Trade Alert: Dell (Plus Suggested Readings For Bubbled and Troubled Times)
Here are a few books to read while the stock charts remain mostly parabolic and we are probably somewhere in the midst of a blow-off top Bubble Books we bought.
A Short History of Financial Euphoria (Penguin Business) by Galbraith, John Kenneth
Lords of Finance: The Bankers Who Broke the World by Ahamed, Liaquat
Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages by Carlota Perez
The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel by Benjamin Graham
Here are a couple articles I invite you to read to get some perspective on how very successful investors think about the markets right now — a couple of very similar perspectives that I don’t think make quite as much sense as the authors do:
To Help Put Recent Economic & Market Moves in Perspective by Ray Dalio Published on December 26, 2018 (The day the markets bottomed and caught Dalio quite off guard).
Making Sense of Sky-High Stock Prices by Robert Schillerpublished during these Bubbled-Up times, November 30, 2020
Dalio, December 2018: “While there is normally a positive spread between the expected returns of equities and bonds and bonds and cash, that can’t always be the case. If short-term interest rates were always lower than the returns of other asset classes (i.e., the spreads were always positive), everyone would run out and borrow cash and own higher-returning assets to the maximum degree possible, which would be unsustainable. So there are occasional ”bad“ periods when that is not the case, at which time both people with leveraged long positions and the economy do badly.”
Along with Schiller December 2020: “Eventually, down the line, bond yields may just rise, and equity valuations may also have to reset alongside yields. But, at this point, despite the risks and the high CAPE ratios, stock-market valuations may not be as absurd as some people think.”
As one of the smartest investors/shortsellers/hedge fund managers I know put it: “Logical, but that’s not how things work. You buy a stock because you think it worth more than the price you are paying for it. Nothing more, nothing less.”
If the world did work in the way these two articles describe, the stock markets in Japan and Germany and other places where the interest rates have gone negative would literally go to infinity, right?
Meanwhile, I like the risk/reward of DELL again. In this Bubbled-up market, this is a rare stock that is trading at about 0.5x next year’s sales estimates. You read that right — not 10x or 40x, but 0.5x next year sale’s estimates. It’s been rumored for years that Dell’s going to spin off the software division into an IPO or something but they haven’t ever done it….but seems like it’s more than ripe for them to do it now with multiples for all software companies that have any growth trading at such valuations. They have Boomi, Sonicwall and a few other divisions. Heck, Dell has $40 billion in consulting and other client services revenues while competitors like ACN trade at 3x revenues. Isn’t it about time for a DELL SPAC with a symbol DESP? And yes, now that you mention it, I am DESPerate for any tech stocks that are not in a bubble already.
Risks include the fact that there’s $50 billion of long-term debt on the balance sheet and the equity ownership classes/divisions/shares are a bit confusing to say the least…but I have to say that the relative valuation of DELL sure looks like a good risk/reward set up in this market. They’re giving away the call options on DELL too. Reminds me of buying call options on QCOM at $60ish last year when the stock had been stuck there for a decade. So I’m nibbling a few options on DELL, both slightly in and out of the money options dated out to January, April and July. No rush. I will probably nibble a little common stock in the name in coming days too if we can get a chance to do so below $70 or so. Otherwise, I’m going to just use some call options in both the personal account and in the hedge fund to get a little bit of cheap exposure to cheap-looking DELL here. Nothing wrong with nibbling a little common already if you don’t use options. Just be tempered and disciplined and slow to build your position (as usual).
Seeing all these EV stocks that haven’t produced a single car and many other former penny stocks that are actually fraudulent being worth billion or tens of billions of dollars makes me wonder just how much Elizabeth Holmes and Theranos would be worth right now in this environment. They’d totally be coming public in a major SPAC if she’d just been able to hold off the wolves for another few years.
Again quoting my hedge fund buddy: “She would certainly be a super star. The best idea for her would be to say that the actual product is only coming in 2027. Good night!”
Bubbled up markets can hide a lot of fraud for a very long time but all frauds eventually go to zero. We will someday look back and see that there were quite a few frauds in the stock market that had parabolic charts during these times. Be careful out there!
Finally, here’s something that confuses: Drew Brees will make you a cringe-worthy video for $550 per minute that it takes him to record whatever you tell him to say. That’s a lot of money for one minute, but do you realize that this is less than Drew Brees makes playing football. I mean, if you worked full time at $550 per minute, you’d make $60,000,000 per year and Drew already easily makes $75MM per year when you include income from endorsements and commercials.
