By Barbara Kollmeyer
Investors are trying to regroup following the worst month since the pandemic, and Friday’s session that ended with the Dow tanking nearly 1,000 points and the S&p 500 pushing back into correction territory.
All eyes are on this week’s monumental Fed meeting, where a 50 basis-point rate hike is on the cards — some say April’s meltdown means don’t expect anything bigger.
Read: Why a fragile stock market faces danger from rising real yields as ‘TINA’ trade fades
Unicredit’s chief economic advisor Erik F. Nielsen told clients that despite a dismal April, stocks are holding up better than he expected, but maybe not for much longer: “The problem is that asset allocation is always the result of a probability game, but as the odds change with a deteriorating world economy, cash and other zero-yielding holdings might well become more attractive as a parking place for awhile.”
Onto our call of the day , which comes from Bill Gurley, general partner at Benchmark Capital and a venture capitalist who made a $11 million bet in Uber /zigman2/quotes/211348248/composite UBER -4.70% in 2011. Several of his more than a half million followers on Twitter sat bolt upright after this Twitter thread :
“An entire generation of entreprenuers & tech investors build their entire perspectives on valuations during the second half of a 13-year amazing bull run. The ‘unlearning’ process could be painful, surprising and & unsettling to many. I anticipate denial,” tweets Hurley, who adds three points to this:
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Previous ‘all-time’ highs are completely irrelevant. It’s not ‘cheap’ because it is down 70%. Forget those prices happened.
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Valuation multiples are always a hack proxy. Dangerous to use. If you insist, 10X should be considered AMAZING and an upper limit. Over that silly.
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You may be shocked to learn that people want to value your company on FCF [free cashflow] and earnings. Facebook trades at 14X GAAP & is growing 23%. What earnings multiples are you assuming?
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Revenue & earnings QUALITY matter.
Gurley linked to his blog from 2011 , where he explained that discounted cash flows “are the true drivers of value for any financial asset, companies included,” and that price/revenue is a “dangerous technique because all revenues are not created equal.”
Among those reacting to Gurley was Amazon /zigman2/quotes/210331248/composite AMZN -2.49% CEO Jeff Bezos, whose stock is facing its worst year since 2008, after the company’s first loss in seven year s:
To some, Gurley’s comments were a warning of tough times to come for the tech sector:
On the flip side, others say big stock drops in the current inflation environment aren’t abnormal:
The buzz
Warren Buffett’s Berkshire Hathaway /zigman2/quotes/200060694/composite BRK.B -0.17% /zigman2/quotes/208872451/composite BRK.A -0.51% bought $51.1 billion worth of equities in the first quarter in what he called a “casino” market. Chevron /zigman2/quotes/205871374/composite CVX -1.50% and Occidental Petroleum /zigman2/quotes/207018272/composite OXY -0.37% are on that list and he also bought up nearly 10% of the videogame maker due to be bought up by Microsoft, Activision Blizzard /zigman2/quotes/200717283/composite ATVI -0.13% . He and vice-chairman Charlie Munger tried to reassure investors at the first in-person shareholder meeting since 2019 over the weekend.
More than 100 companies are still due to report this week, such as Pfizer /zigman2/quotes/202877789/composite PFE +2.93% and Moderna /zigman2/quotes/205619834/composite MRNA +0.03% and Starbucks /zigman2/quotes/207508890/composite SBUX -0.05% , with Clorox /zigman2/quotes/206443229/composite CLX +1.03% , Expedia /zigman2/quotes/202291990/composite EXPE -1.20% and MGM /zigman2/quotes/209932643/composite MGM -0.75% due Monday.
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