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A Fun Little Portfolio



October 24, 2013 – Comments (3) | RELATED TICKERS: AMZN , NFLX , FB

Board: Berkshire Hathaway

Author: mungofitch

How about an equally weighted portfolio for the next five years of:

Amazon (trailing four quarters earnings yield 0.05%) at $322.54
LinkedIn (trailing four quarters earnings yield 0.15%) at $244.95
Tesla (trailing four quarters earnings yield -0.77%) at $171.54
Pandora (trailing four quarters earnings yield -1.06%) at $27.47
Netflix (trailing four quarters earnings yield 0.35%) at $322.52
Arm Holdings (trailing four quarters earnings yield 1.32%) at $49.66
Facebook (trailing four quarters earnings yield 0.43%) at $52.67

So, the average trailing earnings yield is 0.07%, or a P/E of 1504x. Mr. Market is of the opinion that these companies are worth an aggregate $372 billion, but I'm less sure. The aggregate trailing four quarter earnings are $817m, and that's all from the last two. The first five are at an aggregate loss.

Note, some of them are good companies, and earnings will grow. It's not at all unlikely that one or two will even be good investments at these prices, eventually. ARM Holdings is kind of an outlier, as they do make lots of money. But at 16 times forward estimates of next year's sales...ouch. Seems like a negative margin of safety.

In aggregate, that's a whole heck of a lot of money being prepaid for a rosy future that hasn't happened yet. I think Berkshire (and yes, IBM) will do a whole lot better than this slate.

I'm short the broad US market, but I imagine I'd be better off short this slate for part of that position.
But shorting is hard, and a nuisance, and it's hard to come up with a good rebalancing strategy.
Maybe writing repeated ATM short term naked calls on these puppies would be better...Lots of occasional losses, but given time I think there would be a good return. For that strategy to lose money over a period of years would require these stocks to return an ongoing return of 20-30%/year starting from here. I'm fairly confident that won't be the case.


3 Comments – Post Your Own

#1) On October 24, 2013 at 4:36 PM, captainccs (22.76) wrote:

>>>But at 16 times forward estimates of next year's sales...ouch. Seems like a negative margin of safety.

ARM's cost of goods sold is 5.5% (94.5% gross margin) while Amazon's is 75.2% (24.8% gross margin). If you adjust for this difference, Amazon's 2.23 price to sales is the equivalent of ARM having a price to sales ratio of 30.5 so ARM is half as expensive as Amazon.

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#2) On October 24, 2013 at 5:02 PM, constructive (99.96) wrote:

Hmm, price to gross margin is a new idea to me. Have you found it useful?

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#3) On October 25, 2013 at 9:52 AM, captainccs (22.76) wrote:

>>>price to gross margin - have you found it useful?

Never used it. My point is that you can some use ratios to compare similar companies: ISRG to MAKO, but not dissimilar ones like INTC to ARMH (fab/nofab)

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