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Just a Thursday Night

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May 04, 2017 – Comments (11) | RELATED TICKERS: BLK , PIN , E

It’s been roughly 2 years since I last posted a blog on CAPS.  I used to love CAPS.  At first I was a watcher, trying to learn as much as possible.  I had no background in stocks.  I was a pedestrian (which I still am), an environmental engineer who read an article on the importance of investing early, because of the nature of long-term compounding.  That got me into stocks.  I think I was perhaps 25 years old.  I was already behind.  I wish I started when I was 15.  Or 12.  


After ‘watching’ the game for a while, I played the game a bit with my first profile, ElCid16.  I feel like my progression of learnings was 1) blue chips are good 2) dividends are good 3) low PE is good.  Literally, I remember one night screening stocks that had a low PE, just giving them the green-thumb, one after another.  And I thought I was there. I thought I had learned the secret to stock picking.  Pick cheap stocks.  You don’t need to read annual reports.  You don’t need to learn about the industry dynamics.  You don’t need to look at a cash flow statement.  Just do a quick screen on yahoo or google, look for a low PE, and you’re golden.  Man - the cheapest stocks are the ones in China.  Awesome.  Let’s green thumb those.  


Fortunately, the market teaches quickly, furiously, and without bias.  Pedestrians eventually get hammered.  And I wasn’t spared.


I don’t have some story for you where I lost it all.  I lost money, but I’m a conservative person in nature.  I had money in index funds.  I had money in retirement accounts.  My Blue Chips that pay a dividend and trade at a low PE multiple strategy didn’t completely let me down.  I underperformed the market, but my nest egg grew, and continues to grow.


I learned so much playing CAPS and learning from others.  I eventually starting giving back to the community, trying to write blog posts and teach others.  It was probably a mistake.  99.99% of people shouldn’t be teaching about stock picking, at all.  The investing professor at my MBA program shouldn't have been teaching investing.  My accounting professor at my MBA program shouldn't have been teaching investing.  They, and everyone else, should be advocating passive investing in an index fund.  


But that’s not why I stopped blogging.  I stopped blogging because the platform became buggy.  The quality of posts became diluted.  The people that I learned the most from stopped teaching.  CAPS wasn’t a focus for The Motley Fool.  Either they weren’t getting traffic to their site via CAPS, or they weren’t converting CAPS users into paying customers.  CAPS wasn’t a profit driver the company, so they stopped investing in it.  I guess ultimately it was the best thing for The Motley Fool, but a real bummer for the users.  Capitalism, amirite?  Good for the Gardners.  Selling credit cards and what not...


Whiskey #1


It’s been 5 years since I completed my MBA program.  It was a hell of an experience.  I went on to do consulting for 3 years, and now I work at a startup, that’s not so much of a startup anymore.  We have over 5,000 employees.  We’re going to surprise some people.  It’s great.


Though I chose not to go into finance, I still am crazy passionate about stocks.  I don’t know why.  I’m 5 years removed from my MBA program, and still barely able to match the S&P 500.  But the market’s been on a tear the past 5, 6, 7, 8 years.  One hell of a run.  Tough to match that kind of performance.  Hence the hit to the active industry.  The market will eventually turn - maybe for 3 months, 6 months, maybe a year.  But who knows when.  Facebook isn’t even trading at ½ the valuation that Cisco traded during the .com bust.  20x next year’s cash flows?  For a company that converts 50% of its revenue into OCF?  Nowhere near a bubble.  Apple trading like it’s IBM.  Google trading cheaper than stale, declining CPG companies (RIP to the CPG industry, courtesy of Amazon.com).  But that doesn’t mean things can’t correct at any moment.  Deploy cash during corrections, build up cash during bull runs.  Cash is king, but only during corrections.  The poor guys at GMO.  Montier was touting cash back in like 2012.  And the crazy thing is, he’s right.  But he’s also wrong.


