Post New

Most days are spent doing two to four hours reading and looking up stuff including perusing stuff via my Value Line subscription and using the market data section of the Financial Times. Seeking Alpha subscription also provides interesting companies to look leading to doing the normal analysis of balance sheets and income statements over, say, a five year time frame. You should know we (my bride and I) sometimes go two or more years between investment purchases. It is a sitting on hands every day kind of thing for this coffee can investor.

It seems every time when looking through Value Line's weekly review report of small to medium sized companies, I leave with the assessment that most companies suck. They sell more stock as the years go by to raise funds. They are going nowhere in growing revenues. They are going nowhere in improving margins. Basically, to my eye they look like terrible investments.

While these types of companies are not my cup of tea, I do ponder the micro and macro aspects leading to why the vast predominance of public companies suck at being potential good long term investments. Could it be:
1) The world is so darn competitive, thus precluding most companies from making better margins?
2) Correlated with 1), few blue sky opportunities are available?
3) Private equity, big companies and venture firms bought all the small companies with good moats?
4) It has always been this way?

This rant is over. I'm back to my long running philosophy of knowing the only time this small fry investor has a leg up on Wall Street's fast buck shops, indexing aspects, large institutional investors and, of course, company insiders is when an industry segment is swooning or the more rare event when the entire market is going to pieces. The proverbial blood in the streets scenario when redemptions are happening and there is more money leaving the market than is coming into the market. When that next happens is anyone's guess. This is why we read, evaluate and sit on our hands. It is actually a quite enjoyable process.

All the best to my fellow small fry investors. If you have a similar story or maybe a completely different take, please speak up.

Uwharrie

ChatGPT’s take to this morning’s musings:

You are observing something that many value investors eventually conclude: the stock market is not primarily a mechanism for allocating capital to the best businesses. It is primarily a mechanism for allocating capital according to flows, narratives, incentives, and time horizons.

The question is not “Why are there so many poor companies?”

The question is “Why are there enough buyers willing to own them?”

The first answer: Index funds are indeed supporting many mediocre companies

If a company is included in the S&P 500, Russell 2000, or similar indexes, every dollar flowing into index funds automatically buys shares regardless of quality.

Index funds do not ask:

* Is this company earning good returns on capital?
* Is management competent?
* Is the moat durable?
* Is the valuation reasonable?

They simply buy according to index weight.

This creates a structural bid under many mediocre businesses.

However, this explains only part of the phenomenon.

⸻

The second answer: Different investors have different objectives

You and Warren Buffett might ask:

“Will this business be worth significantly more in ten years?”

Many market participants are asking something entirely different:

* Can earnings beat estimates next quarter?
* Can the stock go up 20% before year-end?
* Can I trade the momentum?
* Can this company get acquired?
* Can I raise another venture round?

A business can be a terrible long-term investment and still be a good speculation.

The market contains:

* traders
* hedge funds
* arbitrageurs
* option market makers
* venture investors
* growth investors
* passive investors
* retail speculators

All are playing different games.

⸻

Biotech is perhaps the purest example

You specifically mentioned biotech.

Most biotech companies are not really operating businesses.

They are essentially:

scientific options contracts.

A typical biotech:

* loses money
* has no revenue
* issues stock repeatedly
* depends on a few clinical trials

Yet it may have a $500 million market cap.

Why?

Because one successful drug could someday be worth several billion dollars.

Investors are not buying current earnings.

They are buying a lottery ticket.

Consider companies developing:

* cancer therapies
* Alzheimer’s treatments
* obesity drugs
* rare disease drugs

One success can produce enormous returns.

Most fail.

A few become the next Amgen, Regeneron Pharmaceuticals, or Vertex Pharmaceuticals.

The winners pay for many losers.

⸻

Why can poor companies keep issuing stock?

Because hope is always for sale.

Suppose a biotech has:

* $50 million cash
* burns $20 million annually

Two years later it needs more money.

Management sells new shares.

Who buys?

Typically:

* specialized biotech funds
* healthcare hedge funds
* venture-style public investors
* institutions averaging down
* retail investors attracted by the story

As long as investors believe there is a chance of a breakthrough, capital remains available.

⸻

The third answer: Agency problems

Many professional managers are not rewarded for absolute returns.

They are rewarded for:

* assets under management
* short-term relative performance
* staying close to benchmarks

A fund manager who buys a fashionable but expensive stock and loses money alongside everyone else often keeps his job.

