Apple is up 43% year-to-date. At the end of 2022, $AAPL was Buffet's largest holding by far, accounting for nearly 40% of Berkshire's stock portfolio.

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Apple might be considered Buffet's greatest trade of all time. He has had investments that have done better from a percent standpoint, but from a dollar perspective, it's Apple.

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Buffet might have had his best trade ever within the last decade of his life.

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Shares in NVIDIA (NASDAQ: $NVDA — $955bn), a computer chip maker, have boomed. They're up 170% this year and have crushed almost every other stock. Investors think artificial intelligence (AI) will change the world and want a slice. They reckon NVIDIA will make the hardware that powers AI, and they've bid hand-over-fist to get in. However, some punters wonder whether the rally is overdone. Has the price risen too high? The answer is yes. Investors have overvalued the company and will get lacklustre returns from here.

First, despite ambitious growth and profitability expectations, the shares are expensive. Fifty analysts cover NVIDIA and expect the top line to grow five-fold in ten years. They also think margins will expand to 55% from their already-juicy 35% level. If they're right, NVIDIA would be the world's fastest-growing billion-dollar-plus public semiconductor company. It would also have the widest profit margins. It's plain to see that analysts are confident about the firm's future.

Using those assumptions, a discounted cash flow model suggests each share is worth $110-130. That is far below the $390 level the shares trade at, meaning they could drop by 70%. Even if this already rosy vision for the future turns out to be conservative, the shares are still overvalued.

Second, equity investors have baked a 5-6% annual return into the current price. That is far too low to compensate them for the risks they face. The yearly expected return is so small it's about half the 11% minimum return investors should demand of a company like NVIDIA. Since NVIDIA's cash flows are riskier than the market, equity investors should expect a higher return. By way of comparison, they can get almost 9% by buying the S&P 500 at current prices.

Moreover, imagine you bought ten-year US government bonds. In that case, you would get almost 4% per year. The semiconductor business is cyclical, discretionary, and has high fixed costs. Given these risks, an extra two percentage points per year above the risk-free rate is insufficient.

Third, the shares have a price-to-sales (PS) ratio comparable to dotcom tech stocks. In 2000, speculative tech IPOs traded at about 40x sales. But those companies were small and had quick-growing sales. NVIDIA doesn't fit this profile as it's a big company that already has $26bn in sales.

Moreover, NVIDIA's ratio is the highest of its peers and 17 times higher than the median semiconductor company. If the company paid all its profits as dividends, it would take three lifetimes to get your money back. But it would only take 18 years for the average semiconductor stock.

Yet, artificial intelligence, and the industries that serve it, have huge potential. The history of technology is littered with the bodies of naysayers and sceptics. However, it is unclear how big the market will get or who the winners will be. While some bold predictors will be correct, most will be wrong. Fewer still will get adequate compensation for the risk they take. But that doesn't even matter in this case. Even if you assume NVIDIA takes over, investors will get poor returns at the current valuation.

It's silly to think that we will not need office real estate for the foreseeable future.

In fact, the last time I heard people saying that we don't need a certain type of real estate was back in 2016 with retail real estate. People were saying that $AMZN will conquer retail and everything will be ordered online. Today, Amazon's retail business may be bigger than ever but at the same time, other retailers from $WMT to $WSM to $COST and even $ULTA and $KMX still rely on retail property to operate their business. Retail real estate remains strong even as a crime wave causes billions of dollars in inventory losses for retailers.

Back when the US started deindustrializing after the Cold War, industrial real estate didn't seem as vital as it once did. With the manufacturing jobs being offshored to China, Taiwan, Thailand, Vietnam, the Philippines, India, etc. we didn't think that we needed industrial real estate. Since the e-commerce boom, demand for industrial real estate has surged. And industrial real estate demand continues to grow as companies start restoring their operations to reduce the risks that come with relying on other nations for the production of goods.

