The Four Horsemen of Underperformance - Signs of Life

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nedsaid
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The Four Horsemen of Underperformance - Signs of Life

Post by nedsaid »

I have often posted about the Four Horsemen of Underperformance, four stocks that I purchased in the early 2000's at "bargain" prices, four stocks that were darlings of the 1990's. These were AIG, GE, Microsoft, and Pfizer. All were disappointments after having been market leaders during the 1990's.

AIG famously crashed during the 2008-2009 financial crisis and bear market. Microsoft languished for the first seven years I owned it and then becoming a great investment with the arrival of a new CEO. Pfizer has acted like a bond since I bought it, not a horrible investment but nothing great either. General Electric, dubbed our Lady of Perpetual Disappointment, has never failed to disappoint since I bought it.

This is a good lesson that valuations matter and that expectations can be so high that even great companies can turn into bad investments. There is also hope in that companies can turn around, like Microsoft, and recover their former glory.

My "anti-index" of disappointing companies has changed. Since kicking Microsoft out for excellent performance, I have substituted Comtech Communications and later Ford in its place.

Couldn't help but notice that Comtech, Ford, and even bad, old GE have shown signs of life recently reflecting a belief that better times are ahead for the economy. Even AIG is up recently. Let's look at Year to Date performance.

AIG +24.06%
GE +26.02%
Ford +39.59%
Pfizer -5.51%
Comtech +36.64%
Microsoft +4.38%

The "Anti-Index" of AIG, GE, Ford, and Pfizer doesn't look so bad in 2021. These aren't recommendations by the way.
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Re: The Four Horsemen of Underperformance - Signs of Life

Post by arcticpineapplecorp. »

nedsaid wrote: Sun Mar 07, 2021 11:36 am I have often posted about the Four Horsemen of Underperformance, four stocks that I purchased in the early 2000's at "bargain" prices, four stocks that were darlings of the 1990's. These were AIG, GE, Microsoft, and Pfizer. All were disappointments after having been market leaders during the 1990's....

This is a good lesson that valuations matter and that expectations can be so high that even great companies can turn into bad investments. There is also hope in that companies can turn around, like Microsoft, and recover their former glory.
I'm not sure how these two statements square.

because if you did in fact buy at "bargain prices" then valuations DON'T matter. Apparently, it doesn't matter how low a price you paid; that has no impact, in and of itself, regarding the future performance of a company or no direct connection to future stock performance.

yes it is true that expectations can be too high and great companies can turn into bad investments, but if you bought at bargain prices, these were cigar butt companies which means the valuation should be low, which also doesn't square with how expectations can be high, yet prices and valuations low.

I don't understand how they could have been darling companies yet be selling at a discount. Something had to have gone wrong for the price to have become more attractive (lower) which means they stopped being darlings (and apparently continued that trend since they underperformed going forward despite your purchase at a "bargain" price).

am i misinterpreting something here?

seems to me either:
1. these weren't really bargain prices or
2. they started failing, price fell, you bought, they continued to fall going forward.

I find it interesting that you see the problem with both buying darling companies and stocks at bargain prices (neither are sure things) and yet you continued buying/selling stocks (selling the winners like microsoft and then gambling on other companies like Comtech and Ford).

Not sure what the lesson learned was. I think you're repeating the same mistake aren't you?

Individual stocks aren't the way to go. Indexing is.
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Re: The Four Horsemen of Underperformance - Signs of Life

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arcticpineapplecorp. wrote: Sun Mar 07, 2021 12:20 pm
nedsaid wrote: Sun Mar 07, 2021 11:36 am I have often posted about the Four Horsemen of Underperformance, four stocks that I purchased in the early 2000's at "bargain" prices, four stocks that were darlings of the 1990's. These were AIG, GE, Microsoft, and Pfizer. All were disappointments after having been market leaders during the 1990's....

This is a good lesson that valuations matter and that expectations can be so high that even great companies can turn into bad investments. There is also hope in that companies can turn around, like Microsoft, and recover their former glory.
I'm not sure how these two statements square.

because if you did in fact buy at "bargain prices" then valuations DON'T matter. It doesn't matter how low a price you paid apparently, that has no impact in and of itself regarding the future performance of a company or no direct connection to future stock performance.

yes it is true that expectations can be too high and great companies can turn into bad investments, but if you bought at bargain prices, these were cigar butt companies which means the valuation should be low, which also doesn't square with how expectations can be high, yet prices and valuations low.