A manager who avoids fashionable stocks and underperforms for two years may lose his job even if he is ultimately right.

This creates enormous support for popular securities.

Buffett has discussed this repeatedly.

⸻

The fourth answer: Survivorship blindness

When you examine Value Line you are seeing today’s population of companies.

Many terrible companies have already disappeared.

Thousands have:

* gone bankrupt
* been acquired
* been delisted
* merged away

The market constantly recycles capital through new hopeful enterprises.

It’s similar to nature:

Many seeds are produced because few become trees.

⸻

Why aren’t valuations lower?

This is where your observation becomes particularly interesting.

Historically, many mediocre businesses traded at:

* 6× earnings
* 8× earnings
* 10× earnings

Today many trade at:

* 18× earnings
* 25× earnings
* 30× earnings

Several forces contribute:

1. Passive flows

A constant buyer exists.

2. Retirement system inflows

Every two weeks millions of workers contribute to:

* 401(k)s
* IRAs
* pension plans

Much of that money automatically enters equities.

3. Low interest rates conditioned investors

Even though rates rose recently, investors spent over a decade valuing stocks as if capital were nearly free.

4. Scarcity of public companies

An overlooked point.

The number of U.S. listed companies is much lower than in the late 1990s.

Fewer public companies compete for a much larger pool of investment capital.

⸻

Who is supporting the equity values?

If I had to rank them:

1. Passive index funds
2. Retirement-plan inflows
3. Institutions forced to stay invested
4. Momentum and growth investors
5. Retail investors
6. Speculators seeking optionality (especially biotech)

The farther you move from profitable, cash-generating companies, the more the shareholder base shifts from investors toward speculators.

⸻

Why Buffett, Markel, Exor and Investor AB look unusual

This ties directly into many of the companies you have researched.

When you look at:

* Berkshire Hathaway
* Markel Group
* Exor
* Investor AB

you are looking at organizations whose primary goal is:

compound capital over decades.

That is actually rare.

Most public companies optimize for:

* quarterly earnings
* stock promotion
* executive compensation
* growth at almost any cost

The reason you often feel disappointed after reviewing Value Line reports is that you are evaluating businesses through a long-duration owner-operator lens.

Viewed through that lens, the investable universe shrinks dramatically.

Buffett once remarked that if he could find 20 truly outstanding investments in a lifetime, that would be enough.

After reviewing thousands of public companies, many serious value investors eventually conclude something similar:

The surprising thing is not how many good companies exist. The surprising thing is how few exist.

3) Private equity, big companies and venture firms bought all the small companies with good moats?

That's my bet as the single biggest reason.

There are huge piles of cash snapping up smaller firms as a business model, so anything with any visible charms gets sold. That's true whether it's a listed microcap/smallcap or private. What's left is not inspiring. Part of this is that firms that would previously have been candidates for going public are sold before that happens, meaning the new blood is missing and the ones that are there are older and have stayed small...poorer businesses.

The reason might be something else I suppose, but the effect isn't just your imagination. The average quality of small listed firms is spectacularly worse than it was in previous eras in many quantitative ways. Higher debt, lower margin, and on and on.

Jim

3) Private equity, big companies and venture firms bought all the small companies with good moats?

That's my bet as the single biggest reason.

It's worth considering that investing knowledge may be similar to science and engineering knowledge, in that it's cumulative within society (and ever-easier to access). So just like it's harder to invent a better mousetrap or find a better fundamental physics theory than it used to be, it's harder to find mispricings that others haven't also seen. Not impossible, but harder. The switch to passive investing suggests many have given up, although in the extreme that can't work for everyone, right? (There's an ETF called NIXT that just invests in companies removed from indexes. But that's a pretty small universe.) I kinda think allocations between broad asset classes are just about all that's left to exploit, because there's less known about those value comparisons, and the payoffs are over longer timescales. But who knows?

There are huge piles of cash snapping up smaller firms as a business model, so anything with any visible charms gets sold. That's true whether it's a listed microcap/smallcap or private. What's left is not inspiring.

This is a depressing consequence of the accelerating concentration of capital in the hands of the top tenth of a percent. One of the benefits of immense wealth is the ability to buy whole companies and take them private, as Buffett did.

