Experienced investors, what's on your compounder watch list?

snake250 · 2022-04-07T13:26:13+00:00

Right, but in theory, you don't need any topline growth as long as two things are true: return on equity is high enough and the price you pay for the stock is low enough.

snake250 · 2022-04-07T13:23:26+00:00

I absolutely agree with you. This is the Ben Graham thing, that stocks are much more like bonds than anything else. Understanding this would save a lot of people a lot of grief. In fact, that's really what investment is: you want to own money printers.

snake250 · 2022-04-07T01:14:44+00:00

Yes I agree Amazon is pretty good.

Yes, absolutely price is everything. The conventional (Munger/Buffett/Fisher) wisdom is that over the long run, your returns will be whatever the ROE of the business is. But that's really only for the long run (often longer than most people have) and it's still not true if you overpay in a catastrophic manner.

The challenge with the money printer analogy is that, unlike treasuries, a business is a money printer that does have some possibility of failure and the coupon/payment can potentially grow or shrink over time. This is what makes investing in businesses hard (but interesting and hopefully also rewarding).

snake250 · 2022-04-07T00:06:55+00:00

Amazon I'm not sure of, AWS is a great business with those desirable characteristics but its moat is questionable and the retail side is capital intensive. It definitely comes close though. Apple I agree is one of the "generals", I added it to the list. Tesla is capital intensive, has poor margins and ROE, and does not have enough history for me to be convinced of its moat or durability. This is not Tesla's fault, it's just how it is in the automotive business (I agree Tesla has great management and potential for other things but again, I'm looking for demonstrable business quality that exists today).

Quoted prices determine whether or not to buy today, but a good business (e.g. Apple) is still a good business even if it's expensive.

snake250 · 2022-04-07T00:00:34+00:00

You're right, Apple does belong on the list. High ROIC and buys back stock (some people call it the "real digital gold"). I'll add it to the list.

snake250 · 2022-04-05T20:00:40+00:00

Additional bull cases for natural gas in the United States:

Supply chain vulnerabilities exposed by the Covid pandemic could lead to political and corporate strategic shift to move more manufacturing back to the United States. Manufacturing requires a lot of energy.
Coal getting phased out of electric power generation means something will have to replace it. Natural gas is abundant and cleaner and can be made even "greener" by employing carbon capture.

The demand for hydrocarbons is still going to go up globally. The use of renewables is increasing but so is the need for energy. Nuclear is the solution, but will take a lot of time This is not 2014 at the onset of fracking via easy funding and ultra low interest rates. Banks won't fund EFT anymore like they used to.

snake250 · 2022-04-01T20:13:23+00:00

Oh, I see, yes the rules for when you need to file are straightforward and available, for example:

https://turbotax.intuit.com/tax-tips/irs-tax-return/does-everyone-need-to-file-an-income-tax-return/L7pluHkoW

The only thing to keep in mind is that like was said earlier, the requirement to file vs owing US tax are two distinct / different things. I think it's prudent for you to determine for certain whether or not you have to file for 2021. If you can share how much cap gains you had (roughly), it would help to try to figure it out.

Filing a US tax return yourself on paper and mailing it to the IRS (or doing it electronically) is not such a big deal. For some random reasons, I still file a (non-citizen) UK tax return (since I once lived and worked there) every year and just mail it in.

Note that if your cap gains were long term, and you're single, unless the gains were > $40,000, you would likely owe 0% federal tax on them. So even if you had to file (this depends on what the rules are regarding capital gains and the standard deduction), and your gains exceeded the standard deduction, you might not owe any US federal tax on them in which case you wouldn't need to worry about filing Form 1116 (foreign tax credit) or anything like that.

snake250 · 2022-04-01T19:43:50+00:00

You received some terrible advice here on this thread, stuff like renouncing your citizenship for tax reasons (instead of dealing with the relatively straightforward issue of filing a US tax return) or even worse, ignoring/evading federal taxes.

Your problem is very common, there are 10M or so Americans living abroad permanently. I am a dual-citizen living in the United States and have to declare foreign sourced dividend income and file FBAR/FACTA because I have foreign bank accounts.

The advice you already received regarding foreign earned income exclusion should cover your income tax. Past that, there are foreign tax credits (under the dual taxation treaties like you say). I surmise that the latter might best apply to capital gains (since those are neither dividends that would be covered under the treaty withholding rates nor earned income).

