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Schwab Sector Views; A New Era For The U.S. Consumer?
I do agree that people should be cautious with these names and that they are overvalued. SBUX too and look at the insanity that is SHAK.
SHAK is trading at over a 1,000 p/e and has a book value of about a buck.
However, the whole "don't count out the American consumer's ability to spend" is kind of a tiresome statement. (LOL, I say that and V and MA are among my largest holdings...)
Several recent MFO posts (an earlier one from Ted) discuss the prospects of sector rotation strategies. Theoretically, excess rewards are attractive. But potential pitfalls also exist.
Sector rotation strategies have a loyal following among both professional and individual investors. It’s been a popular investing concept since S&P’s Sam Stovall released his 1996 classic “Sector Investing” book. He still touts its benefits. Here is a Link to a 2013 MoneyShow presentation:
I post these references for your informational purposes. I do NOT deploy any sector rotation methods. From my perspective, Sector Rotation is just another form of market timing.
In fact, I view the method as doubling-down on market timing. Sector Rotation requires making two very challenging projections: (1) a market cycle and stage must be guesstimated, and (2) an economic cycle must also be estimated. Given that these are asymmetric cycles in time, and that the sector rotation decisions depend on the relative time lag between these two cycles, the chances of making prescient entry/exit points is practically remote. I pass on Sector Rotation.
The opaqueness of converting weak and conflicting market and economic recession signals into reliable portfolio action signals worry me. I find that task impossible to implement. Adding to this difficulty is the erosive impacts of taxes and trading costs. These further degrade the attractiveness of Sector Rotation.
Consider also the statistical reality that sector components don’t always adhere to their average performance; some deviate from their expected behavior during different phases of their baseline cycle. Change happens.
Given these challenges, I prefer a diversified equity/bond portfolio mix to somewhat tame wild market rides.
Jason Zweig identifies 3 Commandments that are candidate guiding principles for conservative, risk control investors: (1) Don’t take risk you don’t need to take, (2) Don’t put money at risk that you can’t afford to completely lose, and (3) Don’t accept any risk if you don’t anticipate a payday that rewards that risk. His first and third commandments are especially applicable in this instance.
With regard to Sector Rotation, I just do not find the risk/reward tradeoff to be attractive. That’s just my humble opinion.
WFM down 9.74% at the close. Some or all of these high flyer stocks need haircuts. Is SHAK at its apogee and starting the downwards leg? Down over 9% after hours. All Roman candles come down sooner or later.
@scott, Today there was another IPO of a restaurant. Bojangles. Ticker is BOJA. Up 25% for its first day of trading.
It's just a chicken resto. Probably the next Cramer pump.
I think what infuriates me is that I consistently hear that Biotech is in a bubble more than anything else. If I watch CNBC in any given day, I hear about it more than once. Yet, they're all excited about something like Bojangles, or Twitter or Yelp or whatever.
While I will say that some smaller biotechs are overvalued and have been ramped up based on the promise of the pipeline and future products, the sheer volume of the biotech bubble argument while the media pumps ridiculous stuff (SHAK) is irritating. While smaller players are expensive in the biotech field, look at GILD trading at about an 11.8 p/e after a tremendous quarter and the other majors - BIIB, CELG, AMGN and a few others - are certainly not as cheap as GILD but valuations aren't unreasonable.
"No no, forget about those companies trying to solve the biggest medical issues of our time, go buy this restaurant stock trading at a thousand p/e and is trading 63x book."
I haven't looked at the details of Bojangles,but I'm guessing it - like SHAK - is a tiny float and will be another short squeeze possibility. See SHAK, See GPRO, etc etc. I mean, look at SHAK, which is something like 30+% short.
Unfortunately, the NYSE didn't get BOJA. Otherwise, the NYSE has really gotten a lot of IPO traffic.
ICE (which owns the NYSE) had a really good quarter the other day and is up nicely. ICE remains one of my largest holdings.