The twentieth century witnessed the democratization of ownership as declining wealth inequality and rising incomes led to the emergence of investment pooling instruments like stock and bond funds, and the broadening of ownership into the upper middle and middle classes. With the steepening of income and wealth inequality, and the corresponding emergence of private equity and family offices, a greater and greater share of ownership opportunities are becoming inaccessible to ordinary investors.

I worry that even the very well off—the top 5%—are at risk being closed out of the most lucrative segments of the economy. Indeed the billionaire class seems to be not only embracing a politics of neo-feudalism but also a neo-enclosure movement as it walls off greater and greater shares of our national wealth from public access.

What's left is not inspiring ...

The reason might be something else I suppose, but the effect isn't just your imagination. The average quality of small listed firms is spectacularly worse than it was in previous eras in many quantitative ways. Higher debt, lower margin, and on and on.

How can smaller private investors handle this problem? Just buy indexes? Learn to value whole sectors or markets and compare them to each other? Give up??

SA

The average quality of small listed firms is spectacularly worse than it was in previous eras in many quantitative ways. Higher debt, lower margin, and on and on.
...
How can smaller private investors handle this problem? Just buy indexes? Learn to value whole sectors or markets and compare them to each other? Give up??


Well, some thoughts spring to mind

* Ignore what has been conventional advice to look at small caps as the place to outperform on average. They're a nuisance, and if there aren't easily available superior returns, why bother?
* If you don't have the expertise to construct a concentrated portfolio that remains safe, don't do so. These days, I think that includes "don't buy a cap weight index fund".

So I still think that an equally weighted index is probably a good idea. I think QQQE might grow in value faster than RSP, but both are good.

==================

Once a portfolio is large enough, I'd switch from index funds to individual stocks within an index. It allows you to skip the few stocks that might have issues (dodgy jurisdiction or odious management, perhaps). You skip fees. But most importantly you can get a bit better returns by avoiding the huge drag from index rebalancing.

Random strategy for somebody in saving years. Each month until retirement do the following three steps:
* If you own a stock that has been outside the Nasdaq 100 index set for a full year, sell it.
* If you have more than about 60 stocks, trim back any position that gets over 4% of the portfolio. That's what I would consider the absolute limit for capital allocation to a single firm by someone who doesn't know how to assess single firms. Then:
* Take this month's savings plus any cash in the portfolio from sales or dividends, and put it all into a single randomly selected (NOT hand picked) stock that has been in the Nasdaq 100 for at least a year, that you don't already own. If there aren't any because you own them all, buy more of the one you own the least of.

This will be a rather concentrated portfolio for the first year or two, but only while the portfolio is quite small in absolute terms. Overall, these steps will asymptotically close in on being a no-fees equal weight index, outperforming the "official" index because of the front running of index reconstruction and rebalancing that index tracking entails. That drag is probably over 1% a year.

You could use a different index, but the important bits are random selection, buying candidates in the index for at least a year, and sales of things have fallen out of the index for a full year.

Health warning: Free advice is not guaranteed not to be overpriced.

Jim

Each month until retirement do the following three steps:
* If you own a stock that has been outside the Nasdaq 100 index set for a full year, sell it.
* If you have more than about 60 stocks, trim back any position that gets over 4% of the portfolio. That's what I would consider the absolute limit for capital allocation to a single firm by someone who doesn't know how to assess single firms. Then:
* Take this month's savings plus any cash in the portfolio from sales or dividends, and put it all into a single randomly selected (NOT hand picked) stock that has been in the Nasdaq 100 for at least a year, that you don't already own. If there aren't any because you own them all, buy more of the one you own the least of.

Health warning: Free advice is not guaranteed not to be overpriced.


That's like giving a teetotaler advice on how to quit alcohol.
Or giving a sports aficionado advice on picking a fantasy sports team.

The people who are not interested in doing all that work won't do it.
The people who are interested in doing all that work are basically already doing the work.

The people are the targets for this suggestion would be better off simply buying a broad market index fund. VTI or whatever. I can't imagine them pouring over the Nasdaq 100 every month or once a year.

Ex: I managed my sister-in-law's IRA account for many years. A few years ago I moved it all into VTSAX and turned it over to her, with (simple) recommendations. She has not touched it except for taking annual withdrawals.


trim back any position that gets over 4% of the portfolio. That's what I would consider the absolute limit for capital allocation to a single firm by someone who doesn't know how to assess single firms.