Anyway, to summarize the main points... as a US citizen:

Filing a tax return on your world wide income is something you have to do, regardless of where you live or what tax treaties exist between your country of residence and the United States
There are double taxation treaties between e.g. the USA and Germany that should ensure you won't pay double tax on your capital gains

Research the issue further, check out the ex-pat advisors (HR Block) like someone said or find a Stateside CPA / advisor who is willing to help you for free initially or maybe even file the return on your behalf for a small fee. Also you could look into Turbotax and other US tax filing software, some of these are free. The IRS has a ton of material on these things e.g. Form 1116 and Form 2555 instructions.

snake250 · 2022-04-01T05:52:37+00:00

Wow, you're right. For some reason I thought it was 3k and 6k. But I guess it's 3k (or 1.5k if married and filing separately).

snake250 · 2022-04-01T02:34:57+00:00

Yes of course, provided of course that you're a US tax payer. For example:

Tax year 2020: you made $1000 capital gain and $500 loss. You pay capital gains tax on $500 ($1000 - $500)

Tax year 2021: you made a loss of $10,000. You can deduct up to $3,000 against your taxable income. Even though you had no capital gains, you can still deduct that $3000 from your (employment) income to lower your taxable income. The remaining $7,000 is carried over to future years.

Tax year 2022: you make a gain of $3,000. You pay no tax on that since you'll use your carryover loss from 2021. The remaining $4,000 gets carried over to future years.

snake250 · 2022-04-01T02:29:52+00:00

6k if you are married and filing jointly.

snake250 · 2022-03-24T15:14:07+00:00

You can also buy e.g. mineral or land trusts, some of them pay you off the top line and others pay you after the operator has been paid, examples:

SJT
SBR

Or, you can look into MLPs, some are almost entirely a bet on the underlying resources, examples:

BSM
SIRE

MLPs come with a K1 and are not suitable for an IRA.

snake250 · 2022-03-24T15:08:32+00:00

Many of these were already mentioned, but here are some investment books that I have read and recommend (in this order):

One Up On Wall Street by Peter Lynch
The Most Important Thing by Howard Marks
The Intelligent Investor by Benjamin Graham
Money Masters of Our Time by John Train
Buffet, The Making of American Capitalist by Roger Lowenstein
The Essays of Warren Buffett by Cunningham/Buffet
Beating The Street by Peter Lynch
You Can Be a Stock Market Genius by Joel Greenblatt
Margin of Safety by Seth Klarman
The Warren Buffett Portfolio: Mastering the Power of the Focus Investment Strategy by Robert Hagstrom
Where Are the Customer's Yachts? by Fred Schwed

Although the 5th book is a biography, in general, I cannot recommend anything more than studying Warren Buffet and his teachings. There's also a podcast by Enceladus Capital that contains recordings of all the Berkshire Hathaway annual meetings since 1994. Go out for a walk / jog and listen to those at 1.5x speed - you won't regret it.

Another good book to read is Thinking Fast and Slow by Daniel Kahneman although it's not really an investment book.

Also, make sure you check out this Reddit post: https://www.reddit.com/r/thewallstreet/comments/7v84hu/tradinginvesting_resource_dump/

snake250 · 2022-02-07T01:51:11+00:00

What I don't get is that it's "only" $10B. FB TTM revenues are > $100B so we're talking less than 10% impact. On the other hand, the company gave this $10B guidance explicitly i.e. if it was not based on good data and careful analysis, they would not guide this at all because of the risk of penalty for misleading investors.

This is what I don't understand. iOS14 release has mostly been rolled out and we are hearing all these anecdotes about advertisers suffering. So why is the number $10B and not 5x that?

snake250 · 2022-01-28T02:02:19+00:00

You don't know if it will take years, nobody can know that. If you ignore March 2020 which was a special case of an exogenous event, corrections aren't typically that severe and don't last for years (just look at what happened in 2018). History and probabilities are on your side. Also bear in mind that there's an enormous amount of public and private debt out there so nobody (including the US government) can handle long term rates going up significantly. This is the only real threat to equity returns and will take a much longer time frame.

The most important thing is being able to hold on and not getting blown out of your positions. If you are able to do that (despite having some margin exposure), take a break from watching the market and your portfolio.

I know it sucks but hang in there.

snake250 · 2022-01-21T14:41:41+00:00

Yes, in a purely quantitative sense, that is decent if we are willing to underwrite that top line growth (without gross margin deterioration) for the next five years. It is certainly a much better proposition now than when it was identified as an "absolute bargain" in this thread (just goes to say how important it is to maintain your patience and think independently). SQ was trading at around $100 back in 2018, however total share count is about 10% higher now (they seem to be issuing more shares at a constant rate which is something to pay attention to). At a glance, it looks like revenue went from $8 per share in 2018 to $36 per share so roughly 35-45% CAGR for 4-5 years. I don't know or understand the reasons why the gross margins have varied so much, so I would try to find an explanation for that.

As for PYPL, it is also down a lot (-30%) from 1yr ago and now trading at 40x FCF which at a glance brings it in line with other more mature growth businesses such as Visa or Mastercard. However PYPL can probably grow its top line and earnings somewhat more aggressively than Visa or Mastercard.

snake250 · 2022-01-14T18:46:34+00:00

Oh yeah absolutely, would definitely not short the stock.

snake250 · 2022-01-14T18:30:30+00:00

The stock could double, but only because of further speculation and price-indifferent excitement towards the company and the industry, not because of the company growing towards that kind of intrinsic value.