I probably do 100x the due diligence and analysis on a company that I did 6 or 7 years ago.  I do 50x the due diligence that I did 5 years ago.  And I do 10x the due diligence I did 2 or 3 years ago.  On each of my major investments, I probably have 5-10 pages of typed notes stored in Google Drive.  I probably have 100 pages of typed notes on companies I’ve never even purchased.  And I still only do 1/10th the due diligence that the professionals do.  You ever read Fooling Some of the People?  That’s due diligence.  And even that level of research gets you to a 60 or 70% hit rate, if you’re lucky.  And look at Greenlight.  All that work, all of that research, all of that ‘due diligence’ - and they have COMPLETELY crapped the bed the past 3 years.  Same as Pershing Square.  Though I’d say that story is more akin to LTCM - stupid mistakes more than bad stock picking.  Human biases are something else.  Munger called it.  Say what you want about Buffett and Munger.  Sure, Buffett’s a real jerk behind the scenes, strong-arming families to sell their business at 70 cents on the dollar.  He’s a businessman - what do you expect him to do, offer 30% above market value for a company?  The guy hesitated before paying like 4x pre-tax profits for See’s.  Of course he’s gonna negotiate and someone before buying.  But dude is the GOAT.  He built a $400B conglomerate (that should probably be valued at $500B.)  Maybe only Bezos is better....?


Whiskey #2


You guys on CAPS still think Amazon is a house of cards waiting to collapse?  Get over it.  The company is a runaway freight train of value creation.  Fastest to $1T?  My money's on Google or Amazon.  Maybe Facebook.  And Apple still has a chance.  (Berkshire is being dragged down by bad stock picks (there, I said it) and won’t hit $1T any time soon.  But it’s still better than the S&P 500 because it’s so much cheaper. Maybe.)


Here’s an overly simplistic scenario:


Retailer A generates $10B in Revenue and $2.5B in Gross Profit (25% gross margins)

Retailer B generates $10B in Revenue and $2.5B in Gross Profit (25% gross margins)


Retailer A spends $250M on advertising/marketing, $250M on their warehouse/fulfillment network, $250MM on tech, and $250 on corporate + other staff.  So, they have $1.5B in operating profit, and they pay Uncle Sam 35% on that (let’s assume no debt).


Retailer B spends $1,000M on ad/marketing, $500M on fulfillment, $500MM on tech, and $500MM on corporate + other staff.  So they have $0 in Operating profit - they owe Uncle Sam nothing.  And they have 4x the customers the next year, because they spent more on marketing, they can offer faster shipping with higher inventory.  They are now a better company.  Because they invested.  Targeting $0 in operating profit every year means less money paid in taxes, more money invested.  Targeting $0 in operating profit doesn't mean it's a ponzi scheme or a zero.  


And as for Amazon - All that tech spend?  Year in and year out?  All those engineers that were hired?  Year in and Year out?  It led to the largest US online marketplace (bigger than eBay) and the largest cloud services platform (bigger than MSFT or Google).


Good rule of thumb: invest in profitable companies.  I’ll give you that. But sooner or later, get your head out of the sand and realize that Amazon has build the strongest company in the world.  


Amazon has an eBay, a Netflix, a Spotify, a FedEx, a Cloud platform, a Consumer Electronics company...and North America’s best retail platform - all under the same roof.  SOTP those businesses might be worth $250B...collectively, Amazon is worth every penny that it’s trading for.  If Amazon was a zero, then why is Walmart paying 3x Revenue for Jet.com, desperate to try to catch up to Amazon?  It's too late.  Walmart's on the decline.  First you had Kmart.  Then Sears.  Now you have Macy's.  And soon we'll have Walmart.  Marc Lore is the smartest guy at that company, and he'll be gone in a few years.


And the funny thing about this: I was embarrassingly late to realizing this about Amazon.  Thank God I realized it before its latest run.  Officially my first 2-bagger.  Which is also embarrassing.


