The stock market is comprised of very different types of investors. For example, pension funds or sovereign wealth funds get a constant inflow of money and are mandated to deploy it and put it to work. These fund managers are dealing with tens of billions of dollars and even more.
Hedge funds operate differently and manage their portfolio on a monthly basis. Every 30 days, they report to clients. Family Offices have a long-term outlook and this all creates a vast storm of conflicting agendas.
To make things even more complicated, stocks are not even the most favored market for big money; they’d rather get into fixed-income opportunities, generally known as debt.
The large and conservative money managers want to loan to governments and corporations and collect a perpetual coupon payment. Debt, of course, is issued when the economy is growing, and new ventures need funding and contracts when the economy is slowing.
Once every few years and even more uniquely, once in a decade or more, the market’s fundamentals change so dramatically that the entire dynamic of the global business world tilts in a new direction.
As you can see, the change we’re currently undergoing is making Wall Street discount the price of businesses down dramatically, so much so that if a bidder wanted to purchase another company outright, the price that the CEO would negotiate will be far removed from the current quoted bid/ask on the open market.
What this means is that the individual investor can accumulate a portion of the company, shares bought on the open market, for a price that IS WELL BELOW what management believes the business is worth.
If you can start to look at the world in this manner, the scope of the opportunities become obvious to you.
I’ll give you a real-life example. I’m currently accumulating shares of Blackstone (BX) under $100/share and building it to comprise 3% of my portfolio.
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The downside potential is about 35%, if we have a depression. The company’s business is the best it’s ever been, paying a dividend yield of 5.96% with a P/E ratio of only 12.3, and more of its revenues coming from perpetual fees than ever before.
This is the next Berkshire Hathaway, in my opinion, so the upside is 500%-600% from here…
Therefore, if Buffett were to call Stephen Schwarzman and offer to buy Blackstone at today’s price, I would bet he’d turn him down and for good reason – the business is worth much more.
One has to be willing to stop thinking about the stock market in the same light and with the same feeling he does with the lottery. The stock market is a brutal chess match against the rest of the people who want to make better and more informed decisions than yours, and the WHOLE ART of buying equities in distressed environments boils down to the ability to CHOOSE to LOSE.
The BUY/SELL indicator tells you all you need to know; the type of investors that are building legacy positions today are the WARREN BUFFETTs of the world, not the casino gamblers.
The stock market has discounted higher rates, a recession, inflation, war in Europe and a worker shortage… it won’t get much cheaper from here and, even if it does (keep in mind our example), it would mean Blackstone (BX) would have less downside and even bigger upside.
As long as the underlying business is world-class, with decades of growth ahead of it, the market’s panic is your FRIEND.
I keep buying these companies:
MSCI Inc. (MSCI), S&P Global Intelligence (SPGI), MarketAxess (MKTX), Nasdaq Inc. (NDAQ)
CBRE Group Inc. (CBRE), Blackstone (BX)
Cintas (CTAS), Roper Technologies (ROP), Rollins (ROL)
ServiceNow (NOW), The Trade Desk (TTD)
Resmed (RMD), Abbott Labs (ABT)
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