I don't understand how they could have been darling companies yet be selling at a discount. Something had to have gone wrong for the price to have become more attractive (lower) which means they stopped being darlings (and apparently continued that trend since they underperformed going forward despite your purchase at a "bargain" price).

am i misinterpreting something here?

seems to me either:
1. these weren't really bargain prices or
2. they started failing, price fell, you bought, they continued to fail going forward.

I find it interesting that you see the problem with both buying darling companies and stocks at bargain prices (neither are sure things) and yet you continued buying/selling stocks (selling the winners like microsoft and then gambling on other companies like Comtech and Ford).

Not sure what the lesson learned was. I think you're repeating the same mistake aren't you?

Individual stocks aren't the way to go. Indexing is.
Why do you think I put scare quotes around bargain? They weren't bargains even though the price of these stocks had fallen. The expectations built into these stocks during the 1990's were unrealistic to the degree that the stocks were still overpriced when I bought them. These were stocks I wanted to own for years and waited for a chance to pounce. Pounce I did but in retrospect those stocks were still overpriced.

For the record, I still own Microsoft. I trimmed it back by about one third, it was rebalancing and profit taking. I was not dissatisfied with the company or with the stock.

Comtech was purchased after another Small Cap stock had been purchased and I was reinvesting the cash. The money for Ford came from trimming back my position in Applied Materials, another stock that I trimmed back but still own. I also purchased shares in Gilead Sciences and Coke with the proceeds.

One of the issues with Tech stocks is that they are cyclical, I had the experience of riding both Hewlett Packard and Lucent both up and all the way back down. Hence my decision to cut back on both Microsoft and Applied Materials. I learned my lesson.

My individual stocks have not been a disaster by any means. I have about matched the Vanguard Value Index, sometimes beating it a bit and sometimes trailing it a bit. Hardly surprising given my Value orientation.
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Re: The Four Horsemen of Underperformance - Signs of Life

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arcticpineapplecorp. wrote: Sun Mar 07, 2021 12:20 pm
nedsaid wrote: Sun Mar 07, 2021 11:36 am I have often posted about the Four Horsemen of Underperformance, four stocks that I purchased in the early 2000's at "bargain" prices, four stocks that were darlings of the 1990's. These were AIG, GE, Microsoft, and Pfizer. All were disappointments after having been market leaders during the 1990's....

This is a good lesson that valuations matter and that expectations can be so high that even great companies can turn into bad investments. There is also hope in that companies can turn around, like Microsoft, and recover their former glory.
I'm not sure how these two statements square.

because if you did in fact buy at "bargain prices" then valuations DON'T matter. Apparently, it doesn't matter how low a price you paid; that has no impact, in and of itself, regarding the future performance of a company or no direct connection to future stock performance.
Yeah, I thought the same thing. Is sounds like the real lesson is that diversification across all segments and valuations is what's important in the long term. History has taught us that valuations are a lousy predictor of success.
Individual stocks aren't the way to go. Indexing is.

:beer
Last edited by FIREchief on Sun Mar 07, 2021 12:45 pm, edited 1 time in total.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.
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Re: The Four Horsemen of Underperformance - Signs of Life

Post by nedsaid »

FIREchief wrote: Sun Mar 07, 2021 12:43 pm
arcticpineapplecorp. wrote: Sun Mar 07, 2021 12:20 pm
nedsaid wrote: Sun Mar 07, 2021 11:36 am I have often posted about the Four Horsemen of Underperformance, four stocks that I purchased in the early 2000's at "bargain" prices, four stocks that were darlings of the 1990's. These were AIG, GE, Microsoft, and Pfizer. All were disappointments after having been market leaders during the 1990's....

This is a good lesson that valuations matter and that expectations can be so high that even great companies can turn into bad investments. There is also hope in that companies can turn around, like Microsoft, and recover their former glory.
I'm not sure how these two statements square.

because if you did in fact buy at "bargain prices" then valuations DON'T matter. Apparently, it doesn't matter how low a price you paid; that has no impact, in and of itself, regarding the future performance of a company or no direct connection to future stock performance.
Yeah, I thought the same thing. Is sounds like the real lesson is that diversification across all segments and valuations is what's important in the long term.
Individual stocks aren't the way to go. Indexing is.

