Jan 22, 2022Liked by Andrew Walker

Good post Andrew. Read somewhere earlier this week that 40% of the NASDAQ had been cut in half from their peaks. Clearly way worse now. Brutal, and certainly plenty of instances of baby being thrown out with the bathwater.

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Interesting post. This crash is different than many crashes in that it seems to have more merit than others. Greece issues and some other issues were sort of ridiculous reasons for the market to go down. Market originally going down because of Omicron (to give the market its credit the market could have saw through Omicron and zeroed in on inflation and interest rates) was obviously an overreaction.

An unfortunate issue is that a lot of the super inexpensive stocks I own are also going down. Are there too many people indexing that it makes fundamental long term value reversion to mean plays impossible? Is everything liquidity based? I’ve made a fortune since 2020 buying ‘general situations’ but recent price action makes one wonder if selling your generals faster makes sense And focusing mainly on special situations. I.e. not really following the 100 bagger style and being more Graham like and selling stock, “too early.” Or maybe it’s just been an issue with me buying $hitcos but treating them as if they are the next big thing. I’ll probably continue on the way I have been but it makes me reconsider the portfolio.

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IWM is down about 20% from highs (from 244 down to 197) as of Jan 23

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re: PTON, In your May notes you indicated the bull case assumes they are Apple 2.0 - cultivating a rabid and growing customer base for products positioned in the 'premium' category. The price reductions of earlier this year seem to undermine this positioning.

Further, the addition of delivery charges means that to the consumer, total pricing has essentially stood still - which indicates to me sloppy management without clear vision for the near term (poorly timed capital raise also supports this view), and it plays against what I believe are common consumer habits where we prefer $2000 with free shipping vs. $1700 + $300 shipping cost.

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completely agree

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Enjoyed the post Andrew. Correct me if I am wrong (often its the case), but I calculated the Russell drawdown 19%, from its all time high of 2442.7 on Nov 8. I believe it is the steepest 90 days drawdown going back to Feb 2016 (except for COVID march 2020). With a 1.5 Beta on your portfolio, thats almost 30% drawdown. Both the portfolio and I are feeling its severity :) But I sleep well, will continue to do so if it goes down another 20%.

I inferred (maybe wrongly) that you believe the market is crashing due to recession fears. I disagree, I believe the market is scared of a US / Russian confrontation over Ukraine. As you know, the US shipped 90 tons of weapons to Ukraine border on Friday night.

In the event that Putin goes in and we get combat on the ground, the consequences will be severe for the entire world economy. In retaliation, US will impose all sanctions imaginable, crashing the ruble and Russian market, IMOEX, which has already fallen almost as much as March 2020. (I do not know the exposure of US financial firms to Russian markets but I it is greater than zero) US will also try to get NATO and Europe as a whole to do the same with sanctions.

Here's where it gets tricky. Europe currently relies on Russia for energy (mainly natural gas and LNG). Putin turns off the valve, Europe literally freezes. That's his leverage and its not inconsequent. Any European leader can explain why they are not getting involved in a faraway war between Russia and an ex- Russian territory, but they cannot explain why their children will be freezing this winter.

You may think policy is irrelevant when it comes to markets. I disagree. Just take Turkey for example, 17th largest economy in the world, they had a falling out with Iran (where they get 97% of their Natural Gas). Iran slowed the LNG shipments, Turkey began to have power outages and now the automotive and textile sectors in Turkey are at the brink of collapse, threatening to take down what remains from the rest of the economy.

Overall, I just wanted to point out that things can get much scarier in the short term, I remain very bullish in he long term.

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Hey Andrew. Good post - agree with most everything you said. Is there a good deep dive that you recommend into the current state (bullish/bearish view) of Cable. I am a pretty huge newbie when it comes to looking at single stocks/sectors.

Also, agree with Richard below. If you took the chart that you had and cut every P/E by 20%, I am not sure I would blink an eye and say that the market was super cheap. It would just be run of the mill for the last 20 years?

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Well if you assume EPS for the S&P only grows 10% not the 20% the sell side expect and you assume it comes back to its pre pandemic average PE of roughly 18 your at 3600 so maybe there still is a long way to go

On the cable guys you should think about the impact of fixed 5G - completely changed the market structure

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