I believe that demand for office real estate will come back. Demand for life science real estate, with $ARE being the leader of that office real estate niche, remains strong as the biotech industry continues to grow and life sciences work can only be done in specific environments, not from home. Companies looking to implement virtual reality technology to boost the productivity of their workers will prefer to keep a set of VR equipment in the office and dedicate office space for VR work-related activities. Any technologies that can't be brought home for a variety of reasons (bulky, hazardous, expensive, proprietary, etc.) are going to be installed in office buildings to give workers a reason to commute to the office for work.

Adding on, I see the demand for co-working spaces grow for a variety of reasons. In the present day, demand for co-working space is growing as companies downsize their office locations and employees take advantage of the coworking perks that their employers are offering. As this New York Times article puts it, "[t]he commercial downsizing that has driven employees to co-working spaces has also resulted in a surplus of office space with depreciating values." Moreover, companies will want to enjoy the flexibility of leasing any amount of square footage and reducing the square footage they already have whenever they want. Currently, those that hold a lease in an office building have to go through the hassle of sub-leasing any unused space or cancel the leases altogether and pay large penalties on it. For firms, it's less headache to lease floors from WeWork than to lease the floor directly with the landlord and deal with the logistics of the amenities. It may be costlier but the post-pandemic world has made firms value location flexibility more than managing the floors of the office building yourself.

As for social trends, I see the office becoming the place where people will makes friends. Whether these friends are their coworkers, people that work in another company but in the same building as them, or even people you meet in the city as all the office workers go outside to restaurants and parks to have lunch, the office will help people find and make friends. It's harder to develop relationships virtually and people will want to go to the office just to fulfill the social aspect of their life that they're lacking due to remote work. While majority of corporate workers will have hybrid work arrangements, those working remotely full-time will choose to work in a co-working space and that's where they'll find the human interaction that they desire for the day.

It will take time for demand for office real estate to return back to the pre-pandemic days (or even exceed it). With the belief that companies will retrofit the office real estate buildings to have the expensive and bulky technologies necessary for work, the employers will have an easier time convincing the employees to come to the office. Also, as more companies start relying more on co-working places, we could see a dynamic in the office real estate industry where the co-working giants like WeWork $WE and others will start forming an oligopoly on leasing activity and take on the risks that comes with offering employers flexibility in their leases. Employees working remotely may even become big customers of co-working spaces as they will find work from home to be distracting for them, creating more demand for more local co-working spaces.

To end, I will say that office real estate will play a vital role in accelerating productivity growth in America.

I came across a thought-provoking tweet today by simple investing on Twitter, which got me contemplating where investors should focus their time. The tweet depicted the average investor dedicating approximately 90% of their time to monitoring stock prices while the remaining time is spent researching companies. In contrast, the "superior investor" allocates around 90% of their time to researching companies and only 10% to monitoring prices. This got me thinking about

an important aspect to add to the discussion.

The New York times calculated that Twitter’s U.S. ad sales plunged 59%. This is in line with Elon's projection of $3B revenue for 2023, which would mean -41% vs. 2021.

The new CEO is Linda Yaccarino— she's great with advertisers, so she will probably succeed in bringing back some advertisers, but subscription revenue will still disappoint.

No consumer social app has succeeded with subscription revenue. All the top players, such as Meta and TikTok, have 90%+ of their revenue coming from ads. Consumers don't want to pay, and the companies can get a higher ARPU from advertising.

But if anyone can do it... maybe Elon can?

“Palantir is an AI imposter engaging in spurious games to inflate its books and obfuscate its less sexy role as an overhyped data consultant.” - The Bear Cave

These allegations are not only misleading but denote a severe lack of understanding of the company.

Full Article: https://www.palantirbullets.com/p/palantir-is-an-ai-imposter

Have uploaded some of my data, including my industry beta estimates and tax rates, to the site (http://intrinsicvaluationtools.com)

Excellent conversation between Darren Woods, CEO of ExxonMobil $XOM, and Nicolai Tangen, CEO of Norges Bank Investment Management. Topics discussed include:

And much more ...

