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How to invest your money today, while stock prices are high and the virus rages on. Why tennis is like picking stocks.

I am still alive. I just played my 118th consecutive game of daily tennis. We played two hours.

Tennis is like picking stocks. For 15 minutes you shank every ball — put them into the net — or hit them wide. You feel like you’re the biggest idiot in the entire world. But you keep going. You know you’re not that hopeless. you couldn’t be. Then, suddenly it turns around and you win a point, then another, then a game and a set.

There’s no reason you’re suddenly winning. You hung in. You tried a different “strategy.” Although calling what you’re doing a “strategy” is stretch.

In stocks, you pick a “strategy.” Tech stocks are going up. Let’s try them. There’s a “logic:” They’re scaleable. They can grow cheaply and fast. You don’t need to build a new factory every time your demand doubles. You simply buy more processing and bandwidth– from moment to moment — from one of the cloud companies. Most likely Amazon.

Not all tech stocks work. They hit the net. You dump them when you’ve lost 8% or 9% or 10%. And invest more into the ones that are “working,” i.e. going up.

There is logic to why they’re going up. But it’s not tennis the way it was played 20 years. Tennis has been transformed by the technology of carbon fibre rackets and the new styles of Federer and Nadal.

Once you have a modicum of skills and a decent racket with poly strings, you tweak away.

You have my list of my stocks (right hand column on the web site). In the last few days, I bought SMAR, a little more SQ, some TMO and some NKE (it had fallen) and sold SBUX and WEX because their charts looked weak. I do like SMAR. The earnings growth is fantastic and its price hasn’t gone crazy, like most other tech stocks.

The biggest key in tennis or investing is not to get depressed and panic.

For example, when the virus came along in March, it was easy to predict that lock-down (stay-at-home) would cause a big-time economic disaster. Millions of unemployeds. Falling sales. No travel. No hotel rooms.And hence that was the time many of us idiots sold many of our stocks. We were wrong.

Joel Ross of The Ross Rant newsletter writes:

For the moment I remain 100% in US equities. My portfolio is up 14.8% year to date, on top of up 33% in 2019. How is your money manager doing for you with his “balanced portfolio”, or target date strategy, or annuities? And I pay nobody any fees. I use Schwab, and almost never trade. I just play tennis while I make money. Pick good solid US equities, like APPL, AMZN, HD, MSFT, TMO, ROP, ADBE, and go have fun doing something other than trading stocks, and pay no fees to anyone for bad advice. There is no magic or special smarts to this.

I don’t know what’s in his entire portfolio. But I bet it’s not much different to mine. If I hadn’t panicked in March (and agonized less), my returns would be excellent also. As it is, I’m doing OK, especially in recent weeks.

I don’t have a discipline for doing nothing. I do have a new “strategy” for dealing with panic. It’s called Dollar Cost Averaging. Take $x per month (out of my salary or my real estate distributions) and say I’m going to invest this money — irrespective of how high prices of stocks are and how little sense those prices make based on “normal” metrics — P/E ratio, PEG ratio, etc.

My friend Ed thinks you can actually figure a logic to skyrocketing stock prices. His theory is simple: The virus is actually good for stocks. In fact, the worse the virus gets, the higher stocks will go. The Fed is controlling this game, pumping in money when things look bad.  It’s keeping interest rates low –right now around zero. Doing discounted cash flow on company earnings when interest rates have dropped to zero makes the stocks worth more and more.  Amazon’s P/E is 152, according to Fidelity. And yet it went up another $17 today, Friday.

Ed also likes this chart which picked up the Fed’s web site —  from here.

The chart’s wrong. It should be trillions, not millions. That recent blip shows money being pumped into the economy and the stockmarket. Don’t fight the Fed. It’s making us all rich — except for the poor people who’ve lost their job or their small business. I’m not being mean, just recognizing the world we currently live in. It’s different and opportunities are different.

Dollar cost averaging focuses our tiny brain on falling stock prices as bargains to buy, not failing stocks to sell.