I have more than 60 stocks and 5 of them are over 4%. They all have very large unrealized gains and I'd pay a large tax to sell them down.

I would submit that, aside from somebody who got screwed by a full-service broker loading them up with flavor-of-the-week stocks, people who had that many stocks has a decent level of knowing how to assess stocks.

I would submit that, aside from somebody who got screwed by a full-service broker loading them up with flavor-of-the-week stocks, people who had that many stocks has a decent level of knowing how to assess stocks.

The comment is intended to go with the rest of the "system", which is just a specific implementation of an equal weight index. It's intended specifically for the situation that the person neither knows nor desires to know anything much about a particular stock. In that situation (but not other situations) I think 4% isn't an unreasonable cap on a single-stock portfolio allocation. When doing quant stuff, I used 2.5% as my usual largest target allocation.

For a person who has other stuff that was chosen judiciously, perhaps with large allocations, that's outside the scope of my humble suggestion. The trimming step is targeted at the things bought from within the strategy. Though it's probably also good for anything picked based on an Instagram post.


Incidentally, along the same reasoning, if 4% is a sensible cap for a know-nothing investor's single stock exposure, as I very strongly believe it to be, then SPY isn't a sensible pick for a one-ticker portfolio.

Jim

by someone who doesn't know how to assess single firms.
.......
people who had that many stocks has a decent level of knowing how to assess stocks.

I don't believe anymore in people being able to assess stocks. What I remember from the last years in this forum were very strong and regularly repeated recommendations for Dollar General, Dollar Tree, Carmax, Hershey and Google. I pity everyone who followed any of those recommendations as apart from Google all others went down dramatically since those recommendations.

I don't believe anymore in people being able to assess stocks. What I remember from the last years in this forum were very strong and regularly repeated recommendations for Dollar General, Dollar Tree, Carmax, Hershey and Google. I pity everyone who followed any of those recommendations as apart from Google all others went down dramatically since those recommendations.

You make a good case. Most people likely know very much less than they think they know about individual stocks, and that certainly includes me. It has taken me many years of diligent study to appreciate how little i kn ow. Maybe when it does work it's mostly luck and a rising market. It seems obvious with hindsight that Berkshire would just keep adding value year after year when we invested, but that too is just hindsight. It *wasn't* (and isn't) a sure thing.

But part of that luck is the dates/prices of entry and exit. Of the five you mention, I've made enormous amounts on three, roughly flat on one, and a loss so far on the last, so overall I'm happy with the luck of that list.

The loser, Carmax, is up 40% in the last month. So who knows, it might come good yet : ) --I still like the business, and I'm stubborn. Because of sundry options my breakeven is $28 lower than it was a couple of years ago, so maybe the two will trends will cross over.

Dollar Tree and Alphabet are the two stocks from which I've made the most money over my investing career, other than Berkshire. I have no position in either at the moment.

==================
But back to the notion that folks can't assess stocks: that makes the case for a "shotgun" approach that much stronger. Avoid concentration risk and stick to an index, something like an index, or a broad KISS quant slate.

(by KISS I mean really dumb stuff. The tried-and-not-true things that don't work to pick individual stocks often work just fine to pick *sets* of stocks. An equally weighted portfolio of the 50% of cheapest (lowest P/E) stocks the Value Line database beat the S&P by 1.5%/year in the last 25 years, and the most expensive (highest P/E) ones lagged the S&P by -2.8%/year. So...just buy a whole lot of the entire better half?? Or everything but the worst 10%??)

Jim

(by KISS I mean really dumb stuff. The tried-and-not-true things that don't work to pick individual stocks often work just fine to pick *sets* of stocks. An equally weighted portfolio of the 50% of cheapest (lowest P/E) stocks the Value Line database beat the S&P by 1.5%/year in the last 25 years, and the most expensive (highest P/E) ones lagged the S&P by -2.8%/year. So...just buy a whole lot of the entire better half?? Or everything but the worst 10%??)


Another simple idea we've been beating to death over on the MI board:

Buy the 10 stocks of the S&P 500 that have gained the most in the last year, in equal weight, recast once a year.

Don't even need to buy the top 250 of stocks in the S&P500, just the top 10. I doubt trading 250 stocks is doable by most people.

Beats the S&P 500 by 4%/year for the last 41 years. 1985-02-01 - 2025-12-01
Growth of $10,000 to $3,265,000 vs. $766,500 for VFINX.

