Investing Notes: HedgeD 9/23/20

Attended a webinar (monthly) called HedgeD from Morgan Creek Capital today and took some investing notes that I want to share with my "Women Who Invest" Facebook group. Didn't see a good way to share it inside of Facebook - so putting my notes here for all to see. Sharing is caring, right? Here are my notes (along with my commentary).

So the market's going all crazy right now - new all time highs, everyone is a day trader, and looking a little more closely at these stock prices, the market caps are 20x, 28x, way higher than even revenues. Just so crazy expensive - and yet, when I look at these stock trading groups, people are pumping their hard earned dollars into these over priced assets. I worry.

October 2018-Present. The S&P is up 10%, which is about 5% a year (not really great). In reality, the money is actually down 40% (people just don't realize this yet.) During that same period, GLD is up 60%. Aren't we supposed to "buy cheap, sell high". People are buying high these days.... and they'll be forced to sell low. Again, in that same time period, Gold Corp is up 155%, Newman Gold is up 110%, Amazon up 55%, C Limited (Asia) is up 900%, Twilio is up 180%, and JD.com (Chinese) is up 120%. 

So passive funds (index funds) are going crazy too. Everyone is putting money in, and by everyone, it's the regular people (who are not your trained professional investors). Index funds do well when the money supply is high (like right now). So more money = higher prices. Eventually, the money supply will slow down and this will go negative, fast. And so if you take a step back, and look at the S&P for example over the last 20 years, compound return is only 5%. That's TERRIBLE. 

Stocks are even worse. People are buying things at stupid prices. Snowflake is the poster child for this craziness (it's at 227 times earnings or revenue.) --- WAY TOO EXPENSIVE. Zoom is at 100x revenue. And on top of it, everyone is being the same thing (the FAB4) - Apple, Microsoft, Amazon, Alphabet, Facebook.... the Valuations are too high. It's not sustainable.

Remarks on Wall Street versus Main Street. Wall Street are the professional investors. Main Street are the speculators and newly-minted "day traders". All of this money is going into stocks - and what people need to do is take a step back and realize, there's no market recovery happening. COVID19 is exacerbating inequality everywhere. Only 41% of Americans had ANY savings at all before COVID (so there are a LOT of people hurting right now.). This year alone, we're going to see over 46% of Americans become food insecure. 30% of kids that are supposed to be remote learning don't have a laptop or internet. Those that have will do even better, and those that do not have will do even worse. He said it'll be a k-shaped recovery.

The American economy is driven by consumer spending. Again, no market recovery coming. Consumer spending (even with perceived increases this summer) is still down 30% from April. High income earners are spending as a percentage 50% LESS than low income earners. Let that sink in. That means less high income earners traveling, eating out, going to bars, shopping - that hurts small businesses, restaurants, who hire even more of the low income earners. So, if Consumer Spending = GDP = S&P..... then the S&P will be in BIG trouble very shortly.

So why are the stock prices even higher? And a significant amount of the stock is going up for non earning companies. This is not sustainable. 47% of the Russell 2000 are NONearners. 15-20% of US companies are NOT profitable, they have more debt than profit (called "zombie companies" or "Stocks"). The Stock market is a raging mania and being driven by "retail investor" or more precisely, speculators. For instance, there were 3,000,000 NEW first time investors on Robinhood. And over 20% of all stock trading is coming from retail. On the otherwise, stock buybacks are not happening as much any more. Companies are not buying stocks. Bankruptcies and bad debt is soaring. And it's starting to trend that Biden will likely be the winner of the election, which means, HIGHER TAXES. Equity market is falling down.

There are still good companies out there. Look for EBITA margins greater than 50%. Look for companies that are in the digitization, consumerization off financial products, payments, etc.... you can access them through relationships (private equity side). 

Then they went into their sales schpeel on hedge funds. Average hedge funds are up 3.9%, and the best are up 30%, while the average stock has had almost NO return over the past 3 years. Choose wisely. 

Hope these investing notes from the webinar help give at least a perspective and is informational. 

--Arry 
P.S. Let me know if any questions or if you want to connect. I'm happy to connect you with these folks as well. Sharing is caring! Also check out the podcast, HedgeD -- their first interview is really good with John Burbank.