Investments Trade Log

[zbigi]

Compared to those you have Taiwan Semiconductor Man. Co. (TSM) at a P/E of 26?! That's insane. You got extremely fast growing Pinduoduo / TEMU at a P/E of 29?! That's so cheap compared to everything else.

The geopolitical risk is probably heavily priced in. Before the war in Ukraine, Gazprom also had some very low P/E for a company that is theoretically guaranteed to produce profit year after year.

[Henry]

I was relieved when NVDA dipped. It was becoming a ride with Jensen in his great glass elevator. Too fast, too high. Now it's moving back towards highs but they seem, dare I say it, more "real". Who knows. The expression "you only need to be a millionaire once" chirps in my head.

[Seppia]

Bought some Nike today following the drop, and have been slowly building a position in Pfizer as well.
Both long term plays. I especially like Nike at these prices since it seems to be trading at low multiples looking back 6-7 years. I am hoping it drops further.

[okumurahata]

What about $RDDT, up by 47.5% in a day with an EPS of -0.57 and revenue growing approximately 30%. I see anonymity as the future of the internet, rather than the decay of the rich life illusion of Instagram.

The problem lies again in the monetisation model (mostly ads), and if they can make money in the long run...

[giskard]

I have an interesting trade to share I slowly eased into.

Core Scientific was one of the largest ethereum miners before the merge (you can't mine ethereum anymore), and then it became one of the largest bitcoin miners since it already had all the data centers.

It started trying to pivot to GPU hardware provisioning (it has huge GPU clusters and data centers) but then it went bankrupt in the aftermath of the FTX dump (nov 2022).

It went through bankruptcy restructuring and emerged with less debt, they are still one of the largest bitcoin miners now. After they reissued the equity they also issued warrents to equity holders:

CORZZ - 01/23/2029
CORZW - 01/23/2027

Basically if the price of the shares double these will pay of big & the company will have a huge cash position. There are not a lot of cheap levered bets to the price of bitcoin available anymore, these are still trading at a low price imo. But, the price is not moving because... why? Bitcoin was up a lot today and CORZ was only up 3%... ? Answer this question you will know if this is a good bet or not. I'm not sure yet myself.

Here are details on them: https://twitter.com/cazenove_uk/status/ ... 9106943271

Here is an article / interview about the situation they are in.
https://blockworks.co/news/adam-sulliva ... in-halving

[okumurahata]

$RDDT up 92% since the start of the IPO last Friday. I won't buy anything because it's in bubble mode, but I'm following with great interest.

Things I like:

1. People write 'Reddit' at the end of Google searches when they want to see a product review. Google searches for product reviews are dead.
2. Candour, brutal honesty, and rudeness provided by anonymity.
3. Growth rate versus the decline of other social media (FB, X, IG...). Not at the level of TikTok though.
4. It's 20 years old and it's still alive.
5.Theoretically, they can sell data to FAANG to exploit AI algorithms.

Things I don't like:

1. They are losing money.
2. The ARPU is the lowest of the social platforms.
3. AD revenue-based model.
4. With AI, it's difficult to know how many real people there are.
5. They are losing money.

I'm also thinking about @giskard's last posts; suckers buying cryptos when they get popular in apps, and how he profits buying them beforehand. My mind traces a parallelism between this and the general stock market. Stocks are bought by insiders before IPO, and suckers buy them afterward. Everyone thinks that is cleverer than their neighbour, nobody wants to be a sucker, but inevitably there would be people paying the party...

[ertyu]

They are losing money, and since they sold their data for LLM training, there have been many AI written posts and comments designed to elicit even more training content. Users see this. Not only is it difficult to know how many real people there are, but the real people are slowly leaving because the content is deteriorating. "before 2023" is the real search term, not "reddit."

[C40]

I'm also a bit worried that AI generated content is going to damage information availability online to a very large extent. We have already experienced a lot of degradation of the quality of online material due to optimizations for profit. AI will accelerate that.

[zbigi]

For example: getting books online could become difficult. People will generate a ton of essentially fake books with the lowest possible effort. So when trying to learn something and buying a book, you will have to add the chore of sorting out whether it's a 'real' book or not, and that could actually become quite difficult because you won't be able to believe reviews and things you read on much of the internet.