Whiskey #3


I bought an absolutely killer japanese black pine bonsai tree this past saturday.  I mean, technically it’s a bonsai tree, but it’s still in a training pot, and still probably needs 5-10 years of development until it’s fully developed.  But it’s got potential - not something like this scrub.  I’ve been hunting for a good bonsai tree for about 3-4 years now.  They’re rare in the US.  Do a Google search for Japanese Black Bonsai For Sale - you’re going to get garbage results.  It’s an inefficient market.


There are massive levels of patience, discipline, studying, and inactivity required to develop a bonsai tree.  A JBP, from seedling to fully developed, might take 25-30 years until it’s show ready - and not even a good show.  And the ones that actually win the shows are all over 50 years old.  And the ones that win the shows in Japan are like 100 years old.  The one that I purchased probably has 15-20 years in the books, and is on a pretty good track to be show ready with the right care, and the right touch.  And a true Bonsai artist would probably say I’m still not working with good material.


Why is Bonsai tough? #1 it’s a living tree.  You gotta keep it alive, and keep it healthy.  There is a massive amount of stress that’s put on a bonsai tree.  Without the proper care - it’ll die.  Hell, I might kill this one.  #2 I’m not the person to train it.  Now, I’m not talking about watering, proper sunlight, and proper fertilization.  I can do that, even from my townhome in Boston (I think).  I’m talking about styling, wiring, branch selection, and development.  I’ll find a good artist in the US.  Have them style it and wire it every year.  And in 5-10 years, have it entered in a show - if things go right.


Lots of parallels between bonsai development and nest egg development.  For instance, you gotta learn, be a student.  Find out where you can add value, where you can’t.  In the same way that the market will teach you quickly, mercilessly - a living tree will too.  It’ll die on you.  And you have to understand the timeframe required.  It does not happen overnight.  It takes years and years for a tree to develop.  There’s a balance between training, and maintaining tree health.  You can’t prune a tree back to nothing for the sake of styling - it’ll die.  It takes seasons.  It takes patience and inactivity.  It takes hard work.  And you have to select the right material.  You can’t pick crap material.  The first few trees (shrubs) I bought, were garbage. Even if I spent $20 or 30, I overpaid.  They were never going to be real bonsai.  But, I’ve learned, and am still learning.


In investing - even the best compounders take time.  Decades are required for a 5 or 10 bagger to develop.  And through the thick and thin of it, you have to be patient.  You can’t sell when it looks pricey, or sell when things get tough.  Inactivity is paramount.  And you have to pick the right investment vehicle out of the gate.  Gold?  God, no.  Commodity stocks?  Sure - if you can time macrocycles, and are looking for a 1 bagger.  But I’m talking about stocks that truly have the ability to be something special.  Compound for decades.


Maybe I do another blog post in 2 weeks - maybe I wait another 2 years.  But I got to feeling the itch to write, and figured this is as good a place as any to share my thoughts.

11 Comments – Post Your Own

#1) On May 05, 2017 at 12:03 AM, notyouagain (46.64) wrote:

Good stuff, EICid!

Sure do miss the Fool that once was.  

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#2) On May 06, 2017 at 12:26 PM, afewgoodstocks11 (33.77) wrote:

Hey fools. I also remember 'the days'.

I have been considering an update, too. My "yes" man dividend porfolio is finally catching traction (though i admit i played very poorly). 

The compounding effect of dividends is hard to see unless you track the whole thing, Sort my picks by stock gain, and then check the dates and the comments to see a real time example of an idiot playing dividends.

 I'm beginning to think that my CAPS portfolio is over the hump. It seems as if receiving 2-3 times the markets current div is a winning strategy. I anticipate my CAPS score to 'permanently' raise above 50 within less than 5 years, at which point it will be a dividend monster.

lol, if caps last that long 

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#3) On May 06, 2017 at 8:24 PM, notyouagain (46.64) wrote:

Hi, AFGS!

It won't take five years, and it'll be way over '50.'

Hope you're doing it in real life, too. My real life portfolio makes me happier all the time. Workers don't get raises either as frequently or as well.

Last September TSN gave me a 50% raise.

In December UNP gave me a 10% raise.

In Feb ABBV gave me a more than 11% raise.