:beer
Valuations do matter. That is the whole point of this thread.
A fool and his money are good for business.
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Re: The Four Horsemen of Underperformance - Signs of Life

Post by MarkRoulo »

nedsaid wrote: Sun Mar 07, 2021 12:45 pm
FIREchief wrote: Sun Mar 07, 2021 12:43 pm
arcticpineapplecorp. wrote: Sun Mar 07, 2021 12:20 pm
nedsaid wrote: Sun Mar 07, 2021 11:36 am I have often posted about the Four Horsemen of Underperformance, four stocks that I purchased in the early 2000's at "bargain" prices, four stocks that were darlings of the 1990's. These were AIG, GE, Microsoft, and Pfizer. All were disappointments after having been market leaders during the 1990's....

This is a good lesson that valuations matter and that expectations can be so high that even great companies can turn into bad investments. There is also hope in that companies can turn around, like Microsoft, and recover their former glory.
I'm not sure how these two statements square.

because if you did in fact buy at "bargain prices" then valuations DON'T matter. Apparently, it doesn't matter how low a price you paid; that has no impact, in and of itself, regarding the future performance of a company or no direct connection to future stock performance.
Yeah, I thought the same thing. Is sounds like the real lesson is that diversification across all segments and valuations is what's important in the long term.
Individual stocks aren't the way to go. Indexing is.

:beer
Valuations do matter. That is the whole point of this thread.
Maybe you could explain why you thought they were bargains when you bought them? Because if "valuations matter," but folks can't reliably value the companies then valuations can't be used. And so don't matter.

Did you think they were bargains even though they were highly valued?
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Re: The Four Horsemen of Underperformance - Signs of Life

Post by nedsaid »

MarkRoulo wrote: Sun Mar 07, 2021 12:49 pm
nedsaid wrote: Sun Mar 07, 2021 12:45 pm
FIREchief wrote: Sun Mar 07, 2021 12:43 pm
arcticpineapplecorp. wrote: Sun Mar 07, 2021 12:20 pm
nedsaid wrote: Sun Mar 07, 2021 11:36 am I have often posted about the Four Horsemen of Underperformance, four stocks that I purchased in the early 2000's at "bargain" prices, four stocks that were darlings of the 1990's. These were AIG, GE, Microsoft, and Pfizer. All were disappointments after having been market leaders during the 1990's....

This is a good lesson that valuations matter and that expectations can be so high that even great companies can turn into bad investments. There is also hope in that companies can turn around, like Microsoft, and recover their former glory.
I'm not sure how these two statements square.

because if you did in fact buy at "bargain prices" then valuations DON'T matter. Apparently, it doesn't matter how low a price you paid; that has no impact, in and of itself, regarding the future performance of a company or no direct connection to future stock performance.
Yeah, I thought the same thing. Is sounds like the real lesson is that diversification across all segments and valuations is what's important in the long term.
Individual stocks aren't the way to go. Indexing is.

:beer
Valuations do matter. That is the whole point of this thread.
Maybe you could explain why you thought they were bargains when you bought them? Because if "valuations matter," but folks can't reliably value the companies then valuations can't be used. And so don't matter.

Did you think they were bargains even though they were highly valued?
These stocks were purchased after the 2000-2002 bear market after the market as a whole had fallen 50%. Attempting to pick up bargains in such an environment is not irrational, particularly great companies. What is obvious almost two decades later was not so obvious back then.

One thing that you come to realize after you have been in the markets for a while is that some stocks are just never cheap, particularly the really great companies. The thinking was to upgrade the quality of the companies that I owned in my portfolio by picking up great companies after a terrible bear market. If that isn't a good time to try such a thing, I don't know when that would be.

How did you feel when your S&P 500 and Total Stock Market Funds were underwater during the decade of the 2000's? Did you feel stupid then? I think not. In fact the US Stock Market went nowhere from 2000 into 2013. It was obvious in retrospect that you should have been in bonds instead.

How did you feel when Value outperformed the S&P 500 and the Total Stock Market during the 2000's? Did you have pangs of regret? No.

Just as you would not abandon an Index strategy when it hits a rough patch, neither would I abandon a Value based strategy when times don't look so good.

This thread is about a handful of the most disappointing stocks that I have owned, I could have just as easily started a thread about the stocks that performed the best. Part of what I am trying to get across is that investing can be a humbling experience. Things don't always work out as planned. I used the worst examples from my portfolio to make a few points.
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Re: The Four Horsemen of Underperformance - Signs of Life

Post by theorist »

nedsaid wrote: Sun Mar 07, 2021 11:36 am I have often posted about the Four Horsemen of Underperformance, four stocks that I purchased in the early 2000's at "bargain" prices, four stocks that were darlings of the 1990's. These were AIG, GE, Microsoft, and Pfizer. All were disappointments after having been market leaders during the 1990's.

