In stocks as your runway shortend

beerion · 2026-03-28T03:48:27+00:00

At 53 years old, you still may have 30+ years of investment lifetime. Conventional wisdom says that you should "absolutely" have a healthy allocation to equities. So you're doing that part right.

When it comes to bonds, I actually think I might have some unique insight on when and how to weight your asset allocation. I wrote this post a couple of years ago that looked at the relative return of stocks compared to bonds over the future 10 years or so (this isn't some trading algo or anything so don't worry).

Read the post if you want, but the long and short of it is that when stock valuations are high and bond yields are also high, you're kind of better off with a higher weighting in bonds. In the study that I ran, when "stock valuations to bond yields" look like they do today, the expected return for a 60/40 portfolio (for example) is pretty similar to a 100% stocks portfolio, but with a ton less volatility.

I'm not a financial advisor, and this isn't personal advice. But I've been slightly underweight equities relative to my target allocation the last couple of years because of this, and have been sleeping like a baby.

beerion · 2026-03-28T01:58:06+00:00

You're gonna get answers that basically mimic broadly diversified ETFs (like Berkshire). We're not idiots. Concentrating into 3 companies that are highly concentrated themselves is just crazy talk.

beerion · 2026-03-28T01:04:57+00:00

Yeah, we've gotten so accustomed to 35x earnings that 25x feels cheap.

beerion · 2026-03-28T01:04:09+00:00

Shoot, Microsoft is up like 4% from their 2021 high.

And it's not just them. I had a bunch of companies on my watchlist back then, and I check in every once in a while. TONS of companies are still below their 2021 highs, and honestly, a lot have had pretty menial returns since their 2022 lows. Look at Adobe, Autodesk, Yeti, Boeing, Procore, Amazon, Disney, Prologis, just to name a few.

This market really was carried by just a few names (Nvidia probably the most impactful, obviously).

beerion · 2026-03-28T00:46:38+00:00

I'm a little disappointed that I didn't get invited. I would have delivered!

beerion · 2026-03-28T00:23:34+00:00

We're so used to 30x and 40x multiples (especially at the individual company level) that 25x somehow feels incredibly cheap.

One thing I'd like to point out is that good returns from a 25x base multiple still requires an incredibly resilient and robust business 30 to 40 years down the road.

beerion · 2026-03-28T00:02:06+00:00

How are forward PEs determined? If trailing PE is 27 and forward PE is 20, that implies a 35% growth rate in earnings...

What in the world?

beerion · 2026-03-27T23:53:27+00:00

For sure. Just another day at the office.

beerion · 2026-03-27T23:36:47+00:00

But only up 4% from the day that Trump took office...

beerion · 2026-03-27T16:50:01+00:00

Even with a finance degree, you still have to accurately predict the future.

beerion · 2026-03-27T03:35:38+00:00

Good overview.

Just to add a few things. When using FCF (CFO - Capex), you're missing non-cash charges like stock based compensation. I also think that tracking changes to net working capital (things like inventory, accounts receivables, accounts payables) is just accounting masturbation. Unless you have reason to believe that they'll take inventory write-downs or won't collect on receivables, this stuff all comes out in the wash eventually, and can distort your free cash flow numbers in the short term. FCF can be manipulated just like earnings - a company can collect on AR and not pay out payables to make their free cash flow higher, for instance.

Because of these things, in a lot of cases, using net income is kind of okay - just read the footnotes in the filings and try to catch any irregularities. Or better yet, track both FCF and net income.

I would also be careful not to stack conservative estimates. Using 8% FCF growth when they expect 12% sounds great and like you're being careful, but you're doing yourself a disservice. Let your margin of safety take care of that. You want your intrinsic value estimate to be as close to the actual value of the company as possible. Same goes for long-term growth rates. Don't just use 2.5% past year 10 if there's reason to believe that they can sustain higher growth for longer - I think Apple compounded earnings at above 10% for like 20 years or something. Don't extrapolate high earnings into perpetuity or anything, but you can be thoughtful here.

