Today Was Beautiful – AMZN and MSFT

So today was beautiful because it reaffirmed two of my calls.  Granted, one is still greatly in the negative, but it’s starting to break.

As anyone who reads this thing or talks to me for 5 seconds knows, I am very anti-Amazon stock.  I shorted it back in the high $200s and I have been beaten to a bloody pulp on it but the higher it went, the less sense it made.  It peaked at $696 (so far, it’s a peak) on December 28, 2015 and it is now, after hours, as low as $542 per share.  Yes, they missed earnings, by a lot, but this company is headed for a major tailspin.  The valuations were crazy and it is finally starting to crack.

This is just the start.  All the people who support Amazon only have one response: It’s growth! Well, just like I always say, growth is great, but at what price?  You can’t just pay whatever because it’s growing fast! You still need to figure out what it’s worth AFTER all the growth and work backwards from there, but the euphoria kicks in and people make it go up and up and up! Amazon will be below $200 a share in the near future.  That’s my call.  And I will exit my short at $150 per share.

And for the other extreme…Microsoft (MSFT).  Two years ago, everyone thought I was STUPID for buying this blue-chip tech company.  “It’s dead!” everyone said. If it was dead, why was its revenue and profit both increasing year after year after year by 8-11% consistently?  It was almost like Bernie Madoff with how consistent it was with its profit.  Even I wondered if it was all a farce because how could a company that EVERYONE told me was dead still consistently increase profit and revenue?  One local tech “guru” even told me that he wouldn’t buy Microsoft if it cost him $50Billion and it had $100Billion in a bank account and he could shut it down.  That’s how stupid investors are on both extremes.  At that time, it was trading for $23 per share. I sold the shares this month for $55.  Hmmm.  Interesting.

Bottom line is…I am not done with Amazon yet. And there will be a price that I am a buyer of Amazon.  Why?  Because investing isn’t about the company, only. It’s MOSTLY about the fundamentals from a long term perspective.

Apple is one of the most fundamentally sound companies out there and a few years ago it went from $720 per share down to $350 or so when it couldn’t make iPhones as fast as they were selling them.  Now it makes $50Billion in one year and it’s down 5-8%.  How do you figure that?

Yes, fundamentals don’t matter in the short run, but they matter with a VENGEANCE in the long run.  This is probably the start of something for Amazon and the entire market when it comes to valuations.

I’ve said this all before and I keep repeating it.

The Constant Reminder Saves Us and Hurts Us

Everyone in the U.S. has seen this.  You are driving in your neighborhood and you see, in the distance, that mobile police trailer with a speed limit sign on it and an instant speed gun showing you your speed.  What do you do?  Like most people, no matter what speed you are going, you hit your brakes. Yes, the speed limit could be 25 and you are going 28, but you still hit the brakes.  Why?

Probably the same reason why you want to buy more investments as your portfolio goes up and why you want to sell while your portfolio is going down.  As humans, we are trained to react to what we see in front of us.  That speed gun is showing you your speed RIGHT NOW and that you are, RIGHT NOW, going over the limit.  It doesn’t matter how far over you are going, you still feel guilty being “caught” even though there is no cop around. It has proven to be highly effective and many cities that aren’t just looking for revenue from tickets use it in order to make their neighborhoods safer.

Think about it.  You react so quickly and you also react the same way with your investment portfolio because you get to see the market and your performance on a daily and hourly basis! When things are good, you just count your net worth increasing day in and day out and when times are bad, you just see all the money flowing out of your pocket for retirement and it scares you and you want to make a change immediately, no matter what fundamentals tell you.

Isn’t it odd, though, that the best investors of all time (Buffett, Graham, Dodd, Marks, etc…) always take a long term approach regardless of what that very second shows?  It’s hard! But it’s right.  When you invest for the long run, you will almost always see short term pain because the best investing takes sacrifice.  Whether it’s buying stocks as they go lower and become a better buy, or buying real estate when things are bad and putting money into your property to make it more valuable, or investing in your business by spending more on advertising and sales today…it’s almost always going to be bad in the short run. You have to ignore the fact that your very current situation of less money in your pocket today is the right one for the future.

We don’t have a daily reminder of what your business is worth or what your house or piece of real estate is worth, but you have the constant reminder of what is in your bank account.  You need to brainwash yourself to stop thinking short term.  You must.  Short term gains are usually at the cost of long term gains.  Stay focused.  Remove emotion and remember why you are doing what you are doing.  If, fundamentally, it is the right thing to do, then go forward with your plans and rest assured knowing that you have the right plan in place and now it is time to implement.

Maybe that’s why when I see those mobile radar guns, I never brake.  I’ve trained myself not to care about the short term…for the most part.  I’m still human.

Recap of 2015

2015 is done and the market was flat, yet Barrons reported that they could not find a single financial advisor who said that they saw anything but a positive year for 2016.  Valuations remain at record highs, in some fashion, higher than 1999/2000 and yet I still read people saying that we are in the middle of a secular bull market.  Those who say that clearly have NO idea what they are talking about and what makes a secular bull or bear market.  They merely look at returns.

We avoided the seventh year in a row of positive gains in the market, which had never happened in stock market history going back to 1871.  So the record of 6 still stands as matching the previous record.

We saw a high of 2130 on the S&P and saw a 12% drop in August but, of course, in full cyclical bull fashion, investors gobbled up “value” shares and brought the market right back up to close to 2100 within a few months of August.

Everyone still refuses to look at the highly correlated market cap to GDP ratio that shows that the next 10 years will have flat to slightly negative return, INCLUDING dividends, overall.  “This time is different” right?  Nope.  But it’s amazing what you can convince yourself of when you need things to work out a certain way.

The real estate market still proves to be hot.  Apartment buildings going for nosebleed prices, which can still work out for the long run if you put the right debt in place and reinvest profits into upgrading units to get higher rents.  I see people offering ridiculous prices for properties with very short due diligence and money going “hard” day 1.  It’s almost as bad as 2006 but at least now you need some money to buy things.

We are in interesting times.  Something will cause the fall to continue.  August was the start.  Yes, we are almost even from the highs, but it was the start.  The best stocks this year were also the most overvalued ones.  Shocking.

Mark these words: Stocks and Real Estate Valuations will decrease GREATLY in the next few years (this year to 5 years from now) and all the gains you think you have will be lost.  This time is NOT different.  It’s the same.  If your outlook is 40 years and you can weather big drops, you will be fine.  But if you can’t, don’t cry when it happens.