Tesla Q2 Earnings Update

Yesterday, Tesla released their Q2 earnings. I believe we are witnessing an extremely interesting case study in real-time that will be studied by future generations of investors and business students. So, I will continue to comment on it in real-time. There is simply so much to learn from this case, and it’s not often we have the opportunity to witness such an interesting situation as it unfolds.

Tesla closed yesterday with a market cap (the total value of all outstanding shares of stock) of about $300 billion and a per share price of $1,592. To put that in perspective, BMW’s market cap is about $40 billion. So, Tesla’s stock is worth about 7.5x that of BMW’s with just 1/7th the global sales! Continue reading “Tesla Q2 Earnings Update”

Market Concentration Update and Action Items

About a month ago I commented on the record concentration in the top 5 names of the S&P 500.

I want to briefly follow up on that and also summarize some action items I’m taking within portfolios.

This updated chart from Charles Schwab shows that concentration in the top 5 names has now reached 22% of the entire S&P 500!

top 5 stocks weight of S&P 500

Source: Charles Schwab, Bloomberg, as of 6/30/2020. Past performance is no guarantee of future results. Continue reading “Market Concentration Update and Action Items”

What Were You Thinking?!

Recently, I came across a blog post from Jesse Felder titled “‘What Were You Thinking?’ Part Deux.”

I’d like to share “the meat” from Mr. Felder’s post as I think it’s very important in putting current U.S. stock market valuations in perspective.

Mr. Felder starts out by sharing a quote from Scott McNeely (Founder and CEO of Sun Microsystems) after the Dotcom bust:

At 10 times revenues, to give you a 10-year payback, I have to pay you 100% of revenues for 10 straight years in dividends. That assumes I can get that by my shareholders. That assumes I have zero cost of goods sold, which is very hard for a computer company. That assumes zero expenses, which is really hard with 39,000 employees. That assumes I pay no taxes, which is very hard. And that assumes you pay no taxes on your dividends, which is kind of illegal. And that assumes with zero R&D for the next 10 years, I can maintain the current revenue run rate. Now, having done that, would any of you like to buy my stock at $64? Do you realize how ridiculous those basic assumptions are? You don’t need any transparency. You don’t need any footnotes. What were you thinking?

Note: Sun Microsystems stock went from $10 in early-1999 to over $60 (and over 10x revenues) back down to under $10. So, CEO McNeely had a front-row seat to the mania and the bust.

Here’s the problem and the relevancy of this quote to today’s market….

In March of 2000 at the absolute peak of the Dotcom bubble, there were 30 stocks within the S&P 500 trading at least at the obscene 10x-revenue level. The Nasdaq then proceeded to lose 3/4ths of its value in the ensuing bust. Today, there are MORE stocks trading above that obscene level (37).

As Jesse points out, this number may grow given that revenues likely fell significantly in this recent quarter.

In summary, there are people investing today with FAR too much risk. They may think they are brilliant investors but they are oblivious to the risks…not only the risk of their portfolio value declining, but, more importantly, they are oblivious to the impact this could have on their ability to retire and stay retired. They are unknowingly jeopardizing their most important financial goals.

One day, many of us will look back on this period and ask, “What were you thinking?”

For my clients, we’ve stress-tested portfolios and used conservative return assumptions within financial projections. This neither means the projections are perfect nor that financial goals are guaranteed, but, certainly, we’ve proactively built in more conservatism and a greater cushion than naively relying on “historical averages.”

If you’re not yet a client, you need to take a long, hard look at your portfolio positioning in the context of your financial goals and ask yourself if you are jeopardizing everything you’ve worked for. Reach out to me to help with that analysis and identifying solutions that could improve your probabilities of success in what is likely to be a difficult decade for U.S. stocks.

Disclosures:
Past performance is no guarantee of future results. All investments maintain risk of loss in addition to gain.

Data from third-parties is believed to be reliable but accuracy is not guaranteed. Much of the data used to interpret the markets and forecast returns are often at odds with each other and can result in different conclusions. Many different factors impact prices including factors not mentioned here.

This is NOT investment advice but merely a general commentary. Individualized investment advice cannot be provided until a thorough review of your unique circumstances and financial goals is completed.

Views provided here are current only as of the moment of posting and are subject to change at any time without notification.

Tesla Update #3 – Most Valuable Automaker in the World?!

This is now my third Tesla update commentary. Below is a chart showing the price of Tesla for the year along with dates of the previous two commentaries.

Image

Tesla has set another milestone by becoming the MOST VALUABLE AUTOMAKER IN THE WORLD! As I write this sentence, Tesla is trading at about $1,300 per share, which equates to over a $240 billion market cap! Continue reading “Tesla Update #3 – Most Valuable Automaker in the World?!”

Wild Ride So Far in 2020

The S&P 500 just logged one of its worst quarters in history and one of its best quarters in history back-to-back in the first half of 2020.

Specifically, the S&P 500 lost 20% in Q1 while making about 20% in Q2. The only other times in history this has happened were both during the Great Depression (Q3 or 1932 and Q2 of 1938) (Source: @Sentimentrader).

I’ve written about the potential for huge price swings in both directions previously.

This puts the S&P 500 down a little over 3% on the year while the global stock market is down over 7%. Meanwhile, gold and bonds are up on the year.

 

Continue reading “Wild Ride So Far in 2020”