AIG famously crashed during the 2008-2009 financial crisis and bear market. Microsoft languished for the first seven years I owned it and then becoming a great investment with the arrival of a new CEO. Pfizer has acted like a bond since I bought it, not a horrible investment but nothing great either. General Electric, dubbed our Lady of Perpetual Disappointment, has never failed to disappoint since I bought it.

This is a good lesson that valuations matter and that expectations can be so high that even great companies can turn into bad investments. There is also hope in that companies can turn around, like Microsoft, and recover their former glory.

My "anti-index" of disappointing companies has changed. Since kicking Microsoft out for excellent performance, I have substituted Comtech Communications and later Ford in its place.

Couldn't help but notice that Comtech, Ford, and even bad, old GE have shown signs of life recently reflecting a belief that better times are ahead for the economy. Even AIG is up recently. Let's look at Year to Date performance.

AIG +24.06%
GE +26.02%
Ford +39.59%
Pfizer -5.51%
Comtech +36.64%
Microsoft +4.38%

The "Anti-Index" of AIG, GE, Ford, and Pfizer doesn't look so bad in 2021. These aren't recommendations by the way.
Seems like given what Microsoft has done over the past few years, and what the others are doing this year, you can upgrade Pfizer to the One Horseman of Underperformance!

(I say this with only slight bitterness, since Pfizer is one of the few individual stock holdings I have! Though individual stocks are such a tiny fraction of my portfolio it doesn’t really matter.)
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Re: The Four Horsemen of Underperformance - Signs of Life

Post by SlowMovingInvestor »

I honestly don't remember if any of the other stocks were categorized as powerhouses in the 90s, but MSFT certainly was. It was almost like all of the FANG stocks rolled into one. Apple was a mere supplicant, with Jobs having to talk Gates into porting Office to OS X.

I think it has a lot of strengths now. 2nd Only to Amazon in cloud hosting. Desktop Windows is a dinosaur, but still a cash cow. Office is very profitable. It's also strong in gaming. It has a decent search engine.

It's probably the most diversified of the tech giants.
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Re: The Four Horsemen of Underperformance - Signs of Life

Post by MarkRoulo »

nedsaid wrote: Sun Mar 07, 2021 1:02 pm
MarkRoulo wrote: Sun Mar 07, 2021 12:49 pm
nedsaid wrote: Sun Mar 07, 2021 12:45 pm

Valuations do matter. That is the whole point of this thread.
Maybe you could explain why you thought they were bargains when you bought them? Because if "valuations matter," but folks can't reliably value the companies then valuations can't be used. And so don't matter.

Did you think they were bargains even though they were highly valued?
These stocks were purchased after the 2000-2002 bear market after the market as a whole had fallen 50%. Attempting to pick up bargains in such an environment is not irrational, particularly great companies. What is obvious almost two decades later was not so obvious back then.

One thing that you come to realize after you have been in the markets for a while is that some stocks are just never cheap, particularly the really great companies. The thinking was to upgrade the quality of the companies that I owned in my portfolio by picking up great companies after a terrible bear market. If that isn't a good time to try such a thing, I don't know when that would be.
I think I would have phrased this as "just because a stock has dropped a lot doesn't make it a good value" rather than "valuations matter." Which, I think (?) is the point you were trying to make?

How did you feel when your S&P 500 and Total Stock Market Funds were underwater during the decade of the 2000's? Did you feel stupid then? I think not. In fact the US Stock Market went nowhere from 2000 into 2013. It was obvious in retrospect that you should have been in bonds instead.

How did you feel when Value outperformed the S&P 500 and the Total Stock Market during the 2000's? Did you have pangs of regret? No.

Just as you would not abandon an Index strategy when it hits a rough patch, neither would I abandon a Value based strategy when times don't look so good.

This thread is about a handful of the most disappointing stocks that I have owned, I could have just as easily started a thread about the stocks that performed the best. Part of what I am trying to get across is that investing can be a humbling experience. Things don't always work out as planned. I used the worst examples from my portfolio to make a few points.
Often requests for information are interpreted as opinions on a position when delivered in text. My question was, indeed, just a question. You had written that you purchased the stocks you mentioned because you thought they were bargains, they went down and then you used this to illustrate that valuations mattered. I just wanted a clearer explanation of how the first two statements led to the 3rd.

Really.