CNBC recently published an article saying that consumers would rather cut back on restaurant visits than go to lesser-tier restaurants to adapt to inflationary times. In the article, it notes that:

This behavior, where consumers would rather cut back on restaurant visits than trade down, is different from the behaviors we saw during the Great Recession of 2008, where consumers hunted for bargains, trading down to cheaper restaurants or picking the least expensive menu options. The reason for this behavioral change is that households have been more comfortable with cooking at home than ever before, all because of the pandemic.

Darden Restaurants, famous for owning and running Olive Garden, operates in the casual dining space. This niche is in the middle of fine dining and quick-service restaurants. Because of their large scale, Darden naturally has higher margins than the rest of the restaurant industry and can afford to lower prices to attract customers. The higher volumes compensate Darden for the lowering of their prices.

With consumers not interested in bargain hunting for restaurant meals as they once were, there is a concern that Darden will be negatively impacted. The customers that they hope to attract by lowering prices might not come and Darden will see profits being affected negatively as a result. Already, Darden operates in the fine dining space with brands like The Capital Grille and Eddie V's Prime Seafood but as the CNBC article notes, consumers would rather reduce the number of visits they make to those restaurants than trade down to Olive Garden or Cheddar's Scratch Kitchen. This makes it more difficult to Darden to keep its customers spending their money within its different restaurant brands.

Darden can lower the prices of its meals in its premium restaurant brands to boost sales volume in this environment, but that will tarnish the prestige and luxury perception of those brands, and Darden wouldn't want to do that to a brand it spent years building. That's why they employ these strategies to their flagship and brand, Olive Garden. Darden isn't worried about tarnishing Olive Garden's branding through price cuts because they've been employing that strategy on the brand for a long time. It was worked out consistently in each recession. Only in this upcoming recession, I expect this business strategy to stop working.

I'm neither bullish or bearish for Darden Restaurants. I like the scale that the restaurant has and how they're able to use it to boost volumes during times of economic slowdown. I just think that Darden will either need to make prices irresistibly low to help bring more sales volume to Olive Garden (they can afford to with the scale that they have) or they'll have to bear with lower sales for a couple quarters before the economy gets on better footing.

1 week leaderboard, but I'll take it. Coming in at #5 with a 12.3% return on the week. Reason? Uranium stocks did well this week.

We just shared these exciting news on our substack and we want to share these with you as well.

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Dear subscribers,

Today we are sharing some exciting news!

In accordance with our commitment (outlined below), the team was initially scheduled to deliver the next write-up on the 8th of June. However, due to these unique circumstances and our dedication to prioritizing quality over quantity, we have made the decision to release the upcoming deep dive on the 15th of June, 2023.

Additionally, the timing of our first July write-up will be postponed by a week due to the planned mini honeymoon.

We are pleased to announce a special offer: a 15% discount on all plans for one year, valid until the end of June.

See you on the 15th and thank you for your understanding!

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Disclaimer: The content of our newsletter is not a trading or investment advice and we do not provide any personal investment advice tailored to the needs of any recipient. The information provided should not be considered as a specific advice on the merits of any investment decision.

April '23 Month End: $10,499.16

May '23 Month End: $10,299.01

Value Difference: -$200.15

Performance: -4.9% (excluding contributions)

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April '23 S&P Month End: $4,167.87

May '23 S&P Month End: $4,179.83

S&P % Difference: +0.29%

% Difference Portfolio vs S&P: -5.2% (excluding contributions)

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May '23: $11.84

May '22: $8.29

% Difference: +18.2%

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PADI: $260.49 to $267.90 (+2.8%)

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$310

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Buys

5/1

$HSY - 1 share at $274.12

5/5

$EMB - 0.0176 shares via dividend reinvestment

$LQD - 0.0137 shares via dividend reinvestment

5/10

$LOW - 0.0051 shares via dividend reinvestment

5/24

$CARR - 0.0591 shares via dividend reinvestment

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A down month, but continued to buy income. It is cool to see that PADI trend starting to climb. The purpose of this portfolio is to continue to build a dividend income portfolio to utilize tax-free in retirement.

$KMB, my largest position, had a slight tail down at the end of the month which had an outsized impact on my portfolio's performance.

As always, would love to hear your feedback, questions, or input in the comments!

