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Hope you are having a great holiday so far. I take this moment to wish you a profitable and joyous New Year!
My Quick Take on Tech
Previously I spoke of the Big Short Michael Burry turning negative on the AI stocks. If you recall, I spoke of my misgivings on the AI trade in The Early Bird podcast way back in November. There are arguments being made that some of the tech stocks are fairly cheap. Take Nvidia for example. It trades at 0.8 PEG, which is clearly in a value stock category. So why all the doom?
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Good investors look at the current valuations. Great investors put these valuations in context.
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Howard Marks talks about something called second-level thinking. He explains the concept in detail in one of the memos to his clients. This is a great read and I recommend it heartily.
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Coming back to Nvidia and other tech stocks, while I agree that many look undervalued considering the current growth and future growth estimates, I have not seen much evidence that the buyers of AI products and services have started to realize a positive ROI in their investments.
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Salesforce made news sometime ago when they laid off 4000 customer support employees and replaced them with AI agents. Slightly less splashy news is that they now admit they were over-confident in AI capabilities, and are now rehiring 6000 human employees to work in a hybrid human-ai model.
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The positive ROI will come eventually. Until then the industry is over building and the valuations for most companies are running ahead of their business. There will be a correction.
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Just like internet stocks ~25 years ago.
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Quick Housekeeping Notes
- I will send out a year end report for the portfolio by this weekend (Jan 4) to the Inner Circle members and another report to all free subscribers to this newsletter.
- I have started to track the Current Watchlist on the website itself. You can follow it here. You do not need to be a Inner Circle member to follow the watchlist, but most of the research and ratings are reserved for the Inner Circle members. This page will fill out over time. Please note that I will be using X to post tidbits from my research so following me there is a good idea.
- I have recovered a large number of articles I previously published on Value Stock Guide. I am adding these articles to the website with any edits as necessary.
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Inner Circle Portfolio Performance
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The portfolio performance is updated once a month, and tracked YTD until the end of the prior month. Performance is tracked as time weighted total return.
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Upgrade to Inner Circle
- My actual Small Cap Value portfolio with highly profitable but under followed stocks and Kelly Criterion optimized weights
- Detailed investment thesis for portfolio stocks, including target prices and expected returns emailed to you as soon as published
- 1 year membership with NO auto-renewal. Repurchase membership again if you wish to continue for another year once your term completes.
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Shannon's Demon Explained: Why Rebalancing Beats Buy-and-Hold Over Time
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I want to tell you about one of the most counterintuitive ideas in all of investing, an idea so strange that when I first encountered it, I spent about an hour with a spreadsheet trying to convince myself it was wrong before I finally accepted that it was right. It is called Shannon's Demon. And once you understand it, you …
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Full Kelly vs. Fractional Kelly: Which Position Sizing Approach Is Right for You?
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Most investors spend enormous effort deciding which stocks to buy and almost no effort deciding how much to buy. That is exactly backwards. In the long run, position sizing will have as much impact on your returns as stock selection and it will have more impact on your survival as an investor. I use the Kelly Criterion as the mathematical …
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My Deep Value Stock Screening Process: From 3,000 Stocks to a Short List of 5
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There are roughly 3,000 publicly traded US companies with a market capitalization under $2 billion. Most of them are not worth your time. A small number of them are great values hiding in plain sight. Genuinely cheap, financially strengthening businesses that the market has overlooked, misunderstood, or written off prematurely. The challenge is finding them without spending your entire life …
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