I went out of the market in November 2021. Sold everything but 10%. Started buying again in November 2022 and continued until February 2023.
I missed the exact bottom in October, but still – I timed it almost to perfection. So what I say next should not be dismissed with “haha, he missed the bottom and is mad”. No bro, I am like the bottom's brother.
Jokes aside, the discount rate is at 5,25% and stocks like Microsoft trading at 40 P/E with negative EPS growth TTM. Apple is a bit better at 32. Now, I know P/E is just a smell test. But no one in this world can convince me that Microsoft will start growing EPS at such a high rate to justify such a multiple… And historically speaking, such high discount rates make P/E multiples go down and not expand. As Buffett says “interest rates are like gravity for stocks”. Yet, the SP500 is not down even 10% from its all time high.
Microsoft is so big, it has already almost maximized its profit margin potential – it is improbable they will grow earnings over 20%/year. Another point for this being a mania.
I have to admit – there are still companies I like a lot at these prices who are still beaten down 40-50% despite being great businesses and doing well. The only reason for this is that their CEOs haven't repeated “AIAIAIAIIAIAIAIAIAIAIIAIAIAIAIAIIAIAIAIAIAIAIAIAIAIIAIAIAIAIAII” 50 times in the last earnings call.
Where I thrive is software companies(SaaS mostly). Most of them have doubled or tripled in the last few months based on how many times AI has been repeated. Growth has slowed down, costs have staid the same, yet stock prices have skyrocketed?!?!
This tells me that this part of the market is in another maniac phase. To be clear, I haven't sold anything. It is just that the pool of potential investments that can offer great returns has decreased drastically. Investors' optimism about these stocks is making me really nervous.
Every bit of bad news is dismissed and gets converted into good news. Every bit of good news gets exaggerated by a factor of 100.
Even though this seems like the end stage of a bull market, I am not betting on it. See how negative I am? I am still in the market. Like Peter Lynch has said – it is important to learn to ignore your gut. Had I listened to my gut, I wouldn't have dared to enter the market in Nov 2022.
Take this post for what you will – human psychology study, ramblings of a random investor… I just feel the need from time to time to let these negative thoughts out. It helps me not to act on them. I still think something will break, but I am ignoring these thoughts.
Good luck to everyone, even if you bought Microsoft at 40 P/E. jk lol
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