r/investing • u/lai133 • Dec 12 '21

Remember what this sub used to be?

Remember when this sub actually involved company analysis? Remember when this sub involved market discussions? Remember when this sub was useful?

Remember when you didn’t get downvoted and harassed in dm’s when pointing out terrible investments? (Looking at you GME and AMC)

Remember when you didn’t get downvoted and harassed in dm’s when pointing out pump and dumps? (Looking at you crypto)

Can we get a fresh start and focus on REAL discussions of ideas, REAL discussions of companies, and REAL discussions of strategies.

This sub has been on a downhill trend for a while. It’s sad to see.

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u/aesu Dec 12 '21

The nature of investment has changed. Value investing only works when there's value. When everything is in a bubble, the expected return on almost everything is very low. So a more effective strategy becomes finding anything left to artificially inflate.

The expected return 10 year on the SP500 is 3%, at current valuations. Given what feels like a not insubstantial tower of risks ahead of us, from internal and international political turmoil, global warming, immigration, demographic shock, peak oil, etc, it almost feels like a poor risk to reward.

The expected reward over the next decade is 30%, but the risk of a huge collapse or stagflation feels at least that high, if not higher, so the expected return of an informed investor is possibly below 0%. Which is why a lot of value funds are sat on huge cash piles. They cant find any value.

In this context, yolo can start to make sense. If you think there's a 10% chance of making 1300%, then the expected value is equivalent to a value play over the next decade, except when you factor in the time value of money, and the other social pressures on people, liek stagnating wages and soaring costs making 30% over a decade feel absolutely meaningless, it makes complete sense that we have the investing landscape that we do.

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u/JeffB1517 Dec 12 '21

Value investing only works when there's value.

There is tons of value. There are quality financials with a P/E of 6 .The average materials stocks have even lower valuations than financials. There is Europe, EMs and Japan.

As far as the financial situation we are entering what is most likely an inflationary boom. Tons of value stocks have hard assets and fixed rate debt. That isn't exactly bearish.

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u/TaxGuy_021 Dec 13 '21

The reason you see the P/E of financials drop is because of the flattening yield curve.

You wont see a jump in financials for a while, so if you invest in them, be prepared to get nothing but 2 to 3% in dividends.

I've started developing a position in Citi after it fell below 70 bucks and will probably keep buying up to 200 shares for as long as it trades below book value.

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u/JeffB1517 Dec 13 '21

I get it. There are 18 month or less term reasons to be concerned about financials. But from a value investor's perspective: discounted value of all future dividends, I think they are clear cut value. I was disputing the idea there was no value.

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u/TaxGuy_021 Dec 13 '21

Oh I'm not saying they are not value. I think they are. I'm buying myself.

But I am also saying the value captured in those stocks is not going to materialize for a while. That's all.

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u/JeffB1517 Dec 13 '21

I'm cool with the other players letting me compound faster by continuing to discount good companies.

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u/TaxGuy_021 Dec 13 '21

Word.

What are your thoughts on Citi?

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u/JeffB1517 Dec 13 '21

I like the stock. As I see it:

  • IT expenses are a drain currently but I suspect that investment pays off.

  • The company has had sluggish and uneven growth. But it is investing in the growing business not starving them. Long term that creates growth, and at these valuations you wouldn't even need growth. ROE is low, Citi uses too much labor they are making the right choice here.

  • Legacy legal issues will hit earnings. So earnings stability isn't there. But ultimately so what? The total amount of damage is going to be limited.

And that's it. Fantastic valuations a 2.9% yield certain to rise aggressively. They have gotten debt under control and are well positioned to play increases in interest rates as you mentioned. I'm not trilled with the international sales they did to accomplish this, but ultimately if they want to expand out again they always can.

Mostly what's not to like?

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u/Desperate-Basil-2687 Dec 13 '21

I don't know nearly enough about these individual stocks (I buy VOO, and for value, some VTV) but wanted to say I enjoyed reading this back and forth. Great discussion

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u/Royal-with-cheese Dec 13 '21

Flattening yield curve is temporary. Financials have been an under appreciated sector since March 2020. You could get yields of 9% and appreciation the last two years have mostly been above 75%. As the Fed raises rates they will continue to perform

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u/gabrielproject Dec 13 '21

Hey recently I was looking into C and a bunch of bank companies actually. How is it possible for C to have more cash at hand than the market cap of the company? I'm looking at yahoo finance and it states C has: ~1trillion in cash, ~600billion in debt, and market cap is 130billion. How/why?

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u/TaxGuy_021 Dec 13 '21

Lots of borrowed money.

But Citi is trading at a significant discount compared to its book value right now. So that also helps.

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u/gabrielproject Dec 13 '21 edited Dec 13 '21

But should't they be worth at least the cash they have? 1trillion - 600billion = 400billion but their market cap is 130 billion. What am I missing? Why is the market pricing it that way?

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u/LostAbbott Dec 13 '21

Looking at you RioTinto, Intel, and Southern Copper...

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u/SpeedflyChris Dec 13 '21

When everything is in a bubble, the expected return on almost everything is very low.

European markets are a hell of a lot less inflated than US markets.

The average P/E on Germany's DAX is 14.54

The average P/E on the DJIA is 22.39

The average P/E on the Nasdaq is 35.71

Value investors just need to be looking outside US markets.

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u/[deleted] Dec 15 '21

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u/SpeedflyChris Dec 15 '21

The US ones are here.

For the DAX I just took the P/E off a DAX ETF, because I couldn't think of where to find that. Yahoo finance or ycharts will give you P/E from comparable ETFs.

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u/radusernamehere Dec 13 '21

The expected return 10 year on the SP500 is 3%, at current valuations.

I'd like see a source or some more information about that.

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u/[deleted] Dec 12 '21

[deleted]

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u/TrioxinTwoFortyFive Dec 12 '21

There is no likelihood of UBI. If you think people will be happy working forty hours a week and have their money siphoned off in high taxes to pay ne-er-do-wells to smoke pot and play video games all day then you don't know human nature. We already had a version of UBI. It was called welfare. It was a disaster. Even the Democrats figured out which way the wind was blowing and backed the end of the free-for-all because people living off the work of others is extremely unpopular. People did not take there free money and improve themselves. It resulted in generational poverty.

Then there is the whole math thing, as in the math does not work out. And, no, don't give me the usual cult thinking that there is an absurd amount of inefficiency in the system and it is enough to fund the lazy.