And if your post that I responded to had finished with "investing can be humbling" I wouldn't have been puzzled because "I bought what sure looked like attractively valued stocks and then they went down" doesn't even appear to be in contradiction with "investing can be humbling." "I bought attractively valued stock, they went down, this shows that valuations matter" was a bit less clear, so I asked for an explanation.
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Re: The Four Horsemen of Underperformance - Signs of Life

Post by MarkRoulo »

SlowMovingInvestor wrote: Sun Mar 07, 2021 1:52 pm I honestly don't remember if any of the other stocks were categorized as powerhouses in the 90s, but MSFT certainly was. It was almost like all of the FANG stocks rolled into one. Apple was a mere supplicant, with Jobs having to talk Gates into porting Office to OS X.
Cisco. Going from memory, Cisco had a brief moment in the sun when it was the most highly valued US (and probably world) company. But it grew both consistently and enormously in the 1990s as the internet took off.

General Electric. It was the most profitable US (and probably world) company in 2000. Earnings had increased 25 years straight and everyone still admired Jack Welch.
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Re: The Four Horsemen of Underperformance - Signs of Life

Post by SlowMovingInvestor »

MarkRoulo wrote: Sun Mar 07, 2021 5:34 pm
SlowMovingInvestor wrote: Sun Mar 07, 2021 1:52 pm I honestly don't remember if any of the other stocks were categorized as powerhouses in the 90s, but MSFT certainly was. It was almost like all of the FANG stocks rolled into one. Apple was a mere supplicant, with Jobs having to talk Gates into porting Office to OS X.
Cisco. Going from memory, Cisco had a brief moment in the sun when it was the most highly valued US (and probably world) company. But it grew both consistently and enormously in the 1990s as the internet took off.
Cisco certainly, but it wasn't one of the companies mentioned by the OP. Although arguably Cisco was less dominant in its field than Microsoft in its - it had competitors such as Juniper (another underperformer post crash) and telco equipment manufacturers such as Nortel and Lucent that imploded.
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Re: The Four Horsemen of Underperformance - Signs of Life

Post by FIREchief »

MarkRoulo wrote: Sun Mar 07, 2021 5:34 pm General Electric. It was the most profitable US (and probably world) company in 2000. Earnings had increased 25 years straight and everyone still admired Jack Welch.
The dawn of the illusion of "quality company?"
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Re: The Four Horsemen of Underperformance - Signs of Life

Post by MoonOrb »

I'm not quite sure why signs of life in a handful of moribund stocks says one thing or another about the wider economy?

(But this seems to be good news for you, though, and I'm glad about that). :beer
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Re: The Four Horsemen of Underperformance - Signs of Life

Post by nedsaid »

MarkRoulo wrote: Sun Mar 07, 2021 5:26 pm
nedsaid wrote: Sun Mar 07, 2021 1:02 pm
MarkRoulo wrote: Sun Mar 07, 2021 12:49 pm
nedsaid wrote: Sun Mar 07, 2021 12:45 pm

Valuations do matter. That is the whole point of this thread.
Maybe you could explain why you thought they were bargains when you bought them? Because if "valuations matter," but folks can't reliably value the companies then valuations can't be used. And so don't matter.

Did you think they were bargains even though they were highly valued?
These stocks were purchased after the 2000-2002 bear market after the market as a whole had fallen 50%. Attempting to pick up bargains in such an environment is not irrational, particularly great companies. What is obvious almost two decades later was not so obvious back then.

One thing that you come to realize after you have been in the markets for a while is that some stocks are just never cheap, particularly the really great companies. The thinking was to upgrade the quality of the companies that I owned in my portfolio by picking up great companies after a terrible bear market. If that isn't a good time to try such a thing, I don't know when that would be.
I think I would have phrased this as "just because a stock has dropped a lot doesn't make it a good value" rather than "valuations matter." Which, I think (?) is the point you were trying to make?

Nedsaid: You are correct that stocks are not cheap because they dropped a lot. Cheaper perhaps, but not necessarily cheap. You need a realistic opinion of the earnings growth rate, quite often what happens is that optimistic earnings estimates by analysts don't pan out. Companies like GE and Coke were touted as "ruler stocks", stocks that steadily grew earnings at 15% a year, according to the analysts you could draw the earnings trend with a ruler, hence the term.