Great comment Scott. Are people putting more value on a burger or chicken joint than they are in a company that is working on a cure for multiple sclerosis or hepatitis C? It sure seems that way. Another thought about the smaller bio techs, I think there is so much money being poured into this sector that it is causing the prices to go up. Biotech is a small sector.
These are the modern fads, like the tulips of yesteryear or the beanie babies of not so long ago. They will all fade away.
Comments
I do agree that people should be cautious with these names and that they are overvalued. SBUX too and look at the insanity that is SHAK.
SHAK is trading at over a 1,000 p/e and has a book value of about a buck.
However, the whole "don't count out the American consumer's ability to spend" is kind of a tiresome statement. (LOL, I say that and V and MA are among my largest holdings...)
Several recent MFO posts (an earlier one from Ted) discuss the prospects of sector rotation strategies. Theoretically, excess rewards are attractive. But potential pitfalls also exist.
Sector rotation strategies have a loyal following among both professional and individual investors. It’s been a popular investing concept since S&P’s Sam Stovall released his 1996 classic “Sector Investing” book. He still touts its benefits. Here is a Link to a 2013 MoneyShow presentation:
http://www.moneyshow.com/articles.asp?aid=GURU-33087
Here is a Link to a short and nice summary of Sector Rotation basics:
http://www.financialsensearchive.com/fsu/editorials/wagner/2009/0416.html
I post these references for your informational purposes. I do NOT deploy any sector rotation methods. From my perspective, Sector Rotation is just another form of market timing.
In fact, I view the method as doubling-down on market timing. Sector Rotation requires making two very challenging projections: (1) a market cycle and stage must be guesstimated, and (2) an economic cycle must also be estimated. Given that these are asymmetric cycles in time, and that the sector rotation decisions depend on the relative time lag between these two cycles, the chances of making prescient entry/exit points is practically remote. I pass on Sector Rotation.
The opaqueness of converting weak and conflicting market and economic recession signals into reliable portfolio action signals worry me. I find that task impossible to implement. Adding to this difficulty is the erosive impacts of taxes and trading costs. These further degrade the attractiveness of Sector Rotation.
Consider also the statistical reality that sector components don’t always adhere to their average performance; some deviate from their expected behavior during different phases of their baseline cycle. Change happens.
Given these challenges, I prefer a diversified equity/bond portfolio mix to somewhat tame wild market rides.
Jason Zweig identifies 3 Commandments that are candidate guiding principles for conservative, risk control investors: (1) Don’t take risk you don’t need to take, (2) Don’t put money at risk that you can’t afford to completely lose, and (3) Don’t accept any risk if you don’t anticipate a payday that rewards that risk. His first and third commandments are especially applicable in this instance.
With regard to Sector Rotation, I just do not find the risk/reward tradeoff to be attractive. That’s just my humble opinion.
Best Regards.
It's just a chicken resto. Probably the next Cramer pump.
While I will say that some smaller biotechs are overvalued and have been ramped up based on the promise of the pipeline and future products, the sheer volume of the biotech bubble argument while the media pumps ridiculous stuff (SHAK) is irritating. While smaller players are expensive in the biotech field, look at GILD trading at about an 11.8 p/e after a tremendous quarter and the other majors - BIIB, CELG, AMGN and a few others - are certainly not as cheap as GILD but valuations aren't unreasonable.
"No no, forget about those companies trying to solve the biggest medical issues of our time, go buy this restaurant stock trading at a thousand p/e and is trading 63x book."
I haven't looked at the details of Bojangles,but I'm guessing it - like SHAK - is a tiny float and will be another short squeeze possibility. See SHAK, See GPRO, etc etc. I mean, look at SHAK, which is something like 30+% short.
Unfortunately, the NYSE didn't get BOJA. Otherwise, the NYSE has really gotten a lot of IPO traffic.
ICE (which owns the NYSE) had a really good quarter the other day and is up nicely. ICE remains one of my largest holdings.
These are the modern fads, like the tulips of yesteryear or the beanie babies of not so long ago. They will all fade away.