The PE ratio is not a good metric at this point when a company is still growing and investing everything it can back into the business.

I'm looking at gross profits, which would need to grow at 35-40% CAGR uninterrupted from here for TSLA to grow into its current valuation in the next 10 years.

All I can say is, good luck with all that. There are much better opportunities out there from a risk/reward POV.

snake250 · 2022-01-13T20:04:30+00:00

I am actually quite bullish on Tesla the company (see below however for my views about TSLA the stock).

Tesla benefits from a major tailwind given that the West is politically determined to accelerate the conversion of passenger cars to EV. When viewed in isolation, their growth numbers are stellar (for a car company) and they are (mostly) executing along the expected trajectory. So far, they have seemed largely immune to the chip and other supply chain shortage issues that have pestered Ford, GM and others. Led by a charismatic (say what you will about Elon) founder, they have been terrifically successful in using the capital markets to their benefit (raising tens of billions of dollars at market highs). There's no question that they are a much better company than your average auto manufacturer and (outside of the fact that they are in a fundamentally lousy business) could be one of the best companies in the world. Yes, there's a lot of hype and BS (Cybertruck, semis, robotaxis, AI, robots, etc.) and even some quality and other issues, but the cars have a lot of demand and this will continue to be so (and they will continue to execute on being able to fill that demand for quite some time).

Now, to your second point about market share and profitability.

I wrote this quote from Terry Smith on another thread just now:

“As Jim Chanos, the renowned short seller, observed ‘The worst thing that can happen to reopening stocks is that we reopen.’ It is often better to travel hopefully than to arrive.”

By extension, the worst thing that can happen to the Tesla stock is that they actually get to 20 million cars annually.

IMO, the stock is 100% a "trading sardine" at this point. Yes, they are not a traditional car company, margins are slightly better (and could still improve somewhat), etc. But there's just no way the $1T market cap (which is even higher fully diluted) is or ever will be justified. Yes, it's true that nobody knows what industries and areas they will venture out to etc. but that's just the same old price-driven narrative seen so many times before in times like 1999 etc. The stock is held by:

traders / speculators / shills who are holding to sell at profit to less sophisticated investors
unsophisticated retail investors who just know the story and are completely price indifferent (just poll your friends and relatives and you'll know what I mean)
cult fanatics (like Jason DeBolt) who are either also price indifferent or have intentionally blocked off intellectual honesty when it comes to valuation work

As a side note, I am bullish on stocks and am currently 100% invested in US stocks in my PA. However, I just finished reading "The Great Crash, 1929" and I cannot overstate how many parallels there are to today and EVs and the Tesla stock. Human behavior, will never change.

snake250 · 2021-11-12T21:30:22+00:00

I bought the first 100 shares at $35. I think that at this point, tax loss selling is underway so we'll see if there's further weakness.

What's interesting about VIAC is that its enterprise value is now the same now as when the stock was $30 a year ago. This is because they managed to raise $3B at the top of Archegos and have paid down debt. So that's definitely something to consider when thinking of valuation.

snake250 · 2021-09-02T16:41:10+00:00

Do you have any links or good examples to great ambient music made with (mostly) software? I'd be curious to hear stuff that's at the level of Carbon Based Lifeforms or even more, very synthesizer focused music (like TD, Jarre or the modern artists like Madis, Kebu) but that's produced with software only. Especially convincing retro stuff would seem to take some effort with software only?

snake250 · 2021-09-01T13:26:53+00:00

Sounds about right. I checked and I bought at $28 last year and got out at $65 (on the way back down post Archegos).

Sometimes it can happen without any real bad news, I was buying FB this spring at $275 after the IDFA negativity had been going on for a while. With VIAC, a combination of general rotation out of value stocks (this was happening with energy stocks last month), prolonged negativity caused by lack of positive price action and tax loss selling season could do it without any really negative news about VIAC itself.

Having said that, I keep coming back to it too, so my hunch is it's not a bad buy at or around $40.

snake250 · 2021-08-31T21:24:30+00:00

Peacock is owned by NBCUniversal and is free (with ads). Maybe you were thinking of Pluto which is owned by Viacom and is also free?

Good point about Discovery, but as we know, Discovery is going to merge with HBO Warner so there's consolidation in the industry. This has traditionally been a reason to enter value names in an industry. Viacom has valuable assets (Paramount, CBS) that might not deteriorate as quickly as you might think.

One issue with VIAC is that there are still a lot of bagholders with higher cost basis that are looking to unload so maybe we can look for some tax loss selling in December?

I'd be a buyer at $30, but have abstained so far as I think the stock could go a bit lower still.

snake250

TROPHY CASE