WHEN INVESTING BECOMES A LIFESTYLE YOU WEAR IT!

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CAN YOU TRUST ANALYSTS?…

Have you noticed that Wall Street sell-side analysts very seldom get it right? Although they may do their individual research, they frequently form their opinions in groups. Mainly because no one wants to be the outcast outlier if they are wrong.

Secondly, Wall Street is very much valuation and PE hawks, and if it falls outside of the range of what is considered a prudent buy, very often the stock will sail without them. This is how they missed NVDA and countless others.

You have to remember that back in 2022, the only thing that was working was energy and financials, so recommending companies with a high PE was unheard of, not to mention it takes a little bit of vision to see what’s about to happen next.

This is hard to have when you constantly skate in between the lines of price to earnings, price to sales, and price to cash flows. It’s hard to understand that a great company with a superior product can grow into what is sometimes considered a lofty valuation.

This is why I focus more on cash flow growth and future potential based on current performance. I realize I may be wrong in the beginning; in fact, I expect to be because I am not concerned with the day-to-day fluctuations.

I just observe my investments one quarter at a time and along with year-over-year performance. This way I block out the noise from the short termer looking for a quick hit or fix.

Once you understand the true value of time, you understand it’s a multiplier that has more patience to outlive every emotionally bad decision and depending on the company, most bad markets.

There is such a thing as buying a great stock in a bad market, and it’s also common to confuse a great company with a bad company in a market that is going down, especially if you are underwater in your accounts.

The key is to understand the future value of a current asset and that the current price is based on price discovery, the price in which someone is willing to sell the asset and the price a person is willing to buy the same assets.

The algorithms also play a major role in price discovery and some of the moves may be a bit exaggerated, because although they are programmed by humans they operate independently of emotions and adhere strictly to the parameters set between support and resistance and event-driven variations.

This is why it’s very common to see a stock go down 50% in today’s market and comeback 100%, whereas 30 years ago it would have been perceived that the company was sick and on its last leg.

I believe this opens the door for amazing opportunities. Especially for someone who understands the value of an asset as opposed to throwing caution in the wind.

This takes more than just stock picking but a true conviction that the truth lies in the details. When you understand measurement then and only then will consistency be one of your biggest assets.

Until you do, one man’s treasure will be another man’s trash.

 WHEN INVESTING BECOMES A LIFESTYLE YOU WEAR IT!

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YOU CAN’T TRUST THE NARRATIVE…

Question…do you trust the narrative? And are we in a phase where good news goes ignored?

We are at the beginning of the earnings season, and despite the headwinds of tariffs, companies are hitting above the general belief that tariffs will bring imminent doom. While some companies are being impacted, depending on the sector, it’s not as bad as expected.

73% of the companies that reported have beaten their earnings per share estimates. Overall, we have seen a 10.1% year-over-year growth, marking the second straight quarter of double-digit earnings growth and the seventh consecutive quarter of year-over-year growth, though this is slightly below the 5-year and 10-year averages. The size of the earnings surprises—is 10% above average estimates.

Six of eleven sectors are posting year-over-year earnings growth, led by Health Care, Communication Services, Information Technology, and Utilities. And while some believe the true impact of tariffs will not be seen until the upcoming second and third quarters—has uncertainty turned into outright disbelief?

Is Wall Street disregarding the words that are coming out of the horse’s mouth?

Meaning…no matter what the CEOs are saying, has Wall Street made up their mind that tariffs are bad and that regardless of the rosy projections or the fact that the companies didn’t perform as expected, there has got to be something more to it than meets the eye?

In other words, is Wall Street backseat driving while sipping its own doom and gloom headlines? What if they have it completely backwards? What if the hysterical noise of the hot air machine is at an all-time high pitch to the point where they are blinded by their channel checks and soft data?

How about giving the forward-thinking CEOs a little credit to maneuver and adjust so that the impact is minimized?

China may be the world’s manufacturer, but they aren’t producing products for all 11 sectors of the S&P 500, with just about 59% of U.S companies collectively deriving their revenues from the United States, indicating that a substantial portion of their business activities, including production, sales, and services, are U.S.-based.

So, despite the current negative theme, companies are outperforming. While there is no doubt that some industries will see a legitimate impact, reactive management teams will use the cover of tariffs as an excuse for non-performance.

The industries most impacted will be industries directly connected to imported goods:

• Electronics and technology

• Automotive

• Clothing and textiles

• Furniture

• Agriculture

• Manufacturing

• Retail

• Chemicals and pharmaceuticals

• Oil and gas

 This will also disrupt the entire shipping down to the ports and transportation industry:

• Shipping - down 35% + at major U.S. ports

• Ocean freight bookings - down nearly 50% globally

• Container rates - dropped from $8,100 to $2,327 per 40ft container

• Vessel cancellations - 25% of arrivals canceled in May

• Retailer actions - pausing/canceling China shipments

• Supply chain impact - shortages, rising prices, empty shelves

Service-based businesses like Meta and Netflix will see virtually no impact as they sell digital products or services versus tangible goods. With that being said, there will be some winners and casualties in the trade war, but you can’t believe all you hear and see coming out of Wall Street.

For instance, back in 2022, Wall Street sell-side analyst Frank Lee from HSBC Securities downgraded NVDA at its lows around 108 dollars a share, 2024 pre-split.

The stock proceeded to go on a 1,400% tear, which has to make you question any recommendation coming out of Wall Street. No matter his reasoning, it turns out he was 1,400% wrong.

Try explaining to a client who followed your recommendation and sold at the absolute bottom.

People don’t care about excuses, they care about results and the misguided arrogance of analysts who pretend to be in the know when they are as clueless as a monkey throwing darts.

It’s all really guessing off of data, but in this case, Nvidia came out and stated earlier this year they were experiencing inventory issues.

This is when the stock started its descent. This is also when the best buying opportunity presented itself. The point is that you can’t get caught up in the general consensus of Wall Street; it’s best that you do your own research, stick to your guns, and ignore the noise.

Wall Street will be talking negatively up until the moment they miss the opportunity, and just when they realize they were wrong, they will chase stocks to their highs.

In short, most analysts wouldn’t know an opportunity if it sat on their face. I will leave it right there!

WHEN INVESTING BECOMES A LIFESTYLE YOU WEAR IT!

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Quick Links…

The Psychological Warfare Has Begun…

Air Coffin Anyone?…

Thank you for reading; we appreciate your feedback—sharing is caring.

Kevin Davis Founder of Investment Dojo and Author of The C.R.E.A.M. Report