Podcast Summary
Strong Economy with Low Unemployment, Rising Wages, and Growing Stock Market: The US economy is strong with a low unemployment rate, rising wages, and a growing stock market. However, concerns about inflation and higher interest rates persist.
The economic conditions in the United States are currently strong, with a low unemployment rate, rising wages, and a growing stock market. The jobs report for September put America's unemployment rate at 3.7%, the lowest it has been since 1969. Wages continue to tick up, with hourly wages seeing a 2.8% increase. The GDP growth rate is at 4.2%, and the S&P 500 is up 8.5% (including dividends), making for a 10% year for the market so far. However, there are concerns about inflation, which is currently at 2.7%, slightly above the Federal Reserve's target of 2%. Higher interest rates, which can help combat inflation, have led to a slight downturn in the market. The economy has seen some growth through tax cuts, but the long-term implications remain to be seen. Amazon's recent decision to raise its hourly wage to $15 is putting pressure on competitors and contributing to wage growth, which could lead to increased inflation. The 10-year treasury bond yield hitting a 7-year high also has implications for borrowing costs and the overall economy. Overall, the economy is strong, but there are concerns about inflation and the potential impact of higher interest rates.
Geopolitical risks and supply chain disruptions impacting investment decisions: The rise in bond yields and geopolitical risks, including alleged Chinese military interference in US tech companies, could lead to increased competition and potential volatility in the stock market, as well as potential costs for consumers if manufacturers move out of China.
The rise in 10-year treasury bond yields is making bonds more attractive compared to stocks, leading to increased competition and potential volatility in the stock market. Additionally, a report by Bloomberg revealed that Chinese military allegedly placed tiny microchips in motherboards of major US tech companies, which could lead to significant shifts in the technology supply chain and potential costs for consumers if manufacturers move out of China. The potential impact on companies' margins and consumers' costs underscores the importance of considering geopolitical risks and supply chain disruptions in investment decisions.
Elon Musk's Actions Creating Uncertainty for Tesla: Elon Musk's behavior, including mocking the SEC on Twitter, could jeopardize his role as Tesla's CEO and lead to conflicts with new chairman, causing distractions and uncertainty for the company's focus on improving its balance sheet.
Elon Musk's antics, including mocking the SEC on Twitter, could jeopardize his role as CEO of Tesla and potentially lead to a major conflict between him and any new chairman within the next 3 years. Despite Tesla's business successes, such as the Model 3 being the highest grossing car in the US, Musk's actions continue to create distractions and uncertainty for the company. The SEC settlement, which included fines for Musk and Tesla, the addition of new independent directors, and a ban on Musk serving as chairman, still needs federal judge approval. If the judge deems the settlement unsatisfactory due to Musk's Twitter actions, it could result in Musk stepping down as CEO. It's important for Tesla to focus on improving its balance sheet and containing the narrative, but Musk's behavior continues to create unnecessary distractions. Instead of engaging in battles with critics, Musk could silence them by showcasing Tesla's business wins. Costco's material weakness warning, while causing initial concern, seems to be a minor issue that won't lead to any misstatements.
Costco's Strong In-Store Sales and Tencent Music's Impressive User Base: Costco's in-store sales remain robust, but online growth decelerates. Tencent Music's IPO approaches with 800 million monthly active users and a unique revenue model.
Despite Costco's financial control issues leading to decelerating online growth and restatement concerns, the company's strong in-store sales and solid profits suggest that any negative impact will likely be temporary. With comp sales up 9.5% and in-store traffic as strong as ever, Costco remains a formidable player in the retail industry. However, the ongoing decline in online growth, which decelerated from 36% to 26% in the latest quarter, is a potential area of concern as more consumers shift to e-commerce. Meanwhile, Tencent Music, a Chinese music streaming giant, is gearing up for a massive IPO, boasting an impressive 800 million monthly active users, primarily in China. The company's unique revenue model, which relies heavily on virtual gifts sent through live streaming and online karaoke, sets it apart from competitors like Spotify.
Music streaming vs apparel company profits: Despite profits and growth, Stitch Fix faced a stock drop due to concerns over decelerating growth and increased customer acquisition costs. Barnes & Noble, with declining online sales and multiple CEO changes, still holds potential value due to cash flow.
The music streaming company discussed, which has higher profits and unique business model, is expected to be intriguing in the public market. On the other hand, Stitch Fix, an online apparel company, experienced a significant stock drop despite still showing growth and profitability. The deceleration in growth and increased customer acquisition costs have raised concerns among investors. Meanwhile, Barnes & Noble, the bookseller, is considering selling the company again, and despite facing declining online sales and multiple CEO changes, it still has potential value due to its cash flow.