Last 25 years, beat S&P 500 by 1.8%/year. 2000-12-01 - 2025-12-01

It has taken me many years of diligent study to appreciate how little i know.
Jim, this post risks to offend you --- which is not at all my intention. But all my life my biggest weakness was that I couldn´t stand people being "blind", tried to open their eyes --- which always got me in trouble, maybe now again.


But part of that luck is the dates/prices of entry and exit. Of the five you mention, I've made enormous amounts on three, roughly flat on one, and a loss so far on the last, so overall I'm happy with the luck of that list. The loser, Carmax ... Dollar Tree and Alphabet are the two stocks from which I've made the most money over my investing career, other than Berkshire.

With out of those 5 the loser being Carmax and enormous amounts on Dollar Tree and Alphabet, I had a closer look how it´s possible that Dollar General was either your third big winner or flat, as Dollar General is heavily down since the recommendations.

Dollar General is well suited to a case study as at the top of the craze in this forum, in 2023, there was a super-long thread with 114 posts about it (subject "Dollar General"), plus another with 22 posts (subject "Dollar General"). Let me first quote when Dollar General was recommended by you at what prices, then the conclusions I draw from my "study".

For perspective: Dollar General is at $114. The threads started mid-June 2023, with Dollar General then around $160, a price it never again reached (just touched it for a few days in April 2024).


13.Jun´23 (Post 2385): "A bit of a pop today, now at $159.90. If that was the bottom (ha! heard that before...) then my "kinda pounding the table" response will have missed the bottom by 19 cents."

(You nearly called the TOP ($172) instead of the bottom - though Manlobbi might also have thought "bottom": Manlobbi 14.Jun´23 (2398) "It is now $164 this morning, a day after the $159.90. That is up 8.3% from $151.46 over 2 days. If you can sustain this, Jim, you will be achieving for many Shrewd'm readers an annualised return of 1.083^(365/2) = 2 million times starting capital.")

17.Jun´23 (2427): "The current price of $164.32 is still quite a better than where I bought on this dip."

23.Jun´23 (2213): "Looks pretty good to me at (currently) $172 and change ... It might be a bit of a wait for a position to do well"

23.Aug´23 (3211): "Current price $160.95. I just bought a bit more." and "I think an upswing will come soon enough."

23.Aug´23 (3327): "I set a limit for how much I was going to buy. Blew through that yesterday."

25.Aug´23 (3328): "That's high enough that you could put in some substantially more conservative assumptions and still get a nice return ... And today's price seems to offer at least a thin margin of safety."

27.Aug´23 at $170 (3356): "My DG position is now #2 in my portfolio after Berkshire."


You were by far not the only one convinced about Dollar General´s future (Lear, 24.Aug´23 (3309): "I'm holding a heavy amount"). Many were. But you were DG´s strongest proponent --- and completely wrong no matter how much money you might have made.

Why? Because up to today, 3 years later, it´s future was simply lousy, and if for you it was either a big winner or flat, your "But part of that luck is the dates/prices of entry and exit." is more true than you might realise. It was not part, it was everything! And in case it was your third big winner then only because with heavy leverage (options) you went in and out and in and out.

For everybody else though, following all those recommendations and buying stock with the perspective "It might be a bit of a wait for a position to do well" it was a total loser.

I think this illustrates how dangerous it is to follow whatever recommendations from whoever (and if it comes from the most respected poster it´s just soooo tempting), a point I know you agree with as you said that yourself more than once.

this illustrates how dangerous it is to follow whatever recommendations from whoever

Now do AJG.

What happened? I’m sure he explained this but… listeners beware! From 3/25 I think 🤔

Since I have often posted sundry trades I've done, I thought I'd pass this along.

I'm divesting from the US. I've already sold all my T-bills and sold (so far) 96% of my US stock positions including everything in my quant portfolio. I've converted the existing US cash to other currencies, and will convert the rest after trades settle.
I still have some derivatives, most of which I will let run off in an orderly way. And a couple of stock positions that I'll ease out of.
I'm in the process of opening a brokerage account with a Europe-based firm, planning to move assets out of my current one whose parent is in the US.

Jim

Perhaps some of our old friends should have a little more respect for public companies that pay a small dividend?


ucmtsu,no way. ::))

What is the point of this post?