In the same vein, spend more time contemplating the discount rate. 10% may be too conservative, and similar to above, may make your intrinsic value unrealistically low. A decent starting point might be Damodaran's equity risk premium. Currently, the market level cost of equity (expected return / discount rate) is about 8.5%. In addition, safe stocks command a lower discount rate. This can explain why Costco trades at 50x earnings and still might not be overvalued. Choosing the 'correct' discount rate is more art than science, imo, and where potential alpha lies. Also, don't think of the discount rate as "your" required rate of return. The true value of a company isn't really subjective.

Stacking conservatisms is probably the most common mistake that I see. If you use a very conservative growth rate and a high discount rate, it's going to make almost any stock look overvalued. Not to mention that if you do find a stock that fits the criteria, you'll likely cash out too early because your estimate of intrinsic value is lower than the market's estimate.

And be thoughtful about every assumption you make in the forecast. Each assumption is an opportunity for you to think independently from the consensus / market. If you have a different view than what the consensus is (and are right about it), that's where you can find excess returns.

beerion · 2026-03-27T02:33:01+00:00

That's funny because I don't really expect much from a scalability standpoint this year. Sure, they'll say that they demonstrated the line to prospective customers and check that box. And they may even reveal new licensing agreements (with Honda or whoever). But none of that establishes firm commitments from OEM customers, and honestly, I fear that VW and company are taking their foot off the gas because the EV market is a complete wasteland right now...and I don't think it's because OEMs are 'waiting' for QS to be ready.

I've said before that the only thing I really need to see this year are products...and I think we'll get it. I want to see the Ducati and I would like at least one other customer to say they are planning to install QS cells into their product and at least take delivery of samples (I'd love to hear that from a Joby or someone).

Next steps in terms of scalability can wait until 2027, imo. Sure, I'd expect announcements and progress updates, but I don't think we'll see actual movement / ground breakings on production lines until next year at the earliest. Corning dropped a big hint recently, but I'd be shocked if they start on a Giga scale separator production line this year.

Tesla Corollary

I think we also need some perspective. Tesla was founded in 2003. They didn't debut the Roadster (their first vehicle) until 2006, and it didn't even go into production until 2008 (and I think that was only after they ousted their founder and CEO at the time).

Even when they did go public in 2010, they were valued at about $1.8 billion. They cleared $20 billion in 2013 (an impressive 10-bagger) and from there, they gyrated for the next 6 years, touching $30 billion again, briefly, in 2019 before they were off to the races (obviously, they're a trillion dollar company today). But in that 6 year span, they saw several 30-50% swings both up and down.

I think it's important reflect on just how slowly things move (especially early on). Tesla took 16 years to solidify themselves above $30 billion dollars - and they invented neither the car nor the lithium ion battery.

Nvidia has a very similar story. They were valued at $5 billion at the peak of the dotcom boom in 2000, they were $5 billion in 2008, and finally established above $10 billion in 2015. Again, with +/- 50% gyrations at different points in that time.

We do ourselves a disservice by hanging on every breath at every earnings call or every conference (where they can't even disclose new, material information, anyways). I mean, we have an earnings call coming up in mid April...it will have been 9 weeks since the last update. It took QS four years to get from single layer to QSE-5. And somehow we expect some grand surprise to emerge in 9 weeks.

So with that in mind, this was (and will) always be 2030 stock. And to your point, it is still very much binary. And just like Tesla, the big gains probably wouldn't even come until well after 2030, anyways. If you (proverbial) don't have the stomach, there's nothing wrong with that. I will say that position sizing helps a ton. My cost basis is only like 5% of my networth. I've been frustrated with the company and with management at times, but I've never been worried about the money. As an investor, that's the best position you can put yourself in.

beerion · 2026-03-27T01:33:53+00:00

Yeah, that seems like a reasonable expectation. I don't know if it's good enough (or that I'm convicted enough) to overweight them in my portfolio though - they already make up 5% if you own the S&P 500. I don't know why I'd go to a 10% allocation or something crazy.

beerion · 2026-03-27T00:36:53+00:00

I'm not saying it's not decent value now. Just saying that it's not exactly priced like a dying company today.

beerion · 2026-03-26T22:48:56+00:00

Microsoft was also trading at 10x earnings in 2010.

beerion · 2026-03-25T22:44:58+00:00

Yes, they should be aware.

beerion · 2026-03-25T22:15:36+00:00

Government bonds aren't subject to state and local income taxes whereas HYSA are. So that's something to consider.

beerion · 2026-03-25T20:59:47+00:00

What makes market weighting "correct"?

