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Stock Market Danger For Retail Investors (Party Like 1999 All Over Again)

By Sven Carlin. Originally published at ValueWalk.

retail investors danger

In a recent Bloomberg interview Jim Chanos, the famous short guy, discussed how there is the return of retail speculation and how retail investors are in danger. Youtube is full of stocks to buy videos or stock market crash videos that try to sell you gold or something else. What is missing is a clear, cold headed risk and reward discussion. However, that is hard because companies like IBM fake their numbers, so big dangers for retail investors.

The following is a computer generated transcript and may contain some errors.


Q3 2020 hedge fund letters, conferences and more

Stock Market Danger For Retail Investors (Party Like 1999 All Over Again)

Transcript

Good day fellow investor. When you get more than 10,000 views on a stock analysis video, that’s always great. And I thank y’all for liking the video. Also, if you get value from this video, don’t forget to like it and subscribe if you haven’t. However, when you get 10,000 views on a stock analysis, it’s easy to get on stock market, crash videos, end of the world videos, etc. You also get a lot of feedback. And one great feedback that I received from a viewer was short seller, China’s sees golden age of fraud in speculative market Bloomberg interview videos from a few days ago for their front row. And if you don’t know who Jim chain is, is he is one of the most renowned short sellers on Wall Street, he started his short selling company in 1985. What he provides is insurance to those that need that kind of insurance for market crashes. But what is most important and in their discussion, discussing the challenges of being a short seller, Tesla short, of course, and he’s highest convinced conviction short pick, IBM the stock that we have discussed. And then it’s about the numbers there something that I didn’t touch in the video, and I want to go really deeper there, but also discuss views of short seller that perfectly explain the market. And as Jim has been around for 45 years doing his job, his views are extremely important to explain this market. He summarises this market as the return of retail speculation, something that he has seen in 1999 2002 1007. And now it’s all again, their interest rates are zero, free money has been given stimulus, there is an abundance of liquidity in the market. And all that liquidity goes into the stock market, and people have completely disregarded risk. It seems like interest rates will never go up again. And everything the crazier the idea, the crazier the stock, the higher it will go. So the idea is that if there is a crash, the government will immediately intervene and save your long investments. That’s the story that’s very dangerous according to chain us and also according to all other value investors out there. But this is the market, when it will change. We don’t know, China’s is doing his job of being short, and providing that service to those that need him and require his services. But the danger is something very important, especially for retail investors here on YouTube. And that is why I wanted to discuss it. And there are three quotes that I took out from his presentation interview. And those are that people can believe nonsense for a long time. So really nonsense stories, promises of growth all over the place of either No, we discussed Ark investments, and their projections that are possible sometime down the road, but not really investing projections of profitability leading to dividends, mode, etc, etc. We can argue on that for hours, but that’s what he sees. And then he also says that people are doing really dumb things with their money. Further, when there is plenty of money, it’s the golden age for fraud. We have seen Nicola and all other things, how they attract investors, how they fraud or not investors. And he says that today, it’s much worse than 2002 1007. And if you’re an investor, you have to be very, very careful about not getting into those stories. If you are a long term investor that wants to make sure that you are well off in 10 2030 years if you’re a gambler, then just follow the hottest stock. Just watch YouTube channels, the first time somebody speaks about that, boom, buy that in two weeks, it will be up 50% of course, if that works for you. Okay, good luck and have fun. However, if you’re an investor, then you have to watch. Really the fundamentals

