racer | markets & judgment

How people decide when they can’t know the future.
Markets, business, history, incentives.

[racer | markets & judgment @racerhome]

https://t.co/OMSFsjOrOE

[fuzzy @fuzzyxbt]

@racerhome The trade only works if the government saves the system without wiping out common shareholders. That distinction mattered a lot in 2009.

[racer | markets & judgment @racerhome]

@robprogressive Keep the cards. Keep the cash. I don’t see a good reason to force everyone into only one rail.

[racer | markets & judgment @racerhome]

@0xZely Wall Street can charge 2-and-20 for the implementation even when the mental model is sitting on YouTube for free.

[racer | markets & judgment @racerhome]

@zorepad That's the whole point.

[racer | markets & judgment @racerhome]

@Mehdiyac We somehow normalized carrying hundreds of dormant relationships around in our pocket.

[racer | markets & judgment @racerhome]

@Maklarenzhjh I’d love to know what the internal memo said when they rejected the 20%.

[racer | markets & judgment @racerhome]

@fuzzyxbt Back then, a lot of things mattered.

[racer | markets & judgment @racerhome]

David Tepper's fund made $7.2 billion in 2009.

Bank of America near $3.
Citigroup under $1.

A year later, Tepper went on CNBC and explained why he was still buying stocks.

His framework had two outcomes.

If the economy recovered on its own, stocks should do well.

If it didn't, the Fed had already signaled that it was prepared to step in with more quantitative easing.

Tepper wasn't trying to predict which outcome would happen.

He was looking for a position that could work under both.

That same way of thinking had paid off during the financial crisis.

While investors were dumping banks, Appaloosa bought distressed financial stocks and debt on the view that the government would keep the banking system alive.

The recovery turned those positions into roughly $7 billion of profit in 2009.

In the CNBC interview, Tepper reduced the next decision to something much simpler:

What happens if I'm right?

What happens if I'm wrong?

And does the trade still make sense in both cases?

[racer | markets & judgment @racerhome]

https://t.co/OMSFsjOrOE

[racer | markets & judgment @racerhome]

@EricAbbenante 2009 feels a lot less distant after watching this.

[racer | markets & judgment @racerhome]

@lorneseth Yeah. Once the government showed it would keep the banking system alive, the question wasn't whether banks looked good.

[racer | markets & judgment @racerhome]

@HeyShobhan The funniest part is MIT put it online for free and people still won’t practice it.

[racer | markets & judgment @racerhome]

@lorneseth Imagine changing the future of your company because someone yelled “Mr. Buffett” on the sidewalk.

[racer | markets & judgment @racerhome]

@Mary_0nx A lot of amateur investors probably have better information than they think. They just don’t trust their own observations.

[fuzzy @fuzzyxbt]

$1.10 trillion was spent on S&P 500 buybacks over the last 12 months — an all-time high.

Warren Buffett has one test that decides whether those buybacks actually create value.

He doesn’t care how big the authorization sounds.

He cares about the price the company pays for its own shares.

Buffett has repeatedly said repurchases make sense when the stock trades below a conservative estimate of intrinsic value and the company still has enough cash for growth and unexpected problems.

That gives you a simple way to read every buyback headline.

When you see:

“Company authorizes a $20 billion repurchase”

open the next 10-Q and check three things:

→ average price paid
→ diluted share count versus a year ago
→ free cash flow versus cash spent on repurchases

If the share count barely falls, stock compensation may be absorbing a large part of the buyback.

If repurchases consistently exceed free cash flow, check what is happening to debt and cash.

And a huge authorization can still be a poor use of capital if management keeps buying at an expensive valuation.

This matters now.

S&P 500 companies bought back a record $1.10 trillion over the latest 12 months.

But the buyers are changing.

Companies spending heavily on AI capex cut their buybacks 32% to $85 billion, while financials increased theirs to a record $287 billion.

So the next time a company announces a giant buyback, don’t stop at the dollar amount.

Check what price management is actually paying for each percentage point of the company it retires.

[racer | markets & judgment @racerhome]

@0xBassey He must’ve felt broke and rich at the same time. NBA player, $7k cash.

[racer | markets & judgment @racerhome]

$10,000 invested in John Templeton's fund grew to about $2 million.

In 1988, he explained why 10% of his clients' money was sitting in a market that represented only 2.5% of the world's stocks.

Canada.

Templeton said he kept finding bargains there because investors were deeply pessimistic.

And that was exactly what he wanted.

Most investors wait until the outlook improves before they buy.

Templeton did the opposite.

He looked for stocks when selling had pushed prices down, bought the ones he believed were cheapest relative to their value, and waited.

His average holding period was about five years.

He couldn't tell you when the pessimism would end.

He didn't need to.

If the price was low enough, he was willing to wait for the business and the market to catch up.

That was the uncomfortable part of his strategy:

The places with the best outlook rarely had the best prices.

[racer | markets & judgment @racerhome]

https://t.co/OMSFsjOrOE

[racer | markets & judgment @racerhome]

@fuzzyxbt The scary part is how safe those bonds looked right before they weren’t.

[racer | markets & judgment @racerhome]

@Mary_0nx Yeah, pretty much. 7,400 then 7,800 is basically a flat-year call with a drawdown somewhere in the middle.

[racer | markets & judgment @racerhome]

Bank of America raised its S&P 500 year-end target to 7,400.

That still implied about 3% downside from where the market was trading.

Savita Subramanian says stocks have now gone more than six months without a meaningful pullback.

A 5% drop typically happens around three times a year.

What surprised BofA this year was earnings. They were stronger than expected and helped offset the multiple compression the bank had been looking for.

The problem now is everything around those earnings.

Equity allocations have risen simply because stocks kept going up. The Fed is tightening. Leverage is getting more attention. And investors are questioning how much of the AI trade is already priced in.

BofA's 12-month S&P 500 target is 7,800, only about 2% above the level when the forecast was published.

Companies can keep growing and the index can still struggle if investors have already paid for too much of that growth.

[racer | markets & judgment @racerhome]

https://t.co/OMSFsjOrOE

[racer | markets & judgment @racerhome]

@Mary_0nx Wall Street wanted better traders. Simons hired people who didn’t even think like traders.