In the few months since mid-March since I’ve been playing tennis every day, the world of investment opportunities has done a 180. That’s why I don’t own energy, banks, airlines, retail (with a couple of exceptions). Oh yes, Zoom Video is up another 2.4% today. How valuable is zoom video? So valuable that Susan paid them $149.50 without consulting the household’s technical genius — i.e. me. She reads books to the grandchildren every day. Books we buy on Amazon. Zoom Video may be the fastest-growing company ever. I should own more Zoom and I should own more of everything tech that’s going up, irrespective of valuation metrics.

There’s an Economist magazine writer called “Buttonwood” who’s also been wrestling with the same questions of stock valuation — and where to invest our money.

This piece is from the June 27th edition of The Economist.

What if the dotcom boom and bust hadn’t happened?
Value investing might not have the same moral authority as today

There is a lovely quotation at the start of “Security Analysis”, a canonical text by Benjamin Graham and David Dodd published in 1934. “Many shall be restored that now are fallen and many shall fall that are now in honour.” It is by Horace, a Roman poet who knew all about reversals of fortune, having lived through Rome’s bloody transition from republic to empire. Two millennia later, amid the ruins of the dotcom mania, Warren Buffett was moved to recall Horace’s words. “My appreciation for what they say about business and investments continues to grow,” he wrote.

It is now 20 years since the nasdaq, a tech-heavy index of shares, reached a peak after a frenzied rise during the late 1990s. The apex, on March 10th 2000, marked the end of the internet bubble. The bust that followed was a triumphant vindication of the sober valuation methods pioneered by Graham and Dodd and popularised by Mr Buffett. True value is a low price relative to some financial measure of intrinsic worth-recent profits, say, or the book value of assets. Dotcom-era analysts, if they bothered at all, used flakier metrics: “eyeballs”, “engagement” or simply “the opportunity”.

Perhaps you can have too much sobriety. For the past decade buying “value” stocks has been an unrewarding strategy. America’s stockmarket is dominated by a handful of technology companies, whose stocks trade on steep multiples of earnings and book value. The current recession has not changed matters. The fallen have not been restored. If anything, those in honour have more of it. Value investors, meanwhile, are unmoved. This begs a heretical thought. If the dotcom boom and bust had not happened, would value investing have quite the same moral authority today?

In posing such a question, you run into an immediate problem. Value investing is an austere creed. It is as much about moral fibre as business analysis. Value investors hope to be rewarded for enduring the pain of waiting for their strategy to come good. Most investors don’t like to be wrong for so long, to hold the unfashionable stocks and to spurn the faddish ones. But value investing is a faith that is sustained by the scepticism of non-believers. Indeed their scorn is in large part the point of it. For its adherents, vindication will surely come. It has before, even when all seemed lost. That makes rebutting its tenets hard.

The legacy of the dotcom bust makes it all the more difficult. So as a thought experiment let’s imagine, for a moment, that the late 1990s bubble never happened. Value investing would have lacked its most spectacular vindication. Its hold on the investment world would be less secure. The use of forward-looking scenarios to judge the long-term prospects, and thus the worth, of a fast-growing company could not be so easily decried as foolish. The business of stock-picking would be much more about engaging with, and understanding, the peculiarities of companies rather than an arms-length selection based on financial characteristics. And without the frauds and scandals of the late 1990s, the public markets might have remained a welcoming place for small, early-stage firms. More start-ups might in turn have tailored themselves for an ipo rather than for a sale to an incumbent technology giant.

The value creed says rapid growth must eventually peter out. Instead the big business successes of the past decade-Google, Amazon and Facebook in America; Alibaba and Tencent in China-have grown to a size that was not widely predicted. Companies of this kind are characterised by network effects. The more people use them, the more useful they are to other customers. They enjoy increasing returns to scale. The bigger they get, the cheaper it is to serve another customer. Dotcom-era gurus banged on about the power of network effects and scale economies. There is more to building an enduring company, though. A business also needs something unique, a distinctive culture or a superior technology, that cannot be replicated by others. Picking winners is not easy; nor is paying a price for them commensurate with their chances of success. But screening for stocks with a low price-to-fundamentals is more likely to select businesses whose best times are behind them than it is to identify future success.