Do you want MungoFitch to apologize for making a recommendation? Is it to warn others to do their own research and not blindly follow a post? Is it to discourage MungoFitch (or any poster) from making a specific stock recommendation?

I encourage anyone / all of us to occasionally post specific recommendations rather than just commenting on the market. I appreciate when people do it sharing their analysis and loc. It’s a lot of work to do it well and I appreciate it deeply. Not enough of do that and it’s a gift when someone does share the rationale and data. I learn from it, appreciate it, AND NEVER BELIEVE THEY OWE ME A POSITIVE OUTCOME.

My investment decisions are my own. I have only appreciation for those willing to put their view out there (what good is a board where people don’t make specific stick recommendations) as long as their rationale and logic are clear. MungoFitch may be wrong with some calls but I have followed him enough to learn his ways of thinking and to figure out when I think he is wrong and why I disagree. Also where I might find things interesting that he would never invest in.

I don’t have a problem with holding people accountable by demonstrating or pointing out where their thesis went wrong. That seems very much like what we should be doing. But is that the point of this post? What is the outcome you are looking for?

What is the point of this post?

Well, this *is* the Berkshire Hathaway board, so of course the posts about Berkshire Hathaway have a point.

Oh, wait.....

What is the outcome you are looking for?
The expected outcome: Exactly this, to be punished and accused of

Do you want MungoFitch to apologize for making a recommendation?
...... Is it to discourage MungoFitch (or any poster) from making a specific stock recommendation?

Regarding the point of this post. It started with those ones:
by someone who doesn't know how to assess single firms.
.......
people who had that many stocks has a decent level of knowing how to assess stocks.

And me not believing anymore people can assess stocks (see previous posts). Re Dollar General Jim and others had an investment thesis. Jim got out flat or with enormous gains, thinking "part of that luck is the dates/prices of entry and exit". It was only that, perfect timing, as the thesis itself was wrong.

Not many have such a great instinct for timing. And while you and Lear, longtimebrk, rayt, Oscar, LongTimeBrk, MaxTheTrade and some others I very much respect are experienced longtime investors, far from everybody is.

So, yes, the point is to warn. To warn people to whom this:
I ... figure out when I think he is wrong and why I disagree.
does not apply and are tempted to simply "follow the leaders".

I may presume too much, but I think on this board, my expectation has been that everyone is self reliant. There is no guru that people should follow and the choice to ride on/rely on other’s advice is up to you. We are all individuals free to make our own choices, and MungoFitch has not said anything to suggest otherwise.

For me what makes this board valuable (any stock board for that matter) is when people make a specific recommendation on an investment AND explain why. It’s so much work that I rarely do it and certainly not with the kind of data that people like Manlobbi and MungoFitch do. And they do it for free, not in a paid newsletter!

I am very grateful to have this board but I am especially grateful when someone is willing to put out a thesis with data backing their thinking. I try to encourage more of it, and try to avoid things that discourage it.

Because at the end of the day, I am free riding on the work of others. The data and perspective are learning for me even when I don’t act on the rec. I only sometimes wish that MungoFitch wouldn’t come in so strong (maybe not strong but more just constant persistence) on others who present a thesis for a different stock. Sometimes that can discourage the thing I think we would all benefit from. More people sharing their specific thesis on specific companies they think are high potential.

A last post:

I don’t have a problem with holding people accountable by demonstrating or pointing out where their thesis went wrong. That seems very much like what we should be doing.

Then please let me point out one thing which is never pointed out here since our very impolite XYZ (I forgot his name) is gone: Since many years now practically ALL conservative, value-oriented recommendations here are losers, no matter who recommended them. Instead XYZ´s high-growth stocks are the clear winners. Not lately, but since many years. Just one prominent example: XYZ always was furious (he always was furious :) that for so many years Amazon was ridiculed here ("no profit", "burning money" ...). Look at the result.

It´s an unpleasant truth, but that´s the reality --- and one of the reasons why I don't believe any longer people can assess stocks and their future prices.

I don't believe anymore in people being able to assess stocks. What I remember from the last years in this forum were very strong and regularly repeated recommendations for Dollar General, Dollar Tree, Carmax, Hershey and Google. I pity everyone who followed any of those recommendations as apart from Google all others went down dramatically since those recommendations.

I'll admit: I was on who invested in all of these stocks, and as you stated, the only one I didn't lost money on was Google.