Reality and perception are two different things. The Coke CEO was known for calling and berating analysts who didn't agree with the optimistic earnings growth story the company told. GE kept the perception up by transforming an industrial company that had a financing arm into a bank that happened to make industrial products on the side. Both companies used a combination of acquisitions, spin-offs, and asset sales or what I call financial engineering to keep the perceived earnings growth going.

Sometimes, financial engineering was coupled with outright fraud. Tyco was an example of this and WorldComm another, both CEOs wound up in jail.

So part of what happened was that the real earnings growth rate was probably 8% for GE and 6% for Coke and perhaps even that was too optimistic. Coke now has a growth rate more like 4%.

I knew back then that forward earnings estimates were too high but I didn't realize the extent of the problem. Analysts weren't just optimistic, they were wildly too optimistic.

So this was an error made over 15 years ago. You also have to understand the optimism of the 1990's, I was looking for a return to "normal" after the bear market but "normal" in the later 1990's was not wholly based upon reality. Enthusiasm had outpaced actual corporate performance. Again, what seems obvious now wasn't so obvious then. I was not unaffected by the optimism of the 1990's,

How did you feel when your S&P 500 and Total Stock Market Funds were underwater during the decade of the 2000's? Did you feel stupid then? I think not. In fact the US Stock Market went nowhere from 2000 into 2013. It was obvious in retrospect that you should have been in bonds instead.

How did you feel when Value outperformed the S&P 500 and the Total Stock Market during the 2000's? Did you have pangs of regret? No.

Just as you would not abandon an Index strategy when it hits a rough patch, neither would I abandon a Value based strategy when times don't look so good.

This thread is about a handful of the most disappointing stocks that I have owned, I could have just as easily started a thread about the stocks that performed the best. Part of what I am trying to get across is that investing can be a humbling experience. Things don't always work out as planned. I used the worst examples from my portfolio to make a few points.
Often requests for information are interpreted as opinions on a position when delivered in text. My question was, indeed, just a question. You had written that you purchased the stocks you mentioned because you thought they were bargains, they went down and then you used this to illustrate that valuations mattered. I just wanted a clearer explanation of how the first two statements led to the 3rd.

Nedsaid: A lot boils down to earnings estimates. Historically, the US Companies comprising the US Stock Market grow earnings at 5%, maybe 6% a year. The historical norm for solid growth companies is probably 7% to 8%. What happened is that expectations got amped up. The market was supposed to deliver earnings growth of 10% instead of the historic 5%-6% and the solid growth stocks were supposed to grow at 15% instead of 7% to 8%. Fast growers were growing earnings in excess of 20%. What happened was that I didn't tamp down my expectations enough. I never got carried away with the Tech mania and never got euphoric but I was probably still more optimistic than I should have been.

Really.

And if your post that I responded to had finished with "investing can be humbling" I wouldn't have been puzzled because "I bought what sure looked like attractively valued stocks and then they went down" doesn't even appear to be in contradiction with "investing can be humbling." "I bought attractively valued stock, they went down, this shows that valuations matter" was a bit less clear, so I asked for an explanation.

Nedsaid: Perhaps a better statement would be that valuations matter in a broader context. A broader context of investor enthusiasm, the strength of the economy, the level of interest rates, the rate of inflation, and yet other factors. A P/E of 20 would be a reasonable valuation in an environment of very low interest rates and conversely at P/E of 10 would be reasonable in an environment of very high interest rates.

You have to make valuations within the context of the environment that exists when you make them. What seems expensive in one context might be considered cheap in another. None of this happens in a vacuum.

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Re: The Four Horsemen of Underperformance - Signs of Life

Post by nedsaid »

FIREchief wrote: Sun Mar 07, 2021 6:00 pm
MarkRoulo wrote: Sun Mar 07, 2021 5:34 pm General Electric. It was the most profitable US (and probably world) company in 2000. Earnings had increased 25 years straight and everyone still admired Jack Welch.
The dawn of the illusion of "quality company?"
This illustrates the statement that both the markets and the underlying economy are dynamic. The Blue Chips of today might be tomorrow's disappointment. This is one lesson that can be gleaned from my experience.
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Re: The Four Horsemen of Underperformance - Signs of Life

Post by nedsaid »

MoonOrb wrote: Sun Mar 07, 2021 6:31 pm I'm not quite sure why signs of life in a handful of moribund stocks says one thing or another about the wider economy?

(But this seems to be good news for you, though, and I'm glad about that). :beer
Ford is still an important company within the Auto industry and within the Transportation sector. Improvement in Ford's stock price shows increased optimism that the economy will rebound and that consumers will buy more cars and trucks.