This is already happening, for example see a known art instruction youtuber scammed into buying a close to worthless AI-generated drawing book for $80 (the amount that would buy him an actual helpful book, if he didn't fall for the scam): https://www.youtube.com/watch?v=anAiRrra1lk

[Henry]

So there are people using AI to scam people? Well who would have thunk that with a world history littered with the likes of Charles Ponzi, Bernie Madoff, Elizabeth Holmes, the asshole in high school who sold me oregano, Samuel Bankman Fried, the two geezers currently running for President of the United States, the entire higher educational system and of course, Trixie the Prostitute who sold her virginity three times in one evening to an unsuspecting group of hungover panhandlers in 1854 South Dakota. Now if you say Jensen Huang is the second coming of Robert Oppenheimer, well at least that would make for an interesting discussion.

[okumurahata]

By the way, when zooming out and considering the broader picture, what’s happening with the indexes? The S&P 500 is hitting all-time highs every other day, as are the Euro Stoxx 50 and the Nikkei 225 (reaching 39k points for the first time since 1989). My pessimistic and precautionary mindset doesn’t favour rapid success. I feel like the chances of ending up like the person who invested in the Japanese market on 1st October 1989 are increasing. The markets are currently euphoric without any apparent reason.

Now, some euphoria-ramblings…

If at some point in history, labour can be fully automated, it means that labour costs can be reduced to zero. That means higher margins, higher dividends, higher valuations of businesses, higher indexes. I think we are not close to that point, but theoretically, if this is true and businesses are being continuously automated, should that not have a positive impact on the SWR? For example, could automation double the SWR? Can society dream of an 8%, 16%, 32% SWR, or are these numbers out of reach? We are always thinking of the reduction of the 4% rule in the future; but can my future self dream about a higher number, thanks to technology?

[jacob]

The markets are currently euphoric without any apparent reason.

A few reasons ...
US unemployment has not been this low in many decades.
Wages are increasing faster than consumer prices, so real incomes are up.
US energy production is higher than ever and increased energy production translates into increased consumption.
Even nominal inflation is declining, so there's some expectation of lowering interest rates or at least not increasing them further.
As such earnings are expected to go up and the markets tend to front-run that.

Sentiments are kinda weird though with many retail-investors simultaneously believing that the economy is doing bad while they themselves are doing good Consider this a mispricing driven by mass psychology. Blame cable news and social media. Meme stonks, which are just a tiny part of the market, also get more attention than their valuations merit. The idea of getting rich by picking a popular tenbagger is more popular than it has been for a long long time. That adds to the distortion field.

But basically, we're in a very good situation both economically and financially, since interest rates are non-zero, cash has value again, and anyone who wants a job and is able to fog a mirror can get one.

[zbigi]

If at some point in history, labour can be fully automated, it means that labour costs can be reduced to zero. That means higher margins, higher dividends, higher valuations of businesses, higher indexes. I think we are not close to that point, but theoretically, if this is true and businesses are being continuously automated, should that not have a positive impact on the SWR? For example, could automation double the SWR? Can society dream of an 8%, 16%, 32% SWR, or are these numbers out of reach? We are always thinking of the reduction of the 4% rule in the future; but can my future self dream about a higher number, thanks to technology?

The simplest theory of markets and capital tells us that automation does not influence (or any other efficiency gains) profits, as savings are passed down to consumers, thanks to companies being in constant competition against each other and only being able to eke out small profits regardless of how efficient they are (assuming every market participant having the same level of automation). Of course, in practice, many markets in which SP500 companies live are oligopolies with very weak competition, so they might retain some portion of savings that come from automation.

[Lemur]

@Oku

I'd wager those SWRs are definitely out of reach. Maybe in the short-term, the owners of capital will benefit greatly from automation. Everyone else is kind of SOL unless worldwide governments step in to limit the blow to labor.

It is possible our generation (anyone dying before 2100 or so) can ride an increased exponential growth wave that AI/automation can bring. We might be living in the best times...peak economic growth before the fall. However, there are hard ecological and physical limitations until this growth story comes crashing down. Only works if one can dream that technology will provide true sustainability in future but this is highly doubtful due to aforementioned reasons.

Take any resources as an example that this technology growth story needs. Suppose the never ending demand for lithium or computer chips. A 7% growth rate would mean the demand for these resources doubles every 10 years. A 16% growth rate would be a quadrupling of a resource after 10 years. 32% would be 16x after 10 years!

The demand will be there from population growth and developing nations...until it is forced to change. Where is the supply to fuel the 8%-32% SWRs?

