Urban Investments

01/06/2023

Fedex (FDX) 12 month forward earnings estimates predict recessions with 100% accuracy over the past 20 years. Will this time be different? Let me know your thoughts in the comments

10/11/2022

Something I just put together. This is the #1 best market timing tool which I've been using for 25 years

It's less risky to put money to work right now but it's still not a no-brainer, so if you're inclined to put money to work here do so in phases

I'm still of the opinion that the world can NOT handle higher interest rates and a continuation of higher rates is going to push us into the "crash" zone. There's WAY too much debt taken out during 14 years of the lowest interest rates in 5000 years of human history and we haven't seen free market interest rates in 14 years, creating a Frankenstein experiment.

Scenario A - the economy begins to rapidly deteriorate in Q4 which causes deflation and the Fed begins lowering rates again (In support of this theory commodity prices are already plummeting)

Scenario B - the Fed continues raising rates, or holds them steady, which begins to cause a multitude of factors and the debt becomes a problem, defaults begin and we have another crash

09/11/2022

Higher and higher interest rates, to subdue inflation, risk blowing up the debt that’s been accumulated through 14 years of incredibly loose monetary policy where rates have been at 5000 year lows thus creating a negative feedback loop that would be deflationary as balance sheets delever.

The billionaire thinks a bold move by the Fed may be devastating to the economy.

05/25/2022

In the 1970s, due to inflation, stock market price/earnings multiples collapsed from over 20 in the mid 1960s to about 7 in 1982 when Volker significantly raised interest rates to finally smash inflation. Interestingly, the Dow Jones Industrial Average hit 1,000 for the first time in 1966 and then 1,000 in 1982 - 17 years of zero gains.

So, in 2022 the Fed is again faced with inflation rates similar to the 1970s except this time the price/earnings multiple of the stock market was at 38 in Dec 2021, nearly double the peak in the 1960s. Interest rates chase inflation, this is fact, and stock prices are a function of interest rates. Higher interest rates mean a business is worth less due to discounted future cash flows.

There’s is a TON of leverage (debt) in the financial system that NO ONE seems to want to talk about or fully address. Over a decade of artificially suppressed interest rates being near or at 0% for at least 10 years has created an experimental economy and we have yet to see the outcome. Higher interest rates, or a market collapse could cause the debt to become unserviceable. Don't forget, one man's debt is another man's asset.

The lesson here is avoid feeling safety by doing what everyone else is doing - the "sure thing". History is clear that following the herd may feel safe in the moment but long term it often leads to ruin. In this case the sure thing has been to increase debt at very low interest rates to buy stocks and real estate. When the paradigm shifts, the inflection point occurs, and the herd stampedes in the opposite direction, i.e. investors look to delever all at the same time by selling assets either voluntarily or in forced sales.

It seems the paradigm is beginning to shift and the Fed might be powerless. Personally, I believe high asset values have been built on an unsustainable practice of printing money to suppress interest rates - to kick the can down the road. This has been going on since 2008.
That’s a long time and it’s created a lot of debt. And that's the real problem, the DEBT! It's not unreasonable for us to see the stock market down 50-65% from it's highs, not at all. The biggest drawdowns in history are from balance sheet contractions rather than earnings contractions. Tread lightly.
https://www.cnbc.com/2022/05/24/bill-ackman-says-a-more-aggressive-fed-or-market-collapse-are-the-only-ways-to-stop-this-inflation.html

12/20/2021

Are the markets about to come unglued?

Inflation leaves the Fed two choices:
1. Raise interest rates to fight inflation
2. Don't raise interest rates and let inflation run

Option 1:
Raising rates will be bad for asset values especially with all the debt in the financial system and high valuations

Option 2:
Not raising rates will let inflation go unchecked which is bad for asset values

Inflation cancels the Fed's ability to support markets with printed money (QE), so the markets might need to stand on their own for the first time since 2008

12/20/2021

Every Monday morning I buy stocks as part of a long term investment strategy I created. In this week's buy list are Jack and Jill. Thought this was pretty random and kind of funny!

It's having a pretty decent year again - this strategy has never lost money in any year since 2000.

04/20/2019

Qualcomm has been a drama-filled investment that really tested my patience, especially since I own half in the stock and the other half in 2020 and 2021 call options which at one point were up 100% then down -90%, in the span of 5 months! It was brutal! Then there's the short sellers trumpeting their $21 price targets. Endlessly annoying. Generally I avoid drama stocks but ended up falling into this one as the lawsuits came forward. Either way, the stock is finally trading at $80 which has been my view of QCOM's intrinsic value for at least the past 3 years, and I've posted that here in the past. Now, the 5G rollout is quickly approaching, it'll be huge, and QCOM is the only pure play out there.