General Electric with all of its problems is still an important industrial company. The company seems to be turning around, it is experiencing increased cash flow. It seems to be responding to the leadership of the new CEO. An increase in the stock price would also reflect an improvement in the demand for industrial products like jet engines, health diagnostic equipment, and power plants.

I don't know what good news has lifted AIG stock, I heard from a friend that 2020 was a good year for property and casualty insurance. I would expect that its stock price would also reflect expectations of a growing economy.
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MoonOrb
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Re: The Four Horsemen of Underperformance - Signs of Life

Post by MoonOrb »

I feel like this is analogous to a fundamental attribution error: too much is being inferred about the economy in general because of beliefs about the type or qualities of a particular company.
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nedsaid
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Re: The Four Horsemen of Underperformance - Signs of Life

Post by nedsaid »

MoonOrb wrote: Sun Mar 07, 2021 7:27 pm I feel like this is analogous to a fundamental attribution error: too much is being inferred about the economy in general because of beliefs about the type or qualities of a particular company.
The stock market as a whole has been up. We are not all that far from all time highs.
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wrongfunds
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Re: The Four Horsemen of Underperformance - Signs of Life

Post by wrongfunds »

AIG? That AIG?? For some reason I thought AIG of 2000 and 2021 are two different companies like old GM and new GM.
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Re: The Four Horsemen of Underperformance - Signs of Life

Post by JBTX »

nedsaid wrote: Sun Mar 07, 2021 11:36 am
This is a good lesson that valuations matter and that expectations can be so high that even great companies can turn into bad investments.
This time is different.
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arcticpineapplecorp.
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Re: The Four Horsemen of Underperformance - Signs of Life

Post by arcticpineapplecorp. »

valuations might matter but the problem with buying stocks individually is that at the moment you lay your money down you don't know if you're buying a:
1. value play
or a
2. value trap

you can buy a value company that goes bankrupt. there goes your money.

there's no real way to know that in advance.

if you want to buy value companies I still think it's best to own a value index to diversify stock risk (the risk of owning fewer rather than more companies).

even then, value can underperform growth for long periods of time (before those short bursts of outperformance materialize):

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Re: The Four Horsemen of Underperformance - Signs of Life

Post by Random Musings »

arcticpineapplecorp. wrote: Sun Mar 07, 2021 9:13 pm valuations might matter but the problem with buying stocks individually is that at the moment you lay your money down you don't know if you're buying a:
1. value play
or a
2. value trap

you can buy a value company that goes bankrupt. there goes your money.

there's no real way to know that in advance.

if you want to buy value companies I still think it's best to own a value index to diversify stock risk (the risk of owning fewer rather than more companies).

even then, value can underperform growth for long periods of time (before those short bursts of outperformance materialize):

Image
Hmmm. Chart shows we are pretty long in the tooth for SCV underperformance, with a relatively recent downdraft that probably ended less than a year ago. Makes me more optimistic for SCV on a relative basis.

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Re: The Four Horsemen of Underperformance - Signs of Life

Post by willthrill81 »

I agree that valuations matter, just not in the perfectly predictable standard that many try to hold them to. I also agree that individual stocks are, at best, a speculation. It's been about 20 years since I owned an individual stock, and I'm not interested in going back, despite having at least one coworker do very well by owning Tesla for the last several years.
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Re: The Four Horsemen of Underperformance - Signs of Life

Post by willthrill81 »

Random Musings wrote: Sun Mar 07, 2021 9:50 pmChart shows we are pretty long in the tooth for SCV underperformance, with a relatively recent downdraft that probably ended less than a year ago. Makes me more optimistic for SCV on a relative basis.
As discussed in this post, the concentration of the S&P 500 has historically been strongly correlated with SCV's outperformance. Right now, SCV is set up for very substantial outperformance going forward.

But, as always, YMMV.
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Re: The Four Horsemen of Underperformance - Signs of Life

Post by fsrph »

nedsaid wrote: Sun Mar 07, 2021 11:36 am Pfizer has acted like a bond since I bought it, not a horrible investment but nothing great either.

Nedsaid, have enjoyed your posts passing on your knowledge to us. I've had similar experience with Merck. Held it for over 30 years. I remember in the 1990's large cap Pharma were stable high quality growth stocks. About 10 years ago I began thinking these companies are performing more like utility companies with low growth and good dividends. Did you sell your Pfizer? My situation is Merck is about 8.5% of my portfolio. It's in taxable so cap gains tax if I sell. If it was in a retirement account I would have sold long ago. My approx allocation is 30/70. But, I feel that 30% stock number is not accurate because I'm overweight in a slow growing and underperforming Merck. Think your point that Pfizer performed like a bond is spot on.