on the tech stocks. The four big ones Google, Amazon, Microsoft, Facebook, he says that those are fairly valued in this environment not overpriced, because compared to interest rates that are at zero, then you say okay, those businesses are great businesses have modes, a bit expensive, but not stocks to really go crazy and short stocks that he is short even He has a 5% maximum short positions are Tesla, and we’ll discuss later IBM 30% of his portfolio now is fraud shorts. So that will be about what seven eight positions is fraud stocks. And then with Tesla, I’m not going into the argument here, but you probably know it, it’s that it doesn’t make any money still, and that all the money that it makes is from tax credits for the positivity there. But that’s up to you to decide whether Tesla will change the world or not in, I don’t know, and 20 years, we value investors, we leave that to the speculators, and we focus on things that really work all the time, anywhere all the time. And then he says very interestingly, and this is also what I see here on YouTube, Tesla, okay, Tesla, the leader, but there are so many companies riding Tesla’s boattail, that now everything related first to electric vehicles, then to batteries, then to autonomous driving, then to this, it’s just exploding because retail money is enough to push it higher. And if you’re playing that game, just be very careful with how much money you play that, because 9099, I’ve seen 2007, what has happened, I’ve been in the market that crashed 80%, my domestic market, and I avoided the crash because it was too crazy earlier already. But this is the danger. And just keep in mind and put that into a long term perspective, if you are an investor. Also, if you look at the number of Robinhood investors has really explode that as their stimulus, people can’t gamble on sports or something like that. So they gamble on the stock market. And to conclude this part of the story, a great quote, every bull market has a stock people pin their hopes and dreams onto not com was Cisco, Yahoo. Now we have Tesla. So we’ll see how it ends, it might end up in a really good business. But the returns for investors are very, very speculative. And then on IBM, what is so fascinating about IBM is that the company we think is still engaging in basically accounting high jinks and it’s hiding all in plain sight if you take a look at their numbers. And we are here to take a look at their numbers. And his thesis is simple that IBM is doing everything is can, it can present itself in a different light, then what it really is, and we’re going to look into what he says that the earnings per share are not nine, but actually six, which makes a great difference in valuation in the capacity of IBM to really grow earnings forward, etc, etc. Let’s look at the numbers. Now. What he says is that you can look at the earnings IBM presents because though they present something that is not really there, if we look at IBM free q 2020 earnings, of course discussing the new company the growth opportunity, but look at this operating non generally accepted accounting principles earnings are two point 58 earnings per share. So, if you look at that times four, they make $10 per share estimates on this are higher and higher over time. However, if you go back to here, you don’t have the real financial statements to get the real financial statements. You really need to go to the securities exchange commission filing and then there you get to the real financial statements that IBM is talking or not talking about. And then if you look at the revenue, okay, nine months ended total revenue 53 billion you add up the costs, total cost, gross profit 25 billion total expense income

is just 3 billion when you adjust for income taxes provision, okay 4.2 billion for the first nine months 4.2 billion. If they make another billion and a half, or let’s get them to 6 billion over the next quarter. Then we are at 6 billion compared to 120 billion market cap that is a price earnings ratio of 20. And that is earnings per share of what is it six, not 910 as the company is Presenting. And then if you look at the cash flows, it’s always adjusted for depreciation and amortisation of intangibles that’s not covered back with the purchases. So the cash flows are a little bit more inflated than those should really be. So again, IBM is not investing, what it is losing. And we see that in revenue declines, profit declines, net income declines. So the real earnings are really likely half of what is present that so that’s a key addition to also my IBM analysis. Of course, I didn’t like IBM, as I said in the video. Now, after rechecking, and if I would have liked it, then I would have check this more in detail. But I just wanted to add this into the video discussion explained the numbers, as the earnings don’t really check. And it’s questionable whether IBM will manage to turn around this situation, especially as they are selling assets to cover for the cash flows. And then he concludes just a quick overview of commercial real estate. I get a lot of questions about reads, what do you think about this? What do you think about this? And then I look at this, What’s he saying? He says that commercial real estate has been declining already from 2018. And that it is all an interest rate play. And then going back to interest rates since 40 years ago, interest rates have been just declining, declining with lower highs and lower lows. And that is a great benefit to real estate investments. If these interest rates start to go up. And those real estate investments cannot transfer the hikes the price increases to the customers because of oversupply and you have oversupply because it pays to build build. When money costs zero, then real estate can be in big, big trouble over time. plus something that he added something very peculiar is that this is a 17 trillion market in the United States, with a lot of competition from private investors private investment funds, competing with the reeds, if this interest rates change if the game changes, if there is real oversupply and rents have already fallen 40% this can be an ugly investment, and definitely not the investment that it was over the last 40 years with interest rates constantly declining, returning 10 11%. So the party will likely end when the environment changes. When will that change? Again, nobody knows. It’s likely it will change so value investors if you want to protect yourself, you simply avoid that and look for better opportunities. Tomorrow we’ll discuss again another hot topic in line with this which is copper, a big topic on this channel earlier when it wasn’t that hot. I’ve recently bought fertilisers that nobody watches things like that. So there are plenty of opportunities in the market. For those who want to invest slowly and steadily. If you are a person like that, subscribe to this channel, and also check everything what I do on my website. Thank you for liking this video, and I’ll see you in the next video.

The post Stock Market Danger For Retail Investors (Party Like 1999 All Over Again) appeared first on ValueWalk.

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