The only reason a consumer doesn't have a Mac is the price point. With technology getting cheaper and the world becoming richer, you should only expect Apple's consumer market share to expand.

Apple's Achilles heel is enterprise and gamers. The Mac's Microsoft Excel, for example, is much inferior to Windows’s (of course, Microsoft builds it). Many enterprise apps and games don't even have Mac versions — Bloomberg Terminal comes to mind.

Naomi Fink, founder and CEO at Europacifica Consulting in Los Angeles, joins the podcast to discuss her view that inflation will prove more elevated and persistent than market participants are anticipating — and how and where this impact will be felt.

Listen here:

Our latest video is up. Lucas Downey breaks down a rare oversold signal that's very bullish for Materials stocks $XLB. Keep turning over stones - this is a 3 min beauty.

Exports out of China in May fell by more than expected as the global economic slowdown begins to impact global trade.

The Chinese General Administration of Customs reported a -7.5% fall in exports as compared to the same time last year, which is considerably below analyst estimates of a -0.4% fall.

Although far from estimates, this is not altogether surprising. International shipping rates have collapsed in recent months, suggesting a significant shrinking in demand. Freight costs are now back to where they were before the COVID-19 pandemic after seeing a close to 4x increase at their peak from pre-pandemic levels.

Although exports from China have slowed significantly, there is some positive news when it comes to imports. Imports to China only fell -4.5% as compared to -8% expected by analysts. This suggests that the domestic economic rebound is continuing despite slowing global economics and it's impact on China's export economy.

Additionally, the Chinese government is considering a stimulus package to help with the Chinese real estate sector, which has been under significant distress over the past few years on housing oversupply and house developer bankruptcy issues.

This is additional data to support that the global economy is really beginning to feel the bite of high inflation and fiscal tightening, and will likely translate to more recession indicators turning red and slowing corporate earnings in the coming months.

However, a strengthening Chinese economy could bring significant support to certain areas of the economy, notably luxury stocks. These have held up very well since the start of this period of inflation thanks to high margins and strong brand loyalty leading to companies being able to protect these margins. Much of these companies revenues come from China, both from domestic sales and from Chinese tourists. These companies could continue to be a safe haven for those looking to protect their portfolios from continued inflation and global slowdown.

Today was bad for Gamestop. They do not deserve their investor base. Here's what happened today:

Whatever the opposite of the moon is, they need to go there.

This is Ryan Cohen:

$GME is down 14% after hours:

Here's a self-orchestrated regression that assesses ARK Innovation ETF's past returns. With statistical significance across all the tested factors, the following can be concluded:

1) ARK Innovation is contrarian, with the asset most likely to underperform the year after outperforming the $SPY. Moreover, ARK will seldom outperform the market in successive years.

2) ARK is 1.3 times as risky as the broader stock market and is positively correlated to the broader market, and small-cap stocks especially.

3) ARK outperforms in periods of low interest rates, low credit spreads, and an upward-sloping yield curve. Therefore, it exhibits a positive correlation to growth stocks and a negative correlation to value stocks.

Source: Author's work on Portfolio Visualizer

Economic data for the day:

Stocks are mixed today, a day after $SPY closed at its highest level since August. All 3 major indices were higher on Tuesday, with $QQQ also closing at its highest level of 2023.

The US trade deficit jumped 23% to $74.6B in April, the highest level in 6 months, but the deficit was still lower than expected. Exports were lower while imports were higher.

MBA mortgage applications fell 1.4% for the week. Both purchases & refinance activity were lower, down 2% & 1%, respectively. The average interest rate of a conforming 30-year mortgage fell 10 basis points to 6.81%.

Treasury yields are higher this morning, with the 2-year Treasury yield up 0.2 basis points to 4.59%, the 5-year Treasury yield up 0.2 basis points to 3.95%, and the 10-year Treasury yield up 0.1 basis points to 3.79%. Advance rates are lower through most of the curve today.

Currently working on a piece for a more detailed & proper structure! It will be posted on my Substack & as well here on Common Stock! Just Subscribe & Follow to receive it as soon as it comes out!

Mav