The “Magnificent 7” are TSLA, AAPL, META, GOOG, MSFT, AMZN, NVDA. Buy and hold forever? 
Nifty Fifty
In the United States, the term Nifty Fifty was an informal designation for a group of roughly fifty large-cap stocks on the New York Stock Exchange in the 1960s and 1970s that were widely regarded as solid buy and hold growth stocks, or “Blue-chip” stocks. These fifty stocks are credited by historians with propelling the bull market of the early 1970s, while their subsequent crash and underperformance through the early 1980s are an example of what may occur following a period during which many investors ignore fundamental stock valuation metrics, to instead make decisions on popular sentiment. Roughly half of the Nifty Fifty have since recovered and are solid performers, although a few are now defunct or otherwise worthless.
Investor Howard Marks reports that about half of the Nifty Fifty “compiled respectable returns for 25 years, even when measured from their pre-crash highs, suggesting that very high valuations can be fundamentally justified.” On the other hand, Professor Jeremy Siegel analyzed the Nifty Fifty era in his book Stocks for the Long Run, and determined companies that routinely sold for P/E ratios above 50 consistently performed worse than the broader market (as measured by the S&P 500) in the next 25 years, with only a few exceptions.
Roundhill MAGS
The Roundhill Investments MAGS idea likely represents peak sentiment.
If you are just now a MAGS fan, your timing is more than a bit off.
Do You Like Amazon Here?
Do You Like Tesla Here?
Do You Like Nvidia Here?
Peak Sentiment
All of the above companies are excellent companies. But what price are you willing to pay for them?
Yes, one could have asked that same questions at nearly any point in the past and be ahead. But corrections are likely to be very steep.
Good companies are not the same as good stocks to buy. Between 2022 and 2023, Amazon fell from $188.21 to $81.43 That’s a 57 percent decline.
Between 2022 and 2023, TSLA fell from $414.50 to $101.81. That’s a decline of 75%.
Is Tesla a car company or something else? I don’t think we even know that yet, but it’s priced for something much larger.
It’s much harder to make up for losses than it is to find opportunities.
This action and sentiment now strikes me the same way the Nasdaq blowoff technology bubble did in 2000 and the housing bubble did in 2007.
Good luck with the Magnificent 7 if you are in that trade. You will need it.
AI? A $1 Trillion solution in search of a $2 Trillion problem (assuming you can earn a 50% margin on your AI investment). It has been touted as multiples greater than the internet itself. But what is it actually? Well, is it a speedy search and sorting engine? After all, if it doesn’t have data, what can it do? I’m sure it will have many use cases, but is there big money to be made helping me plan my next vacation? I like my travel agent.
I sure do miss Chesebrough-Pond’s
It is now owned by Unilever.
Don’t worry, AI, something something something AI something something, AI something. See, all good now!
I sold most of my tech over 4 years ago and moved into oils. Only kept Microsoft and Google/Alphabet.
I keep selling the rips and buying the dips with a portion of my portfolio. Was buying oils this week.
Bill Gates is a nerd, a f**ing mass hole, a lousy salesman, a little dictator who tried to dominate the web. His partner had the brains.
He was smart enough to choose a good partner. Now he’s worth $130 billion.
He was never going to dominate the web because he didn’t fully understand it. Gates made his fortune licensing software (DOS – later Windows, Office suite, Xbox games etc). Virtually everything that they’ve been successful with has been modeled on software licensing (even their cloud system is again, one big licensing model).
The Mag7 weight: Tesla ($663B) is larger than AAPL ($3.37T), MSFT ($3.04T) and NVDA ($2.64T)
I have a bad gut feeling about Berkshire dumping a lot of stock.
The peak for the S&P 500 is in (5669.67 on 7/16/24). That was a 58% increase from the low of 3583.07 on 10/9/22.
Here’s the recap of the last 5 years of the S&P 500 index:
3380.16 pre scamdemic peak
2304.92 3/15/20 panic bottom
4776.18 12/26/21 scamdemic peak
3583.07 10/9/22 post scamdemic low
5669.67 7/16/24 post scamdemic peak
(meant 7/16/24 in 2nd paragraph)
Fixed
Will China finally destroy Mag7? Tesla is feeling pressure from Chinese EV manufacturers. How long will China need graphic cards from Nvidia? Will Apple lose ground to Huawei outside China? Chinese online shops are pushing forward and one day Amazon will feel it. Google – will all Chinese mobile phone makers use home made OS and erode Google’s earning from third world countries? The same may happen to Microsoft one day. I have to admit that I didn’t do any research on source of revenues of Mag7, its just out-of-stomach feeling.