In the late 1990s ideas about fundamental value went by the wayside. A bubble blew up. It then burst dramatically. The bust was a painful lesson for investors. But perhaps some lessons were learnt a little too well. “When fools shun one set of faults”, wrote Horace, “they run into the opposite one.”

The end of Fiat money?

Print money, you’ll boost the economy. Print more of it, you’ll  create inflation. Print too much of it and you’ll create hyper-inflation. And your cash money will buy less and less, like what happened in Germany or Zimbabwe.This note was printed in 2008.

I have several of these notes. They cost me $10 a piece. They’re now worth $70 on eBay and even more elsewhere. Excellent return.

Some friends are convinced that fiat currency — the U.S. dollar — is being debased by Fed budget deficits and rampant Fed Reserve printing.

Hence we need to own unique assets that are not linked to the U.S. dollar, like stocks. For example, James Martin, the author, bought unique ocean-front property. A friend owns “the most beautiful land in Columbia County.” Other people buy classic cars. Or great paintings. Stuff that’s unique. This stuff is fool-proof. But it does require huge learning, since all these areas are rife with “Gotchas.”

Country living has huge charms

You can buy this house in Richmond, Massachusetts for the same price as a pokey studio apartment in Manhattan, NY.

The house is listed here.

It’s just around the corner from this magnificent lake.

I stopped, photographed the gorgeous lake and then spied this:

Meantime, back home

This is the last picture of the baby robins in their nest.

I stuck my iPhone in their face, and freaked them out. Two flew away. But the third fell on the ground. I put on some gloves and tried to move it. It ran and ran and ran. Meanwhile, its mother

was screaming at me. She was angry.  Really angry. A few moments later, the mother spied her baby on the grass, swooped down, grabbed it and took it away to the safety of a place without Harry and his horrible iPhone camera.

Opportunities in software

There are huge opportunities in computerizing industries, viz. the NY DMV has new appointment software. All my real estate syndicators are playing with investor portals. There are even companies scheduling tennis games. All can be used with your smartphone or your laptop.

I really like YouTube TV

More about that on Monday.

Country living is like Broadway theater on steroids

this deer sleeps in Susan’s garden and eats her goodies. But he’s darling. And sometimes the rest of his family visit, along with the new babies.

We also have a family of red foxes, oodles of groundhogs, squirrels and chipmunks, including one chipmunk who lives next to the tennis court and doesn’t like us playing. He sounds like my annoyed robin mother. We have millions of birds — from barn swallows to cardinals , from hummingbirds  to oodles of robins.

We also have a black bear. I haven’t seen him, I’m no longer allowed to leave bagels with cream cheese in my trusty Subaru. Black bears get on the roof of cars and jump up and down until one of the car doors open. State Farm Insurance loves that kind of damage. Makes great TV commercials.

Stay healthy

Wear a mask. Stay away from people. Wash your hands.

Sad story: Nick Cordero was a brilliant, young, singer, dancer actor. He just died of the virus. It’s so sad. He was 41.

Here’s a clip of Nick Cordero doing wonders:

I’ll be back next week. Have a great weekend. — Harry Newton

  • Mike Nash

    Broadway is for losers and homos. I get my entertainment from basic cable TV, mostly watch Fox News but occasionally sports. My favorite sports are football and professional wrestling. Go Trump!!!!!

  • Mike Nash

    Harry, did you hear about those two boys in China that died in gym class because they were wearing masks? I will NEVER wear a mask. Nor will I let government tell me what to do, like the rest of you sheep…by the way, I don’t know if it’s hunting season where you live but that deer would make a great trophy head over my fireplace. Go Trump!!!!!!!

    • Greg

      anyone that posts twice is a loser!!!

  • Pyramids Land tours

    i think i will invest in pyramid building LOL

  • Angry_Dfns_Eng

    Why is SMAR so heavily shorted

  • Bruce Miller

    Harry, have you’ve seen the teleport manhole covers…they are all not working. Are they in your telecom dictionary?