer works.
One is that many American companies get more of their revenue from global markets than in 2001, when Buffett wrote about the market cap/GDP indicator. Apple, Microsoft and many other companies get more than half of their revenue from abroad now and that is not included in the GDP, as that is Gross Domestic Product.
Secondly, it also doesn’t account for the higher gross profit margins companies have.
So, I wouldn’t attach too much weight to the Buffett Indicator. Of course, there will always be someone telling you that you should have known, based on this indicator or any other, when the eventual drop comes. But those people probably didn’t make much money for a long time, so pity them instead of paying any attention.
The Buffett Indicator is just one metric that doesn’t work anymore. Price/Book is also flawed. Companies need less capital in general to earn a ton of money. If you have a cybersecurity company, for example, you may need some data centers but you don’t even have to have your own. You could rent capacity from Amazon, Microsoft or Google (among others). Compare that to Coca-Cola building another factory.
And that’s also the reason the price-to-sales ratio doesn’t work anymore.
This market is expensive, for sure. But always be careful with charts like these.
2. A Very Cheap Market
As I just said, how you look at the market really depends on your perspective. This chart, for example, uses the gold price to evaluate markets and it says that markets are very cheap right now.
I think F. Scott Fitzgerald’s quote is important in this context:
The test of a first-rate intelligence is the ability to hold two opposed ideas in the mind at the same time, and still retain the ability to function.
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