I learned a lot on this one, especially to stick to my own opinions and trust myself and ignore all the news and the "experts" - they all sound SO much smarter than me and write so eloquently, but I was right and that's all that matters.

Happy investing!

Steve Mollenkopf emerges as clear winner in epic legal battle against Tim Cook

12/14/2018

I probable 30% annual return from a dividend aristocrat, ABM Industries (ABM).

Intrinsic value looks to be $32-33 growing at 4% annually. It's a safe company that is stable and thus easy to value. This company has raised its dividend every year for over 30 years and raises it by 2 cents every year like clockwork.

Current price $26

3 year forecast (2019-2021):
Intrinsic value $37, +42% capital gain
Dividends .70+.72+.74=2.16, +8% div income
Sell monthly $35 calls, .10×36=3.60, +14%
Sell monthly $22.50 puts, .40x36=14.40, +55%
Total gain=119%
3 year annualized return=30%

Obviously the price will fluctuate and option premiums will as well but I'd be happy to sell the stock at $35 or buy more at $22.50. Also, by reinvesting the income returns could be more like 35% annualized.

Description of the stock ABM, ABM Industries, Inc., from Dividend Channel.

10/31/2018

Thinking of "buying the dip" in the stock market? If so, then 4% returns are what you're buying.

My opinion:
Fair value on the S&P 500 is 2100 according to the valuation model I built using data back to 1871. It's not complicated because, like Buffett, I value stocks like bonds. As of today the S&P 500 sits at 2683 so you should expect ~4% annual returns (which is 1% higher than my post 2 weeks ago due to the 10% correction we just experienced).

The legendary investor Joel Greenblatt:
He believes stocks will return 4-6% using his own model (Greenblatt generated annual returns of 50% over 20 years starting in the mid-1980s).
Short video --> https://youtu.be/iOLUy5Kb628

Jack Bogle, the index king:
He believes stocks will return 4-5% over the next decade (but I think his growth forecast is too optimistic for many reasons).
Watch the video--> https://youtu.be/x5fX0CdESMk

Warren Buffett:
Says stocks are reasonably valued here (yet he holds a record $120B in cash, by far his largest ever). Due to his influence and ability to drive markets Buffett can never give negative public opinions on the market, he can only cheerlead it, so watch his actions instead.

So what to do????
The good news is there is a better way. Like Buffett says; "buy a great business at a fair price". So what is "fair" anyway? For me, fair means 15% annual returns for the risk of owning stocks. It's not easy but it's doable if you dont own more than 25 high quality stocks in total. So, create a watchlist of stable, growing, high return on equity businesses with little debt. Do your research in advance then load up when fair prices present themselves. This happens during market downturns but you must have your watchlist and buy prices prepared before it happens... then you wait (which can be agonizing). At a market level of 2100 (fair value) there should be enough to find to get you to the 10% return level. 15% takes much more patience and more research as well as income strategies to reduce your cost basis using call and put options. 20% requires a portfolio of your highest conviction ideas, no more than 5-8 stocks in total, thus takes more skill and discipline.

08/29/2018

I still believe the intrinsic value of Qualcomm is $80/sh ($120B)

They announced a $30B share buyback and currently have 1.481B shares outstanding. If the average buyback price is, say $75, then they'll retire 400M shares by Sept 2019 (this first round is $5.1B at a price of $67.50).

A. If I'm correct on valuation then the math is:
Valuation $120B
Shares as of Oct 2019 (1481-400=1081)
Fair value stock price $111
A gain of 59% from here which doesn't include the 3.7% dividend yield

B. If free cash flow growth remains subdued at 5.5B then valuation is closer to $100B
Valuation $100B
Shares as of Oct 2019 = 1081
Fair value stock price $92

Bottom line:
QCOM could be trading at $90-110 in a year. Round it to $100

Potential catalysts:
-Share buybacks
-Settlement with Apple
-5G rollout later this year and renewed optimism on the company

I am long QCOM and own call options expiring 2019 and 2020

QUALCOMM, Inc. (NASDAQ: QCOM ) announced Tuesday it has completed a portion of its accelerated share buyback plan. What Happened Qualcomm said it will buy back 76.2 million shares in a .1-billion tender ...

06/28/2018

Just booked a 700% gain in 10 months on Fossil call options. Exited 1/2 the position today and will let the rest ride higher or get stopped out lower.