Revival of Physical Books and Independent Bookstores: The demand for physical books and independent bookstores continues to grow, as evidenced by an increase in sales and the resurgence of these businesses. Traditional media and long-term investment perspectives remain valuable.
Despite the rise of e-books and digital content consumption, there's still a strong demand for physical books and independent bookstores. This trend was highlighted during a discussion on Motley Fool Money, where the hosts noted an increase in people buying physical books in bookstores and the resurgence of independent bookstores. Additionally, the name change of Tribune Publishing back to its original name was mentioned, which could be a sign of the company recognizing the value of traditional media and the potential backlash against digital-focused names. Furthermore, Howard Marks, the founder of Oaktree Capital Management and author of "Mastering the Market Cycle," emphasized that stock market returns rarely fall within the 8-12% range that's often assumed and that investors should be aware of market cycles and the importance of maintaining a long-term perspective.
Market sentiment and emotions drive price fluctuations, not average returns: Investors should aim to buy when emotions are negative and sell when they are positive, adjusting risk based on market conditions.
The average return of the stock market is not a reliable indicator of yearly returns. Instead, emotional excesses and market sentiment play a significant role in driving price fluctuations. Investors should aim to buy when emotions are negative and sell when they are positive, rather than trying to time the market. This approach is not about forecasting or market timing, but rather about understanding where the market stands in its cycle and adjusting risk accordingly. The focus should be on identifying opportunities based on the current market conditions, rather than trying to predict future events.
Embrace market unpredictability: Investors should acknowledge market's unpredictability, abandon belief in market regularity, and accept ambiguity to be successful.
Successful investing requires recognizing the market's unpredictability and adapting your approach accordingly. Investors should be more confident in some predictions than others, acknowledging that some events are certain, some are likely, and others are impossible to foresee. Additionally, it's essential to abandon the belief in market regularity and predictability, as market cycles vary greatly in length, intensity, and cause. Furthermore, understanding that market swings are often driven by psychology and popularity, rather than fundamental economic factors, means most forecasts will fail. Lastly, accept the ambiguity of investment situations and embrace living with uncertainty. Drive out words like "never," "always," "must," and "can't" from your investment vocabulary.
Market is overpriced, but risks exist: Consider a more cautious approach due to market's elevated state, balancing potential loss and missed opportunities based on individual circumstances
We are currently in an upward cycle in the market, past the midpoint, and assets are generally overpriced, although the exact degree of overpricing is uncertain. The investor faces two risks: the risk of losing money and the risk of missing opportunities. Balancing these risks depends on individual circumstances, but given the current market conditions, a more cautious approach may be advisable. The speaker suggests being fully invested but with caution. It's essential to understand that the market's elevated state does not guarantee a downturn, but the odds of success are less favorable. Ultimately, each investor must consider their financial situation, age, emotions, and needs when deciding how to balance the risks of loss and opportunity.
Understanding a company's track record and potential returns: Evaluate companies with business models involving other companies by examining their after-tax and fee returns. Stocks like KKR with impressive long-term records and aligned interests are worth considering. WWE's TV, YouTube, and toy sales growth hints at potential.
Learning from this discussion on Motley Fool Money is the importance of understanding a company's track record and evaluating its potential returns, particularly for companies whose business model involves owning and managing other companies, like KKR. Ron Gross highlighted KKR as a stock on his radar due to its impressive long-term track record and the alignment of interests between shareholders and employees. To evaluate such companies, it's essential to look at their after-tax and fee returns for investors. Another stock that caught the attention of the panel was WWE, with impressive numbers generated on TV, a popular YouTube channel, and successful toy sales. These trends suggest the brand's growth potential. However, as always, it's important to remember that investors should not buy or sell stocks based solely on what they hear on the show.
Unexpected growth opportunities for WWE and Vail Resorts: WWE's unexpected 3.6x increase in domestic TV rights presents a multibagger moment, while Vail Resorts' dip in stock price offers a rare entry point with a 2% yield and consistent revenue from amenities.
Both WWE and Vail Resorts have recently presented significant growth opportunities for investors. WWE saw a 3.6x increase in their domestic TV rights, leading to an instant multibagger moment, and they continue to grow overseas with new contracts on the horizon. The explosiveness of this growth was unexpected, especially considering the popularity of wrestling toys. On the other hand, Vail Resorts, known for its iconic ski resorts like Vail, Breckenridge, and Park City, is currently experiencing a dip in stock price, offering a rare entry point with a 2% yield. While the skiing itself can be seasonal and cyclical, the revenue from the resorts' amenities, restaurants, hotels, and activities is consistent. Additionally, don't forget about the goggles! Both companies, WWE and Vail Resorts, are worth keeping an eye on for potential growth.