Three gold medals in 90 min. Our Mag athletes are happy to wrap themselves in US flag. No kneeling. No defiance. Paris Olympic might send the Dow to a new all time high
Mish, you are taking a technical approach to those stocks. With me, it was fundamentals. I could not justify the valuations of these big boys and bought SQQQ the triple inverse negative of the NASDAQ, so I have been waiting for these names to get crushed, but I have been, Still, I held back most of my powder waiting for when the time is right. I am usually way too early. Well, it looks like it is right now.
Until your post, I had no clue the Fed was stimulating into the fall of 2023. I could not believe that I missed it. What I did not miss though was the AI hype. To be honest, it has been the first time in decades that I saw something somewhat cool in tech land. You could generate songs, stories, even do homework with it. And? For all the hype, I really did not see much more.
When switching from a google Pixel 4A to a Pixel 7 pro, you would think given the amount I paid, the pro had to be better but the mere basics of the phone, battery life and picking up a signal, were way worse. I gave away the 7. I bought a used Samsung for $250, best phone I have ever owned.
And when you price a Google, you are predicting massive earnings growth. Why? Where is it written Google earnings have to grow? They lost me as a phone customer. How many others are there? Thing is Google has been trying to get me to buy more storage space and their tactics smack of desperation.
How do you grow 30% when the balance sheet of so many Americans is shrinking? You can’t. I have actually been frustrated as to why these stocks have not crashed already given their valuations.
Leveraged funds go to zero over time and can do so with volatility without stocks going anywhere.
I have a suspicion the creators of double and triple (long or short) funds are constantly short both.
The problem with these beasts is they reset every day.
I recommend staying away. It can only work if your timing is perfect and volatility is constantly down or flat.
One big bounce will screw you bad.
You’re right about the volatility. I follow a number of these 3x funds, both long and inverse. For example, there are a couple of funds for semiconductors (SOXL & SOXS). One day last week one was up 15% and the other was down 15%. The next day it was almost the exact opposite. There are periods when volatility is reduced, but that is for the the funds that invest on the long side. The inverse ones are typically only winners over a very short span of time. Like the past 2 weeks.
I appreciate the comment Mish. As you know, all shorts can go to zero if the timing is wrong. I do not recommend it with others. My making money in the market though has been based on a determination I am right and the market is wrong at the same time constantly checking to see if I could be wrong. It has just been easier to find something massively overvalued than undervalued.
I made a 700% gain the first time I used triple inverse fund that shorted oil, but it was painful for a while too. Do you remember the bs that was peak oil? The USA was having a massive increase in oil production and the peak oil nuts were ignoring it. Wall Street guys were saying the increased production was fake while I am talking to people working the fields. Eventually, oil went from $100 to $20 and the trigger, which you can never know, was when oil prices came down, Saudi Arabia said they were not going to cut production.
Why is there the sell off now? What was the trigger? Buffett selling Apple? Nvidia saying their newest AI chip is not going to be delivered? This market going up to record levels after the Fed raised rates made as much sense as $100 oil.
What I have found is that the inverse funds give me a way to be short but have more flexibility on timing. If you have a better way for a value guy like me to be short, Mish, I would really appreciate it.
Googl’s P/E (trailing 12 months) is at 24, and lower then the S&P 500 P/E of 28. I think the company’s revenue and earnings per share can easily grow 10% a year for the next 10 years. It makes a lot of money from Youtube and Google Search/Maps/Gmail and then cloud services.
The stock price should be $149 if its stock price matched 20% annual growth over the last 5 years.
The pandemic period (2020 to 2022) caused an anomaly in asset prices, and we are slowly letting the air out of that bubble.
You are comparing Google to the wrong things. The safest yields are bonds, and if the safest bonds are yielding 5% or so, the market should have a PE less than 5% or PE of 20, and I would say even lower than the historical average of 16, and that is because of the alternative of corporate bonds.
I can show you loads of corporate bond funds with double digit yields, and bonds are safer than stocks. Why are you locking in a stock with a 4% yield when you can buy a much safer bond fund with a 12% yield?
The excuse is growth. You predicted 10% growth, but you have to have 300% growth in earnings to match the bond fund yield and honestly to justify the valuation given that stocks are riskier, you really should be buying with the expectation of having a 400% growth in earnings.