I currently sit at at a -40% loss on Carmax (unfortunately, also my largest position), -18% on DG, and -1% on HSY, and that's after doing multiple tranches as price declines continued. That's my return after around 2-3 years while the market has skyrocketed.

That said, I place zero blame on Jim for this, and in fact I am still incredibly grateful that he posted his thoughts on these, despite the results. I place no fault on anyone but myself for decisions that I ultimately chose to make.

I'd love to hear from Jim more details on how he navigated these trades successfully and produced a profit. It could be a good learning experience.

But in any case, I sincerely hope Jim will continue to post his thoughts/opinions on stocks like these that he perceives to be deals as well as Berkshire's valuation, because even if they ultimately end up being incorrect prognostications, I still greatly appreciate the extra data and insight he and others choose to share.

The lesson I came away with is similar to yours, that my faith in my own abilities (and others') to assess and pick individual stocks has declined significantly, but in spite of that, I'm still grateful for people taking time out of their day to post and write their thoughts for the sake of others.

It's one of the best things about this board, and I hope that it continues.

"It´s an unpleasant truth, but that´s the reality --- and one of the reasons why I don't believe any longer people can assess stocks and their future prices."

There is a lot of truth to this. Many of us were lucky to get on the Berkshire train early.

When I objectively look at my big winners other than Berkshire, Apple and Google dominate everything else. Other purchases have been solid base hits but a few punches on the card (as Warren has said) lead to the results.

Perhaps index and chill these days 😉

Somehow I made a lot of money on DG, and it was all piggy backing off of Jim.

Forums are going to be posts obsessed with index comparisons, peer comparisons...full of envy, excitement-of-the-moment...laden with those claiming expertise. Our forum is less so, but still we do endlessly compare all things at all times to the index, one index or another.

Investing can mean a lot of different things to a lot of VERY different people with VERY different tolerances, goals, timelines, and personality response to what others may bring to the discussion. It is very hard to provide something of value if you are 72 years old like me to someone who is 30 or 40, or even 50...someone with completely different focus that me.

I am heavily invested in insurance via Berk, Fairfax; and insurance brokers; aggregates; exchange indexes; waste disposal; building supplies both via stocks and partial direct non-exchange traded business ownership; real estate; beverages; snacks; a few of the NEW NEW things (that are now getting long of the tooth) like Meta, Google, Amazon; railroads...even asset managers.

But I am "in" stuff where I think and feel that "I am in business" not "I am going to beat the index no matter what it takes so I can post up and rant a bit ." I'm oblivious to the comparison and not one post I've ever put up now 30 years of forum participation mentions keeping up or "beating" something. Keeping up? Meaningless to me. Beating the index obsession? Not me, I've seen most fail in this effort and I'm not one to think I'd be the single digiter percentage guy to be the special one.

Time bails me out every time it seems with my bland non-competitive withdrawal.

I do have one goal when I invest in an asset. My goal, it is this on and only this, and it has been this way since 1975, is to try to exceed the returns I'm getting with my short term cash investments like (over time the vehicles have changed) treasuries, cd's, or something similar.

And that's all I do.

With out of those 5 the loser being Carmax and enormous amounts on Dollar Tree and Alphabet, I had a closer look how it´s possible that Dollar General was either your third big winner or flat, as Dollar General is heavily down since the recommendations.

DG has been a modest winner overall for me, though not huge like Dollar Tree which I started trading many years earlier. It has never been a very large portfolio allocation, but the current aggregate profit is around 4% of my average long portfolio size since I first opened a position. I've been long a total of about 42 months. I haven't calculated the IRR, but I presume it's not very good.

It's certainly true that many of the bullish noises I made were dead wrong. I guess I separate the commentary into two categories.

The first is the reliability and trajectory of the business, which was excellent for a very long time, and which was the impetus for my mentioning it. For a while it was a good comment, and I think it was worth mentioning. But as you note, at some point that wasn't the same as a good investment case going forward, as the business results then turned down a lot around 2024. I definitely didn't see that coming, as they had sailed through previous financial turbulence without a blip. In fact I'm still not sure what mix of factors has caused the weakness.
e.g., ROE averaged 30% 2016-2023, and has averaged 17% since.
ROA averaged 19% 2016-2023, and has averaged 12% since.
Sales per share are still up 9%/year in the last ~5 years, but that growth hasn't been turning into profit as well as it once did: net profit margins have halved. It's hard to say whether that's transient or permanent.

