Donald and Dave's Trading Podcast, December 4

5th Dec '20 by donald pond

14 comments 862 reads

Hello everyone, this week's episode covers the rotation into beaten up stocks, aspects of poker and the importance of thinking about how you play your stocks as much as the stocks themselves, and a number of lessons we have learned from the brilliant Unknown Stock Market Wizards book we've both been reading recently.

By the way, I'd never listened to audio books before, but you can get lots on trading and investing on AmazonAudible, and if you buy credits on direct debit, you can often get the books for less than half the normal price. Investing books are often pricy and so I think the Wizards ended up costing me a 7.99 credit rather than 17.99. Worth knowing!

Lots of stocks discussed, including £PLTR, £TSLA, £NVCR, £LMND, £SE, Aim Distribution Trust (t (LON:AMD), Ferrexpo (LON:FXPO), Evraz (LON:EVR), Hunting (LON:HTG), Micro Focus International (LON:MCRO)

Enjoy and leave feedback!

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William K

5th Dec '20

Another good one. Thanks. Some useful observations about spread betting (the 5% margin sounds pretty scary if you're using the full 20:1 leverage implied). Yes the Apple chart is looking like the Tesla chart of a couple of weeks ago. If you have time, your thoughts on Adobe next week please - the Adobe chart is / was forming a bullish triangle (rather like Microsoft and one or two other tech megacaps that have been static since September).

Rusty2

I have been looking a charts for Us stocks on my folios on here and did notice many are similar. Are they forming a base before breaking out or is it the time to sell? Yes Adobe and also Shop would be of interest to me. Having said last week that US forecasts are Well managed, we get Splunk which fell around 25% on results and ZS that went the other way. I do get concerned about U S valuations, there has been some articles about the USmarkets being overvalued this week.

donald pond

I was looking at £PINS this week. $70bn market cap, $1.4bn of losses last year. It is hard to see such valuations as sustainable. But really, you could have said the same thing at any time in that company’s life. All I can say is never go short on the basis of valuation alone. There needs to be a catalyst

Yes I was looking at them also but feel I have missed the boat. There are quite a few loss making US shares with high mcaps, seems a bit crazy to me. ZS and DOCU are still loss making.

Comparing the the UK To the US markets, I don't think AMD would have such a high valuation if on the FTSE. I notice that HomeServe (LON:HSV) has been related from the FTSE 100, I can't believe that it was in the top 100 companies, where are our quality companies in the top 100, I suppose many got bought out as they are cheap compared to some other markets. ARM is one that springs to mind. I don't hold many US stocks but in the future I'm looking to invest more there.

Re copper I was considering this ETF: Wisdomtree Commodity Securities ETC (LON:COPA)

I suppose the big question is what will happen next year, will we have a recession? If so how bad will it be, once the Govt. stops supporting many companies, will they be bankrupt and unable to repay their loans?
I have done some index shorts in the past which did help a lot back in March.

I did have a look at $NCVR, surprised to find it is a UK company, listed in the US.

Looks interesting, I will have to do some more research.

Berksbee

7th Dec '20

All about momentum and charting, particularly on US stocks. Find it a bit terrifying but I recognise people have made big money on it. I have a US portfolio that's been super successful. I also have a long background in Tech. US tech shares are wildly overvalued IMO. I still buy and sell some of the smaller ones - but only where I'm already in at a negative price (psychology of betting with someone else's money). A good insight into what the Robin Hood community might be like in the US - but not for me. Interestingly some of the non-Tech US shares are looking decent value.

8th Dec '20

Dave has a different approach to me and has done very well, much better than I have over the last 2 years. The advantages of the US market are momentum and liquidity. But valuations have got absurd.

However, and this is key...that can carry on for a lot longer than anyone thinks. For as long as most Americans invest via ETFs, those monthly retirement cheques will keep blowing the market up and up. So there's no point fighting it. The only problem, is that when the ETF flow turn negative, even if only for a week or two, who will be on the other side of the trade? What discretionary money is there that won't buy (say) SHOP on a PE of 500, but would consider it at 490, or 480? None, IMO. So I think it possible (not likely, but possible) that we could one day see 90% drops on a lot of these stocks within a matter of a week or two.

It's a frightening thought and why most of my wealth is not in those stocks, but they are where the trading opportunities are.

Good points Donald.

A lot of individual US stocks are 'overvalued' - but since stocks are impossible to value in any logical/mathematical/scientific (I am deeply cynical about 'intrinsic value') we are left with the Efficient Market Hypothesis which at least acknowledges that our ability to foretell the future is limited. The key drivers to the current bull market are IMHO:

(a) the ageing population needing to secure its future

(b) low interests rates

(d) there is nowhere else to put one's money other than high risk securities of which stocks and shares are the most popular

It seems as if the ageing US population is buying into ETFs on a regular basis (as you pointed out), with some of them (or their advisors) rotating the sectors according to what looks best value at the time. One way of investing, with relative safety, in the US market would seem to be buying US ETFs and following the sector rotation to see where the money is going. Whilst there will inevitably be corrections, the ETFs ought to bounce back because the fund managers have to invest the inexhaustible supply of money that is thrust upon them.

Yes SHOP may look expensive because profits are low but the growth is still growing, even this year the EPS forecast in April was 0 but now it is about $4 up from 2.5 in October, it is getting upgraded all the time, once that stops then I think the share price will fall. I made the mistake of not investing much in the US this year because of the high valuations.
I agree some are looking too high, TTD is up about 5x since March. I'm waiting for a fall to buy back. I did pick some SHOP and APPL up on their recent falls.

Problem I find with many UK shares, is they may do well for 6-12 months but then there are often problems and the shares fall back, maybe an over generalisation but the US shares do seem to have longer and more consistent growth.

One only has to look at a comparative chart of the FTSE All Share Index vs. Nasdaq 100 vs. S&P 500 over the last 9 months to see why US shares are a better probability play than FTSE shares.

We have different type of companies and those indexes are weighted, if look at our large companies compared the US, they tend to be technology, such as AAPL and Microsoft, which have done very well this year due to Covid 19, also Amazon have benfitted. Oil and banking have not faired so well, insurance has not done much either. Our large companies all look a bit flat. Actually thinking about it, if you stripped out BP and Shell from the FTSE100 the performance may not be so bad. Oil shares have recovered somewhat but are still well down, about 44% from peak in 2020.

We also have Brexit to contend with.

I agree. The things you say are powerful arguments for investing overseas, and in the US in particular. If the GBP crashes as the result of a botched Brexit, it will significantly increase the value of most overseas investments. Apart from Rio Tinto (LON:RIO) and Anglo American (LON:AAL) there aren't many FTSE 100 shares I'd buy.

Anil Goyal

10th Dec '20

i am interested in India Stocks.Thanks.

Russell Ali

Really enjoying the Podcast, keep up the good work!

Donald and Dave's Trading Podcast, December 4

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Donald Pond

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