Essence 06.15.2020
Does Warren Buffet think we are in a "bubble"?
Discussion
Advisor Perspectives – “Market Cap to GDP: An Updated Look at the Buffett Valuation Indicator”
Warren Buffet, the classic buy and hold investor, is continuing to dump shares. Mr. Buffet is “The Oracle of Omaha”, not “The Omniscient of Omaha”, so this does not necessarily mean there is an imminent crash coming.
Warren Buffet’s famed technical market indicator plots the US GPD vs Total Market Cap.
Buffet used this as an indicator of the 2000 Dot.Com bubble where it reached 130%
The high of the 2020 COVID-19 Bear Market brought it to less than 125% from its previous highs of 150%
If this chart should be a 1:1 mirror image, we would have missed out on a lot of gains
From 09’-20’ the S&P 500 has gained 400% from the bottom to the top where the indicator was over 100% for a majority of the time
As we know, Buffet sold his entire position in all 4 major airlines during the crisis. The less talked about positions he has sold include:
84% of his position in Goldman Sachs
100% of Travelers and Phillips 66
3% of his JP Morgan Chase position
1% in Amazon
Clearly, with these moves Buffet believes there will at minimum be a makeover in these industries. The airline and travel industries will indisputably change. Additionally, the energy industry is already changing with electric vehicles and renewables. We think the most interesting facet is from the Goldman and JP Morgan sales. Does Buffet not like Goldman specifically, and JP Morgan was just collateral damage? Here are a few reasons why we believe he sold these positions:
Near 0% interest rate environment
Federal Reserve printing trillions of dollars, this may have an impact on the big banks long term outlook
Companies going public via direct listing – less need for investment banking (Primarily Goldman Concern as this was 20% of their revenue last year)
A general economic downturn, thus decreasing their risk tolerance and returns
Portfolio
Portfolio Overview
Like the broader market, this was a tough week for Meera. Our investing is based on momentum, with the shift towards the downside this week, many of or call options are suffering. We have tried to keep our portfolio hedged with an inverse SPY ETF in SPXS, but with these short-term call options, it was impossible to completely hedge. Below is what we are currently holding:
Our rolling net return for the previous month is -2.3%
This return represents the market value of our options we are holding
We are expecting increased portfolio returns as we begin to enter trades that have more downside exposure this upcoming week.
Weekly Trade Spotlight
Our most profitable trade this week was buying 2 put options in TTWO.
On 06/09 we saw our target top of $136.22 become a rejection line, showing a bearish signal
The following day showed us a false breakout where it closed above this level
We knew this would be volatile, and fortunately for us, TTWO was extremely volatile on Friday, which gave us the opportunity to sell for a nice profit on the expiration date
We may consider a similar trade in the upcoming week, the technical analysis still looks like a sell and with more room to the downside
Week Review
Watchlist 06.08.2020
Watchlist 06.15.2020
Private Company Spotlight
Locus Robotics: Website | Funding
Locus Robotics is a company that produces innovative autonomous mobile robots that make it easy to optimize warehouse operations. The robots work alongside warehouse workers acting as a tool to remove mundane warehouse tasks. Locus Robotics has found its system can double the productivity of warehouse workers.
See it in action: Locus Robotics
It may not come as a surprise the Massachusetts-based startup raised an additional $40M of funding. COVID-19 is thought to have a profound impact on automation accelerating the trend of wide-scale adoption. Locus robotics announced: “its robots have passed 100 million units picked.” The company also recently announced a new contract with UPS.
Our Take: We believe the future and widespread adaption of autonomous vehicles will start in the business sector. Technologies like Locus Robotics is a tremendous area of growth that will help develop and propel new and existing industries. We believe successful companies in this space will focus on;
Tremendous customer service - specifically; onboarding, quickly & directly addressing problems tailored to clients, and educate the client workforce on seamless autonomous work environments
Data visualization
Data-driven adaptions
Doodle
Great to see cities adapting to changing times. I believe the future of healthy cities and healthy living in cities will involve giving more space back to people. There are a lot of positive effects of pedestrian predominant spaces including; increased economic activity, healthier lifestyles, and it’s more eco-friendly.
Check out some great resources: @jen_keesmaat @berkie1 @CityBeautifulYT
Learn Something
Margin
Definition: The money borrowed from a brokerage firm to purchase an investment. Buying on margin is the act of borrowing money to buy securities.
Margin is a tool for advanced traders and can be very useful in certain circumstances. We do not recommend new investors to use margin. Margin increases the risk in a trade and can force investors into decisions they may not want to make. Margin can have dramatic effects on life outside of your brokerage account. Failure to cover margin calls will hurt your credit score and financial security. Only use margin if you know what you are doing and have absolute conviction. On most occasions, it’s probably better to just stay away.
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