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JayW
Posted: 03 February 2022 06:37:11(UTC)
#1128

Joined: 25/08/2019(UTC)
Posts: 358
I hope no one thought large cap "quality stocks" couldn't fluctuate wildly after earnings came in a few percentage points below expectations.

I note both PayPal and Facebook have cited inflation as major cause of their disappointments.
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King Lodos
Posted: 03 February 2022 07:46:59(UTC)
#1141

Joined: 05/01/2016(UTC)
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If you trust Fundsmith to identify the right businesses, then these 20% drops in value are golden opportunities to build meaningful long-term positions.

However, if Fundsmith posts three weak years, and you find yourself going along with "Terry Smith's lost his touch" (which I don't think ever describes what's going on with these types of funds), then TRUST ME you are better off rotating out on 6 months of underperformance, rather than waiting three years.

My own feeling is that it's difficult to know whether there are really opportunities in such well researched businesses, and the 1% fee could be more of a hurdle as average returns are likely to become more muted .. I think the way Buffett does it – taking huge positions in individual businesses (e.g. Apple) – can work, and the way some hedge funds do it – using mega-cap stocks as ways to play macro themes or trends – can work .. What TS does, he's either a better investor than 98% of managers out there, or it's an expensive quality/growth tracker
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Harry Trout on 03/02/2022(UTC), Old Jock on 03/02/2022(UTC)
ANDREW FOSTER
Posted: 03 February 2022 08:32:07(UTC)
#1129

Joined: 23/07/2019(UTC)
Posts: 8,112
JayW;207185 wrote:
I hope no one thought large cap "quality stocks" couldn't fluctuate wildly after earnings came in a few percentage points below expectations.



I only expect it when they are overvalued.

It doesn't happen with the likes of Walmart.

It's a key indicator of a bubble to me. Which is why I'd sold FS last week, largely on concerns about PayPal and to an extent Facebook.

Amazon reporting today, suspect they will have done rather better, but then Tesla beat forecast and got pasted so who knows. Amazon, however, at least has a more diversified offering, even if it's retail goods model looks like an expensive dinosaur.
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Harry Trout
Posted: 03 February 2022 09:30:43(UTC)
#1142

Joined: 08/06/2014(UTC)
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King Lodos;207189 wrote:
However, if Fundsmith posts three weak years, and you find yourself going along with "Terry Smith's lost his touch" (which I don't think ever describes what's going on with these types of funds), then TRUST ME you are better off rotating out on 6 months of underperformance, rather than waiting three years.


I am starting to think I might be better off not have any opinions but just rotate in and out based on a process that flags relative under / over performance

I just don't think I'm likely to ever be any good with opinions! I bought in massively to Nick Train around 2015 but now wonder if this was because I tend to be susceptible to stories and I was busy and stressed with work at the time.

Now I have more time to create something I think I might be better suited to designing a fairly rigid process - "if this happens, then do that". But that's just me.

I sold a load of Fundsmith in January as it came up as a sell on my process but there were other factors such as overlap with my direct holdings in MSFT, FB, PYPL and AMZN (and now GOOG!) and me no longer liking OEICs if I can avoid.

For what it's worth I still think Fundsmith has a place for now in my portfolio and is still top 10 but if it remains a sell on my process it will gradually disappear.

Anyway, it's something I'm trying .......

Context: 55 this year, married with 2 kids of school age. Sold my business, financially independent and am now probably retired. Investing from 2006 as a hobby and with greater focus since the beginning of 2021.
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King Lodos on 03/02/2022(UTC), Robin on 03/02/2022(UTC), Sara G on 03/02/2022(UTC), D T on 03/02/2022(UTC), Guest on 03/02/2022(UTC), Mr Helpful on 03/02/2022(UTC)
Zidane
Posted: 03 February 2022 09:46:46(UTC)
#1130

Joined: 22/03/2021(UTC)
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ANDREW FOSTER;207195 wrote:
JayW;207185 wrote:
I hope no one thought large cap "quality stocks" couldn't fluctuate wildly after earnings came in a few percentage points below expectations.



I only expect it when they are overvalued.

It doesn't happen with the likes of Walmart.

It's a key indicator of a bubble to me. Which is why I'd sold FS last week, largely on concerns about PayPal and to an extent Facebook.

Amazon reporting today, suspect they will have done rather better, but then Tesla beat forecast and got pasted so who knows. Amazon, however, at least has a more diversified offering, even if it's retail goods model looks like an expensive dinosaur.



You would think Amazon would be most exposed to inflation given the amount of money needed to s[end on staff, warehouses, transit, data centres etc.