In April CSCO gave me an 11½% raise.

And PSX  just declared a 12% raise for the dividend payable June 1.

And OHI keeps giving around a 1½% raise every quarter. 

Just added HBI.

Long STWD, CSCO, VZ, OHI, ABBV, PSX, TSN, HBI, and UNP.

 

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#4) On May 06, 2017 at 8:30 PM, notyouagain (46.64) wrote:

I will always be grateful to the Fool that once existed for being one  of the factors that helped me how to put living paycheck to paycheck farther and farther behind me.

I miss it very, very, much.

....truth 

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#5) On May 06, 2017 at 8:33 PM, notyouagain (46.64) wrote:

"...helped me *learn* how to put living paycheck to paycheck farther and farther behind me."

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#6) On May 07, 2017 at 4:25 PM, notyouagain (46.64) wrote:

Well, you  found two of us, EICid16. Wow. So many people have given up on the Fool and rarely bother with it anymore.

It's such a shame. There used to be so many. I don't even have it in me to want to write good pitches for my picks anymore. After all, who cares?

For just a sliver of time we'll always fondly recall, the Fool was great. I think it started going downhill when they had this harebrained  notion they were going to post more videos than written articles a few years back.

Guess that didn't work out, but by the time they figured it out it was too late. The magic was gone. Then I remember  one Friday night I couldn't access the Fool because it was "down for maintenance."

When it came back there was no homepage...no buzzbox...the articles no longer had a comment section...and the "view all posts" link at the bottom of the main blog page was a useless remnant, another painful reminder of better times.

I don't know why I still come here. 

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#7) On May 07, 2017 at 4:47 PM, notyouagain (46.64) wrote:

Just a thought...

Is it fair for them to continue to derive value from our crowdsourcing information while taking away so much that made it worth participating?

I get feedback on how I'm doing 2-3 times a month when my (growing) dividends are direct deposited into my savings account.

I don't need them. They have elected to cut way, way, back on what they give back. They have taken way too much away. So why post my picks anymore? I don't know.

Maybe that's why others have stopped coming here as well.

They're disgusted. 

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#8) On May 07, 2017 at 10:03 PM, notyouagain (46.64) wrote:

afewgoodstocks11

Why did you call yourself "Solarisking" years ago? Were you  really  into solar back then? 

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#9) On May 08, 2017 at 3:20 PM, afewgoodstocks11 (33.77) wrote:

I still think a good player can make big money on solar. A MINT.

   The problem with solar is you have to really pay attention. The options market on them is easy enough to make money if you're an experienced chartist and have cash ... ... but nothing is safe for more than a month, and don't put all your eggs in one basket.

There is huge room for global growth. We will have solar roofs, phones, sidewalks, you name it. Solar is King.  But the risk of not paying enough attention ...

 

I would rather suggest mechanical DRIP investing in the Dogs of the Dow/S&P, coupled with options plays for aquisitions below mkt with puts and covered calls.

 

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#10) On May 10, 2017 at 12:21 AM, DeadDogs (< 20) wrote:

Enjoyed your little whiskey blog.

 Unlike you, I have no formal training  in finance, just 26 years experience and 100mm to manage every day.  I have never read an annual report. Instead, I assume their contents are priced in.

 Maybe you will find this interesting 

https://postimg.org/image/ksnwljs8r/

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#11) On May 24, 2017 at 5:37 PM, EnigmaDude (59.08) wrote:

Great blog, thanks for sharing. I got started on CAPS after inheriting some money from a "rich uncle" who passed away too soon back in 2007. Really got into it for a while as it helped me to learn about stocks, the market swings, people's varied opinions, etc. I used to enjoy blogging and even got paid to write a few of them a few years back. Never had any formal training in finance, just trying to figure it out on my own. 

It is sad that the Fool has let CAPS die a slow death. I'm rarely on here any longer either. Maybe the next time there is a market crash and the bears come out from their long slumber we will see some good blog posts again. Or at least have some interesting exchanges of ideas. 

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