[Seppia]

Also: I know this is a concept someone born on/after 1980 has no idea of, but we had a lot of inflation.
An on steroids example: look at what happened to the nominal values of the Zimbabwe stock market during their period of hyperinflation.
Which is why I believe “the stock market is an inflation hedge” to be a mostly true statement

[daylen]

Take any resources as an example that this technology growth story needs. Suppose the never ending demand for lithium or computer chips. A 7% growth rate would mean the demand for these resources doubles every 10 years. A 16% growth rate would be a quadrupling of a resource after 10 years. 32% would be 16x after 10 years!

Growth must eventually calm down, of course. Though, it does seem we are exceeding Moore's law for GPU's (more than doubling compute every two years). Energy cost also seems to be going down by three quarters every two years. We'll see if Huang's law continues. Maybe Jevons paradox can be neutralized with sufficient accounting of externalities? There also seems to be a Moore's law budding for highly efficient analog compute which doesn't require rare earths (which aren't that rare but require time and capital to extract). Human needs aren't infinite despite what some economist said once, so I wonder if it might be possible to soft land into a stagnate yet relatively vibrant economy sometime this century or so? There is also a solar system to process in our backyard, abundant solar above, and abundant geothermal below that we have hardly touched.

I am no economist and probably a helpless optimist. I am prepared to be completely wrong and settle into my luck.

[jacob]

Which is why I believe “the stock market is an inflation hedge” to be a mostly true statement

Sort of yes. A simple model is price = price/earnings * earnings. Inflation tends to increase earnings, but the market tends to decrease the p/e multiple due to uncertainty about how much of the increased revenue translates into increased earnings since the cost of running the business also goes up. This is a big reason why a small amount of inflation is considered a "good thing". However, that inflation must be stable or the p/e goes down.

[Lemur]

Growth must eventually calm down, of course. Though, it does seem we are exceeding Moore's law for GPU's (more than doubling compute every two years). Energy cost also seems to be going down by a quarter every two years. We'll see if Huang's law continues. Maybe Jevons paradox can be neutralized with sufficient accounting of externalities? There also seems to be a Moore's law budding for highly efficient analog compute which doesn't require rare earths (which aren't that rare but require time and capital to extract). Human needs aren't infinite despite what some economist said once, so I wonder if it might be possible to soft land into a stagnate yet relatively vibrant economy sometime this century or so? There is also a solar system to process in our backyard, abundant solar above, and abundant geothermal below that we have hardly touched.

I am no economist and probably a helpless optimist. I am prepared to be completely wrong and settle into my luck.

Theoretically yes but I think its political suicide for whomever wants to campaign on that.

I also think this is possible at large (stagnant / vibrant economy) but right now the current culture demands nuclear fusion, quantum computing, and asteroid mining with little consideration of resource constraints. The spice must flow...

Fusion would be quite the breakthrough but I think but its a race against time when considering these constraints.

I'm getting off-topic too much now though.

[okumurahata]

Let me explain. I was thinking about the gross margins of FAANG companies – values that were unimaginable in the 90s. I expect in the future to have more of these companies, increasing the average gross margin of the entire S&P 500. For example, since Google was founded, there hasn’t been a single company that could decrease its margins, and competition in the arena is fierce. FAANG dominance is unprecedented. So, let’s imagine that in the future, the S&P 500 comprises 500 FAANG companies. What implications would this have for an investor? Firstly, it would mean that society is heavily reliant on software to thrive (the S&P 500 reflects current consumerism). Secondly, it implies that society is consuming fewer physical products. Thirdly, the S&P 500 would have an average margin never seen before.

In other words, do you remember the mistake of selling Apple in the 90s to trade it for Exxon. Now, imagine that the whole S&P 500 is full of Apples; you sell Red Apple to buy Green Apple. Or you have a bag full of Apples. You can’t go wrong because every company has insane margins.

[zbigi]

So, let’s imagine that in the future, the S&P 500 comprises 500 FAANG companies.

Why would that happen though? FAANGs are monopolies or almost-monopolies, due to how Internet and software in general works (with Apple being somewhat of an exception, where they rely mostly on quality of their product and strength of their brand). That does not translate to rest of economy, be it auto making, mining, agriculture, air lines or any other sectors, where there's some competition and hence FAANG-level margins are absolutely impossible. In your scenario, there'd need to be 500 FAANG-like giants, all in software (or some other highly-monopolisable niches that are yet to emerge), with maybe some addition of cult-like (Apple-like) companies, which sell something that can move at $400B per year (even Coca-Cola, whose drinks can probably be even bought in the Kalahari Desert, is only selling a tenth of that).