However, it seems the reactions to quarterly results are mostly based off 'analyst estimates' and are therefore fickle and unpredictable in the short term. When you look at the performance of most of these companies in the long run you would conclude that they are performing very well. Facebook revenues for example are up 20% from last year and yet will open today at the same level as it was a year ago and profit margins are about 35%, with more cash than it knows what to do with. I imagine Terry Smith may not like that it is using a fair chunk of its cash to pivot towards a currently loss making gamble on the metaverse. I think though, that both Amazon and Facebook are spending big today to compete with Google and Apple in the long run.
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Harry Trout on 03/02/2022(UTC)
ANDREW FOSTER
Posted: 03 February 2022 10:03:32(UTC)
#1131

Joined: 23/07/2019(UTC)
Posts: 8,112
Zidane;207206 wrote:
ANDREW FOSTER;207195 wrote:
JayW;207185 wrote:
I hope no one thought large cap "quality stocks" couldn't fluctuate wildly after earnings came in a few percentage points below expectations.



I only expect it when they are overvalued.

It doesn't happen with the likes of Walmart.

It's a key indicator of a bubble to me. Which is why I'd sold FS last week, largely on concerns about PayPal and to an extent Facebook.

Amazon reporting today, suspect they will have done rather better, but then Tesla beat forecast and got pasted so who knows. Amazon, however, at least has a more diversified offering, even if it's retail goods model looks like an expensive dinosaur.



You would think Amazon would be most exposed to inflation given the amount of money needed to s[end on staff, warehouses, transit, data centres etc.

However, it seems the reactions to quarterly results are mostly based off 'analyst estimates' and are therefore fickle and unpredictable in the short term. When you look at the performance of most of these companies in the long run you would conclude that they are performing very well. Facebook revenues for example are up 20% from last year and yet will open today at the same level as it was a year ago and profit margins are about 35%, with more cash than it knows what to do with. I imagine Terry Smith may not like that it is using a fair chunk of its cash to pivot towards a currently loss making gamble on the metaverse. I think though, that both Amazon and Facebook are spending big today to compete with Google and Apple in the long run.


The problems I see with Amazon is the "hold stock/warehouse" model. Holding stock, stock picking and despatch is expensive. The rest of the world (eBay, Alibaba, Shopify etc.) are all geared towards drop shipping and direct despatch where goods are only packed once, direct to the customer, not to an Amazon warehouse and thence to the customer (double shipping, double cost).

Those massive Amazon warehouses are starting to look like huge white elephants now. The extra costs are making many items more expensive than the High Street or other e-tailers (like Argos in the UK)

Luckily Amazon has other profitable strings to it's bow. But it's no co-incidence that the goods sector has low (if any) profitability. Maybe they should scrap it and concentrate on the AWS side of things?

As for the "Metaverse" it seems to be a marketing word for "jumping around in VR goggles" which has totally failed to become a "thing" for ten years now, because everyone looks like a knob when they are engaging in it. Seems they didn't learn the lesson from Glass.
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Guest on 03/02/2022(UTC), Guest on 03/02/2022(UTC)
Sara G
Posted: 03 February 2022 10:08:20(UTC)
#1143

Joined: 07/05/2015(UTC)
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It's at times like this I wish Fundsmith were an IT. Presumably, even if TS wanted to take advantage of a buying opportunity, he'd be constrained by not being able to use gearing, and at a time when investors seem to be losing faith and selling out, or holding rather than adding.

NB I'm still topping up FS Sustainable on a monthly basis, so that's a bit of extra cash for him to deploy ;)

As to whether FS is effectively a Quality / Growth tracker, I suppose it would depend how the Factor indexes are constructed. If ROCE is the main filter, then maybe, but I'm not convinced of that.

...Pleased he bought GOOG - it was on my watchlist.
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6 users thanked Sara G for this post.
Harry Trout on 03/02/2022(UTC), Gary J on 03/02/2022(UTC), Raj K on 03/02/2022(UTC), Robin on 03/02/2022(UTC), what me worry? on 03/02/2022(UTC), Harland Kearney on 03/02/2022(UTC)
Kraftwerk
Posted: 03 February 2022 10:30:17(UTC)
#1138

Joined: 07/02/2021(UTC)
Posts: 115

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JayW;207185 wrote:
I hope no one thought large cap "quality stocks" couldn't fluctuate wildly after earnings came in a few percentage points below expectations.

I note both PayPal and Facebook have cited inflation as major cause of their disappointments.


The numbers are staggering.

A 20% fall in FB represents a $200bn market cap wipeout, among the largest in history. That would wipe out 50% (!) of Europe's most valuable company.

Some facts about the earnings,
- Quarterly revenue grew by almost 20%
- Gross margin of ... drum roll ... 81% (!)
- EBIT grew 43%
- Net income grew 31%
- EPS fell 5%
- Shares fall in after hours 20%

This is because FB generated 'only' $10.2bn in profit in the quarter!

After this fall, the company will trade at a rather nominal P/E multiple of 18x. And they say markets are efficient!

I understand the macro narrative is all about inflation and left-for-dead banks, telcos and energy companies. But this company is still a virtual ATM machine.