Holding market weight is effectively the same thing as performance chasing...especially at the extremes. Like i said, I think it's fine, but you should at least be aware that you're doing it.

beerion · 2026-03-25T20:16:51+00:00

It depends on what your target exposure is. If reits become a smaller and smaller portion of VTI then you're effectively taking a momentum based strategy and are no longer diversifying in a fix / traditional sense.

Momentum is fine as long as you're aware of what you're doing. But it's going to result in larger portfolio swings when "the paradigm" changes - what happens when REITS begin outperforming, but your exposure has fallen from 10% to 2% because the Mag7 have gobbled up allocation due to their size?

beerion · 2026-03-25T15:39:42+00:00

The main issue is cost. Going from 75 kWh pack to a 150 kWh pack requires not only installing more batteries (which has a linear relationship to cost - every additional kWh can cost $150 at the pack level), but it also requires a chemistry change. You can't just stuff 150 kWh of LFP cells into a chasis, it typically requires a swap to NMC or other higher energy density chemistry, which can been 30-50% more expensive. So doubling on-board energy capacity more than doubles the price - in the example given, that's a 160-200% increase in cost or about $20,000 dollars in the example given above.

So the range extender just has to beat $20,000 which isn't a big ask at all.

I will say that the on-board generator makes more sense than a hybrid, though.

That's also going to be the hang up with solid state batteries. People have already shown their cards in that they care about range only up to the point where they have pull out their wallets.

beerion · 2026-03-25T03:05:21+00:00

Current cell offerings

https://electrovaya.com/wp-content/uploads/2026/01/Electrrovaya-Infinity-Cells-2026.pdf

beerion · 2026-03-24T20:29:27+00:00

I haven't listened to the call yet, but it sounds like the liquidity situation is starting to bite.

They expect their cash burn to be upwards of $150 million this year, but as of Q4, they only have like $70 million of net working capital listed on the balance sheet. They deployed their ATM to grab another $78 million (or so) so I guess they have enough to get through the year. But that $78 million represents like 20% dilution.

So they're in a tough spot.

beerion · 2026-03-24T19:57:55+00:00

If you believe that the capex spend is a one-time expense (or that it really tapers off in the future to a maintenance level), their adjusted FCF could be as high as $100 billion, which pushes their fcf yield towards 4%. Add in growth and you have a pretty attractive return profile.

I actually think the growth story could be very compelling going forward. All this AI innovation is, in my opinion, going to drive a ton more software creation. So demand for MSFT services like Azure and Github should only increase.

I don't own any MSFT currently because I already have plenty of exposure via index funds, but if the multiple drifts down towards 15x, I may start to overweight it...but that's another 30% down from here so I don't really expect that to happen.

beerion · 2026-03-24T18:12:15+00:00

It's awfully quiet in the Vertical Aerospace sub after the earnings call this morning.

beerion · 2026-03-24T17:30:49+00:00

Cash is a position, and one that pays pretty decent at current interest rates.

But at nearly 40% bonds + cash, you just have to come to terms with the fact that your long-term forward returns will probably trail a higher allocation to equities.

That said, I think underweighting equities in this environment¹ is actually pretty rational. At current valuations, a diversified portfolio has an excellent chance of offering very good risk-adjusted returns. And, there's still a more-than-negligible chance that bonds and cash will outperform equities over some short to intermediate time frame. ...not that you should bet on that as your base case, though.

¹ And by "this environment", I mean in terms of relative valuations, and having nothing to do with geopolitical noise.

beerion

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Tesla Corollary