27/02/2020
So you guys are here for part 2!
Quick update since the last time we spoke my SHOCKS and Shares ISA (I genuinely think I am too funny!) has now dropped to -6.93% I’ve now lost 1.9k!!! WOO Hoooo!
Before I get into part 2, I want to reiterate one more time I am no financial expert, I have no financial institutional experience and I definitely did not study at LSE!
PART 2
The S&P 500 is GROSSLY OVERPRICED
For those that don’t know the S&P 500 is a stock market index that tracks the stocks of the 500 largest corporations by market capitalization listed on the New York Stock Exchange or Nasdaq Composite.
Hopefully you can remember what I spoke to you about in Part 1 with regards to Apple and Microsoft “BLAGGING” their way into protecting themselves with regards to poor performance for the coming year.
According to https://www.slickcharts.com/sp500 both Microsoft and Apple make up almost 10% of the S&P 500 by weight (market capitalisation) see below.
| # | Company | Symbol | Weight | Price | Chg | % Chg |
| 1 | Microsoft Corporation | MSFT | 5.026504 | 157.59 | -12.58 | (-7.39%) |
| 2 | Apple Inc. | AAPL | 4.732645 | 270.80 | -21.85 | (-7.47%) |
| 3 | Amazon.com Inc. | AMZN | 3.193083 | 1,866.25 | -113.34 | (-5.73%) |
So when both CEOs from both companies say “sorry guys our profits are in jeopardy because of CORONAVIRUSSSSSSSSSSSS”. You kinda know shit is about to go down.
If you happen to have heard the song by Fort Minor the chorus goes
“This is ten percent luck, twenty percent skill
Fifteen percent concentrated power of will
Five percent pleasure, fifty percent pain
And a hundred percent reason to remember the name”
Well these manz would say:
“Microsoft and Apple are 10% blaggers, 20% kills
15% coronavirus rumours from round the mill,
0% pleasure , 200% pain
And 100% reason to forget your fucking name”
When 10% of anything decides to go in one direction, guess which way the other 90% goes?
“Ok Abhi, how does this show that the S&P is grossly overpriced and what does it really have to do with the rest of the world and all of the markets dropping?”
Aite cool I’m going to dissect and answer your question in two halves.
I can’t directly tell you why S&P is grossly overpriced, other than it’s all I hear on any finance podcasts that I listen to.
But I can show an example of a U.K company being grossly overpriced and then use this example to maybe answer the second part of your question.
Since 2016 the company that I work for (Tesco) has not made a profit before paying interest and tax.
Through a significant amount of work (using Phil Oakleys book) I was able to work out that if I wanted to obtain a yield of 8%, then I would have to buy shares at roughly 244.25p.
This was in 2017/18.
I want to make it clear that BEFORE paying interest and tax my company has made NO
MONEY and yet £2.44 is the price that I should be paying to make money almost 8%.
Weird right?
Want to know what’s even weirder? The following year again my company made 0% profit before interest and tax.
So I followed Phil Oakleys book and to get that 8% yield again guess what price I would have to buy Tesco shares at?
68p!
Try to make sense of that?
A company that has made no profit in the last three has somehow in the space of one year become extremely difficult to get a gain out of.
To top it all off not once has Tescos share price ever gone below a pound!
Tescos, which make no mistake is a huge company in the UK is still an absolute pussy when it comes to some of the behemoths of America.
If Tesco without making a profit can somehow get itself in a place where it’s share price is (at the time of writing) £2.31 and a minor retail investor like me can see that anything above 68p would be paying too much, imagine what the fuck the top guys in finance are thinking!!!!
They are seeing things that make no absolute sense at all!!!!!!!!
American are wayyyyyyyyyy more optimistic, wayyyyyyyyyyyyy more hyped and wayyyyyyyyyy more dodgy than us here in the UK.
If Tesco is overpriced, imagine JUST IMAGINE what kind of stunts are being played across the pond.
How does this “Overpricing” affect the world or us here in the U.K?
Read this from the U.S chambers of commerce
Trade and investment ties between the U.S. and UK are deep and enduring.
Investment is at the core of the U.S.-UK relationship.
- The UK is the single largest investor in the United States. British companies have invested more than $540 billion in the U.S., accounting for more than 15% of all inbound foreign direct investment (FDI).
- The U.S. is also the largest investor in the UK. American firms have invested nearly $750 billion in the British market, nearly a quarter of their total investment in Europe, and more than 12% of all U.S. FDI worldwide. The UK is the second largest recipient of U.S. investment worldwide (behind only The Netherlands).
- https://www.uschamber.com/international/europe/us-uk-business-council/us-uk-trade-and-investment-ties
Is any of this beginning to make sense to you now?
Where Apple and Microsoft go, the US goes and wherever the US goes we and the rest of the fucking world follows.
So you get it now….. right? Lolololol.
It’s pretty simple, give CEOs an excuse they’ll take it, and if it happens to be the top companies in America, know that we are in for some volatile times!
So what do I have left to say in part 3?
Part 3 is about perspective and about action or inaction.
Laters with the pen and paper…