Run the numbers. Stock at 24 has $1 in earnings. Bond at 24 with 12% yield has $2.88 in yield/earnings. You are saying the stock is going to $1.10 in earnings. That is not nearly enough. You have to get way past $2.88 to justify Google’s valuation.
That is why I am short. Valuations are insane.
Investing is as much about finding the tulips as it is about finding the gems
Kudos!! Fundamentals will have you find plenty of below 1x Pr/Sales companies which have posted better than expected the last 18mos with raised guidance.
I could have hanged myself years ago. In talking to an IT guy at work, he suggested Apple stock, because Jobs had just left, the price tanked, and he said it would eventually go back up. He was right. That initial $2000. investment would be now $38,106. Would I recommend them now? No. real estate or something real you can sell, if need be. Not everyone has insider tips like an IT guy or Pelosi.
My ethics also prevent me from ever investing in Microsoft or Google. Both are actively destroying the United States. If you don’t know, visit newamerica.org. Gates has put a lot of money into this; it looks like the US on communism. In fact, all of the above are a hard pass for me, sorry. Now that I know what they’re up to – it’s hard to forgive.
Gates stole DOS. That is common knowledge in my Circles. I worked for the Guy who created DOS. Gates is a rich liar.
Gates obviously was a salesman. You can invent the best thing in the world but if not marketed well, will be a flop. It takes a good product but it takes even better sales to make a successful product.
Nikola Tesla was a great example. Died poor.
Thomas Edison the more successful salesman, unfortunately.
Steve Job stole the mouse. In Sept 2001 Bill Gate rejected gov claims that MSFT monopolized the web under Sherman Act. His defiance sent the Nasdaq down to Oct 2002 low.
Not just the mouse. He stole the entire icon based GUI that we all know and use today on every OS from Xerox who had no idea what they had invented.
Though stole is a strong word. They showed it to him freely and he just borrowed the idea and packaged it with a lot of improvements.
Not true. Apple had a contract with Xerox about GUI technology. Apple allowed Xerox to buy 100,000 shares at $10/share. Xerox was incapable of successfully commercializing their inventions. Apple added much value and many new inventions.
DOS is nothing to be proud of as there were plenty of other O/Ss at that time that were better. Gates also wasn’t much of a coder.
But he was a very good businessman who understood the value of licensing software and smartly licensed to IBM. Any of a multitude of companies could have beaten him to that punch if they’d grasped the business opportunity.
Gates purchased Q-DOS (I have read several versions of the price that MS paid) and then packaged it as MS-DOS to IBM. I believe that MS made a later payment to Tim Patterson for DOS.
Software patents were not available in 1980 so Gary Kilgore claimed copyright infringement. Tim Patterson, the author of Q-DOS denied any copyright violations. Gary Kilgore threatened copyright infringement against IBM with IBM agreeing to provide both operating systems for its PCs. However, CPM was priced much higher than MS-DOS so CPM did not gain much sales.
IBM was prepared to crush both Gates and Kilgore. They crushed Kilgore with the pricing of CPM. Gates was to be crushed with IBM’s version of DOS, PC-DOS. Gates negotiated the right to market MS-DOS to other manufacturers. IBM paid Gates a fixed sum for DOS. In exchange, Gates negotiated the right to sell DOS to other manufacturers.
IBM had no intention to allow other manufacturers. Compaq cloned the BIOS, effectively causing IBM to lose control of the PC. Gates then was able to sell his DOS version (MS-DOS) to other PC manufacturers.
When IBM first went looking for an OS, Gates suggested Digital Research. IBM came back to Gates after a negotiation failure with DRI.
They are probably a good short, but not for me. 5% in short term t-bills looks good as far as the eye can see.
Or of course certain gold stocks
You won’t be able to re-invest those short term tbills at 5% after they mature if the Fed does 100bps cuts by end of 2024
the market sets the rates, the fed follows the market. The USA is going into debt 1 trillion dollars every 100 days, don’t bet on the market allowing the interest rates to drop that much.
If the market crashes, everyone will be clamoring for 2%.
The best shorts are companies where
Love a good short discussion.
Point #3 is key. I’ll put certain pharmas in the category except …
… at some point, companies with IP/assets may get a tender offer.
Further, look at companies struggling and past their prime like Intel … but too late now.
I think the MAG7 all have positive earnings…may as well short SP500.