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Re: The Four Horsemen of Underperformance - Signs of Life

Post by Scooter57 »

nedsaid wrote: Sun Mar 07, 2021 11:36 am
Couldn't help but notice that Comtech, Ford, and even bad, old GE have shown signs of life recently reflecting a belief that better times are ahead for the economy. Even AIG is up recently. Let's look at Year to Date performance.

AIG +24.06%
GE +26.02%
Ford +39.59%
Pfizer -5.51%
Comtech +36.64%
Microsoft +4.38%

The "Anti-Index" of AIG, GE, Ford, and Pfizer doesn't look so bad in 2021. These aren't recommendations by the way.
What would your overall investment in those stocks look like since you bought them? Did Microsoft's dramatic surge outweigh the losses from the others?
I hate to compare anything to the S&P 500 right now because, like you, I take valuation seriously and it has become the S&P 25 for all practical purposes.

How would your investment over the whole holding period compare to an investment in an intermediate bond fund?
How would it compare over the whole holding period to an investment in Small Cap Value? (So beloved by some Bogleheads)

At least you didn't invest heavily in AT&T which may be the GE of this decade.
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nedsaid
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Re: The Four Horsemen of Underperformance - Signs of Life

Post by nedsaid »

Scooter57 wrote: Mon Mar 08, 2021 9:54 am
nedsaid wrote: Sun Mar 07, 2021 11:36 am
Couldn't help but notice that Comtech, Ford, and even bad, old GE have shown signs of life recently reflecting a belief that better times are ahead for the economy. Even AIG is up recently. Let's look at Year to Date performance.

AIG +24.06%
GE +26.02%
Ford +39.59%
Pfizer -5.51%
Comtech +36.64%
Microsoft +4.38%

The "Anti-Index" of AIG, GE, Ford, and Pfizer doesn't look so bad in 2021. These aren't recommendations by the way.
What would your overall investment in those stocks look like since you bought them? Did Microsoft's dramatic surge outweigh the losses from the others?
I hate to compare anything to the S&P 500 right now because, like you, I take valuation seriously and it has become the S&P 25 for all practical purposes.

How would your investment over the whole holding period compare to an investment in an intermediate bond fund?
How would it compare over the whole holding period to an investment in Small Cap Value? (So beloved by some Bogleheads)

At least you didn't invest heavily in AT&T which may be the GE of this decade.
I could run reports in Quicken to get return numbers for you but the combined record of those 6 stocks isn't great except for Microsoft. I am down 90% on AIG probably down 40%-50% on GE, I am up slightly on Ford, I am up on Pfizer, I am up on Comtech. Microsoft was what Peter Lynch would call an eight bagger, I made probably 8 or 9 times my original investment taking into account dividends. Even then, Microsoft was dead money for the first seven years I owned it.
A fool and his money are good for business.
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nedsaid
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Re: The Four Horsemen of Underperformance - Signs of Life

Post by nedsaid »

wrongfunds wrote: Sun Mar 07, 2021 7:42 pm AIG? That AIG?? For some reason I thought AIG of 2000 and 2021 are two different companies like old GM and new GM.
Yep. Same company.
A fool and his money are good for business.
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nedsaid
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Re: The Four Horsemen of Underperformance - Signs of Life

Post by nedsaid »

fsrph wrote: Mon Mar 08, 2021 9:24 am
nedsaid wrote: Sun Mar 07, 2021 11:36 am Pfizer has acted like a bond since I bought it, not a horrible investment but nothing great either.

Nedsaid, have enjoyed your posts passing on your knowledge to us. I've had similar experience with Merck. Held it for over 30 years. I remember in the 1990's large cap Pharma were stable high quality growth stocks. About 10 years ago I began thinking these companies are performing more like utility companies with low growth and good dividends. Did you sell your Pfizer? My situation is Merck is about 8.5% of my portfolio. It's in taxable so cap gains tax if I sell. If it was in a retirement account I would have sold long ago. My approx allocation is 30/70. But, I feel that 30% stock number is not accurate because I'm overweight in a slow growing and underperforming Merck. Think your point that Pfizer performed like a bond is spot on.

Francis
Hi Francis, I still own Pfizer and I am currently reinvesting dividends.
A fool and his money are good for business.
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