The second thing, sometimes quite separate, is the trading of the securities of that underlying business. Indeed, the thing that I particularly *like* about the dollar store stocks (and that many other people dislike) is that their valuations are all over the map. They go in and out of fashion frequently. Normally in any two year window the business has chugged along steadily, but the high price is twice the low price. I like to buy low, sell higher, and repeat.

So the reason I've made a profit overall is mainly because of the swing trading, even though the stock today is 40% lower than when I opened my first position.

I started with DG in Feb 2022 when the price was $190ish, buying some call options. That was closed fairly quickly for a solid profit in June 2022 (price rose about $40/share).

I restarted in Q3 2023, a poor entry with hindsight, and in September I posted that I thought it was an excellent entry at around $115. That seemed a good call only for about 6 months as the price rose to about $166 then rolled over...the business starting having problems, as did the price. At its worst, the fall was about -70% from the high. So, a very bad call for a medium-long hold which was the intent.

The price was very low from September 2024 to May 2025, mostly in the $70-95 range. I was underwater for that stretch. I closed a whole lot in March 25 at a substantial loss, part of my general divestment from US securities, so for reasons unrelated to valuation. This was one of the few tickers I didn't completely exit. I did a few modest trades during the low-price stretch.
I sold most of my position at around $152 this Feb/Mar for a nice profit.
Just a few weeks ago I thought the price looked to be at the lower end of the likely range, so I added some long derivatives when the stock was around $105.

So, I definitely misread the chances of a material business downturn, definitely made some bad commentary, and definitely got some bad entries myself, and also had a "forced" sale at a low price. But it worked out...adequately. I expect prices meaningfully over $150 in the not too distant future, and I'll probably close it permanently at some point before it hits $200. My dollar store investments are mostly in Canada now. My Canadian portfolio and my European portfolio are each now 2-3 times as much as my non-BRK US positions.

Jim

What is the point of this post?
Do you want MungoFitch to apologize for making a recommendation?

No problem, I apologise unreservedly. What was once a great firm no longer looks that way, for 3 years. A recommendation is a call about the future. The future hasn't been like the call.

Of course, if in the distant future the business miraculously goes back to something like its old multiples, at least it won't look so egregiously wrong.
They used to average about 1.29 times sales (implying around $260 for 2026) and about 15.8 times cash flow (implying around $192 for 2026). http://www.stonewellfunds.com/DGmetrics.png
If only...

Jim

Jesus Christ. I was hoping for an early retirement, but if it means my brain will rot to the point where I'm posting 15 times a day about dividends or combing through someone's post history from 3 years ago and selectively edit old posts and make them look like pump-and-dump scams, then I'd rather work until I die.

Jesus Christ. I was hoping for an early retirement, but if it means my brain will rot to the point where I'm posting 15 times a day about dividends or combing through someone's post history from 3 years ago and selectively edit old posts and make them look like pump-and-dump scams, then I'd rather work until I die.

The answer is obvious. Quit working, quit stocks, buy an annuity!

Well, no. Since everything smart-sounding has to be overcomplicated, buy a long TIPS ladder with a big lump at the end. Live from the ladder till the lump matures, then put the lump into an immediate annuity.

Jim

Jesus Christ. I was hoping for an early retirement, but if it means my brain will rot to the point where I'm posting 15 times a day about dividends or combing through someone's post history from 3 years ago and selectively edit old posts and make them look like pump-and-dump scams, then I'd rather work until I die.



The answer is obvious. Check shrewdm only once in a while, spend quality time on the internet watching youtube videos about Sovereign Citizens, Flat Earthers, Jet Fuel Hoaxers and people like Ave & James Condon & etc that do small engine and generator repair. Also guys like FloatHeadPhysics to get a deeper understanding of physics.

Jim, as far as the TIPS ladder...

Do you trust the US such that you'd not give some reasonable probability that they "restructure" the TIPS terms?

The answer is obvious. Check shrewdm only once in a while, spend quality time on the internet watching youtube videos about Sovereign Citizens, ...

If you are going to youtube anyway, treat yourself to 5 or 10 minutes of some interesting music by Angine de Poitrine. Like the Coneheads, they claim to be aliens. Unlike the Coneheads they are not from France, they are from Montreal.

R:

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