Category Big Tech

Smart Money Sells Big Tech… Invests in NKE & SBUX

Something I do four times a year is pore through something known as "13Fs". A 13F is a quarterly report that institutional investment managers with over $100 million in assets must file with the US Securities and Exchange Commission. And whilst these filings are submitted around 45 days after the quarter ends (e.g. August 15 deadline for June 30 quarter end) - they offer us insight into how the "smart money" is thinking about certain assets. Some names I follow include (not limited to) Warren Buffett, Bill Ackman, David Tepper, Howard Marks, Stan Druckenmiller and Seth Klarman. Now there was a consistent trend during Q2 - where large cap tech exposure was being reduced.

The Three Stages of a Bull Market

Charlie Munger once warned us when wishful thinking takes hold - investors tend to believe that good times will be followed by more good times. This mentality feeds on itself - driving momentum - pushing prices higher. It's what fuels the final stages of a bull market. Attributes such as independent thought, logic, rationale and objectivity give way to herd behavior. That's when your internal alarm bells start ringing... and you start thinking differently from the crowd. Very few people have the ability to do that... but it's what's required.

The Big Tech Unwind

Can the market let the air out of the bubble without consequence? The answer relates to my post on economic cycles. That is, panics and busts only occur after booms and bubbles. But what a minute - are you saying this is a bubble? My answer to that is look at where we are in relation to the long-term mean. That's your litmus test. For example, if we simply take the S&P 500 - it trades at ~22x forward earnings (on the assumption earnings growth this year is 12%). The 10-year average forward PE for the S&P 500 is ~18x (mostly as a function of long-term yields trading near zero). And the 100-year forward PE average is closer to 15.5x. And if we look at tech specifically - valuations are even more extreme.

Cycles: Your Advantage over the Average Investor

I made a decision to reduce my exposure to large-cap tech a few months ago. The decision wasn't an easy one... these are great stocks. For example, did I sell prematurely? The answer will be more obvious in 6-12 months when the cycle has had sufficient time to play out. For now (as was the case when I sold) - I think the downside risks meaningfully outweighed further upside gains. In this post, I explained how selling is a way of managing your risk. I was ensuring I banked the appreciable gains realized over the past few years. In light of the rotation out large-cap tech we've seen this week - I thought it was opportune to share some thoughts on (a) how I calibrate my portfolio in a changing environment; and (b) when to be aggressive and when to play defense. It all comes back to understand the economic cycle...

Divergent Signals

The market is wildly enthusiastic about all things "AI". If you're a company - and you don't have an AI narrative - the market doesn't want to know you. However, I also think this is potentially a blind spot. AI will undoubtedly be important and will change the way we do things (as we effectively re-wire tech) - but it's a tool. For example, whilst Wall Street celebrates that an iPhone might be able to better answer our questions - Main Street sees things very differently. Do you think the majority of consumers understand the optimism on Wall Street? And similarly, do you think Wall Street understands why consumers are complaining?

‘AI’ Trumps the Fed, Inflation and the Economy

The Artificial Intelligence (AI) narrative continues to dominate sentiment. Whether it was Google, Meta or Microsoft... the (AI) earnings script was similar. Mega-cap tech companies so far have reported impressive earnings and revenue growth with respect to their AI strategies (across online ads, cloud and search). It was music to investor's ears. However, strength in tech earnings isn't necessary conflating to strength elsewhere. To that end, there is a strong bifurcation with earnings... and that raises some questions.

Apple: Ready to Take Another Bite?

Apple is ~15% off its all time high as it lags its large cap peers. Concerns of iPhone growth and China have rattled investors. However, it's not unusual for this stock to pull back. Since 2107, we have seen 11 retraces - offering patient investors buying opportunity. From my lens, Apple is a reasonable long-term buy around $165. And if you can get it cheaper - add to it. Over the next 3 years - I think it will be well over $200 as earnings top $8.00 per share.

Yields Rally on “Strong” Jobs Data

According to the BLS - we saw the strongest employment growth in 12 months alongside the fastest wage growth in 22 months (0.6% MoM). However, we also saw the lowest amount of weekly hours worked since 2010. Given the better than expect jobs gains and acceleration in wages (which remains well above the Fed's objective) - it seems less likely the Fed can justify rate cuts in March. Probabilities for a cut in 2 months stand at 38%. This was above 70% just a month ago.

Lessons from 1999/2000

Momentum is a powerful force. Bet against it at your peril. John Maynard Keynes was believed to have said "...the market can remain irrational longer than you can remain solvent". Sound advice. Those expecting (or worse betting) the market would reverse to start 2024 are probably questioning their decision. It's been one record close after another. Higher highs beget higher highs.

Equal Weight ETF to see Mean Reversion

The euphoria in markets continued last week - with the S&P 500 notching a new record high - taking out the 4817 high from Jan 2022. Thanks largely to the Fed signaling peak rates in combination with inflation trending lower - markets now believe a 'soft landing' is possible. That is, inflation ultimately trends back to the Fed's objective (2.0%) without any negative impact to the broader economy (e.g. widespread job losses). We will see how that turns out - as the Fed is attempting to thread a narrow needle. From mine, a soft landing remains a lower probability outcome. However, I believe there is still opportunity... and it's not with large cap tech stock.