PS - I have no direct holdings in FB, and only hold it via FS and an index tracker.
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11 users thanked Kraftwerk for this post.
Raj K on 03/02/2022(UTC), Zidane on 03/02/2022(UTC), Tim D on 03/02/2022(UTC), Gary J on 03/02/2022(UTC), Robin on 03/02/2022(UTC), Guest on 03/02/2022(UTC), Sara G on 03/02/2022(UTC), Martin Stafford on 03/02/2022(UTC), Dan L on 03/02/2022(UTC), Harland Kearney on 03/02/2022(UTC), Guest on 03/02/2022(UTC)
Zidane
Posted: 03 February 2022 10:48:12(UTC)
#1134

Joined: 22/03/2021(UTC)
Posts: 52

Thanks: 16 times
Was thanked: 101 time(s) in 35 post(s)
ANDREW FOSTER;207212 wrote:
Zidane;207206 wrote:
ANDREW FOSTER;207195 wrote:
JayW;207185 wrote:
I hope no one thought large cap "quality stocks" couldn't fluctuate wildly after earnings came in a few percentage points below expectations.



I only expect it when they are overvalued.

It doesn't happen with the likes of Walmart.

It's a key indicator of a bubble to me. Which is why I'd sold FS last week, largely on concerns about PayPal and to an extent Facebook.

Amazon reporting today, suspect they will have done rather better, but then Tesla beat forecast and got pasted so who knows. Amazon, however, at least has a more diversified offering, even if it's retail goods model looks like an expensive dinosaur.



You would think Amazon would be most exposed to inflation given the amount of money needed to s[end on staff, warehouses, transit, data centres etc.

However, it seems the reactions to quarterly results are mostly based off 'analyst estimates' and are therefore fickle and unpredictable in the short term. When you look at the performance of most of these companies in the long run you would conclude that they are performing very well. Facebook revenues for example are up 20% from last year and yet will open today at the same level as it was a year ago and profit margins are about 35%, with more cash than it knows what to do with. I imagine Terry Smith may not like that it is using a fair chunk of its cash to pivot towards a currently loss making gamble on the metaverse. I think though, that both Amazon and Facebook are spending big today to compete with Google and Apple in the long run.


The problems I see with Amazon is the "hold stock/warehouse" model. Holding stock, stock picking and despatch is expensive. The rest of the world (eBay, Alibaba, Shopify etc.) are all geared towards drop shipping and direct despatch where goods are only packed once, direct to the customer, not to an Amazon warehouse and thence to the customer (double shipping, double cost).

Those massive Amazon warehouses are starting to look like huge white elephants now. The extra costs are making many items more expensive than the High Street or other e-tailers (like Argos in the UK)

Luckily Amazon has other profitable strings to it's bow. But it's no co-incidence that the goods sector has low (if any) profitability. Maybe they should scrap it and concentrate on the AWS side of things?

As for the "Metaverse" it seems to be a marketing word for "jumping around in VR goggles" which has totally failed to become a "thing" for ten years now, because everyone looks like a knob when they are engaging in it. Seems they didn't learn the lesson from Glass.




All those things were what gave Amazon a loyal customer base and a competitive advantage over the old traditional retailers, perhaps they have become the Goliath that is at risk of being disrupted, but I wouldn't bet against them.

If their e-commerce division did end up struggling over a million jobs would be at risk, the resulting carnage would be epic.
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SJ Ford on 03/02/2022(UTC)
D Bergman
Posted: 03 February 2022 10:50:30(UTC)
#1133

Joined: 22/03/2018(UTC)
Posts: 1,308

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ANDREW FOSTER;207212 wrote:

[quote

The problems I see with Amazon is the "hold stock/warehouse" model. Holding stock, stock picking and despatch is expensive. The rest of the world (eBay, Alibaba, Shopify etc.) are all geared towards drop shipping and direct despatch where goods are only packed once, direct to the customer, not to an Amazon warehouse and thence to the customer (double shipping, double cost).

Those massive Amazon warehouses are starting to look like huge white elephants now. The extra costs are making many items more expensive than the High Street or other e-tailers (like Argos in the UK)

Luckily Amazon has other profitable strings to it's bow. But it's no co-incidence that the goods sector has low (if any) profitability. Maybe they should scrap it and concentrate on the AWS side of things?

As for the "Metaverse" it seems to be a marketing word for "jumping around in VR goggles" which has totally failed to become a "thing" for ten years now, because everyone looks like a knob when they are engaging in it. Seems they didn't learn the lesson from Glass.



Regarding your point about Amazon, they have been increasing their third party sales, and according to TS this now accounts for over 50% of Amazon's retail business. That reduces massively their need to hold stock, and increases the ROCE.
These facts apparently helped convince him to change his mind about holding Amazon.
Whether this decision was wise or not, time will tell.
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Sara G on 03/02/2022(UTC)
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