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Thanks for this great video Marty!
ReplyDeleteI have question about the Tech Sectors and Tech Companies. What do you think of the big names: AAPL, MSFT, GOOGL, TSLA, and AMZN (part of our core now), and INTC.
I like intel especially and they will be a different company in a few years. I know we have AMD as a core holding, but Intel is a unique one that combines both TSM manufacturing capability and AMD design capability).
I was watching a chartmaster clip from MSNBC. They said the those tech companies above peak at 25% of the S&P. They think that they will eventually go down to 15% of the S&P, maybe in 2023. In your opinion, would they be good candidates for long term holds once they are bottomed out? I know that you like the macroeconomy. Wouldn't those companies be part of the macroeconomy since they are affecting the global economy? I did not realize how much Amazon affected the IT sector in India until recently when Amazon announced layoffs. (Just a suggestion. It would be helpful in terms of education if you can break down each company by their valuations, P/E, financial balance sheets, and etc. in one of your blog.)
Thank you! Have a great weekend.
My pleasure Sam. With regard to the tech sector, yes, they occupy a substantial % of the S&P, as they did ahead of the tech bubble bursting, and as financials did, ahead of the financial bubble bursting ('08)... So, that, by itself, is not a savory place to start when you're looking at adding to a given sector... Beyond that, what we need to be very cognizant of is the "long duration" nature of tech companies, which, in essence, makes them extremely interest rate sensitive... Which, to no small degree, explains their bottom of the barrel performance this year...
DeleteOf course tech will be an essential ingredient in terms of economic growth going forward, but in a world that is somewhat less global, and less capital-friendly vs past decades, and given the ambitions of governments the world over (think populism, green energy and so on) -- and considering the long bear market commodity and resource companies have recently emerged from -- the macro setup favors what are presently under-owned resource-like sectors and regions going forward.
Now, that said, tech will bounce more so than the pack on evidence that inflation, and, thus, interest rates are on the decline... Again, because of their sensitivity to those dynamics.
With regard to chips in particular, given their ubiquity, the sector itself becomes a potentially important economic indicator... I.e., when the global economy is good, or about to emerge from a slowdown, and capital investment is about to ramp up, chips should be an early bullish signal.
With regard to us going into deep individual company detail on the blog, compliance/regulatory constraints make that something you won't see us do to any deep degree... But I'll very briefly touch on Intel's basics in this thread:
Presently intc trades at a significant p/e premium relative to its historical average (16.2 vs 12.2), while its balance sheet looks fine (cash = 2 times total debt) and it generates loads of free cash flow.... It's the 14th largest holding in the tech sector ETF (XLK), which we hold as a core position...
With regard to tech in our core allocation, it currently occupies just over 10% of our equity exposure. This is small relative to where we were in past years... Prior to 2020 it spent years near the top of our sector weightings... This speaks to our view that the overall regime has shifted, and that the next bull market will be characterized by notably different winners and losers than the last...
All that said, we will no doubt be owners of US tech companies perpetually going forward... We'll, I suspect, continue to concentrate the bulk of our equity exposure in ETFs and selectively grab individual equities, in small quantity, when we believe their idiosyncrasies call for it...
Thanks for the great response!
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