Todd and Dom discuss the emerging Meme Stock Frenzy with companies like AMC and GME, looking back at lessons learned and strategizing for the current market environment.
Todd and Dom discuss the emerging Meme Stock Frenzy with companies like AMC and GME, looking back at lessons learned and strategizing for the current market environment.
Jeff Kilburg, Founder and CEO of KKM Financial, and Todd Gordon, Founder of Inside Edge Capital, discuss how they’re playing the markets with the major indexes near record highs.
NVDA has been all the news recently, but Todd has at least two other stocks on his radar that stand to benefit from the ongoing wave of AI adoption. See him explain the logic behind this on today’s CNBC Worldwide Exchange with Contessa Brewer.
Looking at the market right now, we are at an inflection point in the short term. Growth and tech stocks have been leading the market and should continue to do so in the future. There is still tremendous long-term value in these stocks in terms of expected EPS growth and profitability. However, in the short term, it is possible that we could be rotating into value stocks and small caps.
As companies began reporting second-quarter earnings a few days ago, the market outlook was positive, particularly for the S&P 500. Of the 14% of companies that had reported earnings as of Friday, 80% of them reported actual EPS above analyst estimates. The 10-year average of companies beating earnings is 74%, and the 5-year average is 77%, pointing to a strong start to the earnings season. However, more recent earnings have not followed this trend.
In particular, the Magnificent 7’s dominance is being called into question. The Magnificent 7 are seven innovative tech stocks that have performed well and driven market trends and innovation. Going into earnings season, four of the Magnificent 7 were expected to see an average earnings growth of 56.4%. Nvidia, Amazon, Meta, and Alphabet, in that order, are expected to be the top four contributors to year-over-year earnings growth. However, Google’s earnings report did not impress investors, even though they beat on top and bottom lines. Firstly, Google’s capital expenditures have been increasing and cash flows decreasing because of the AI buildout, which has investors worried. Additionally, YouTube ad revenue faltered, which is a very worrying sign for investors. This is generally considered a sign of a weakening consumer, as businesses have less money to advertise and consumers have less money to spend.
Additionally, Tesla’s EPS and sales fell short of earnings estimates. Following these reports, Tesla’s stock sharply fell as investors grappled with its loss of market share in the EV space and disappointing earnings. In total, the Magnificent 7 lost over $600 billion in market cap on Wednesday alone.
We see quite the opposite in the Russell 2000, an index made up of small caps, that many fund managers believe the market is rotating into. Many fund managers see the rising performance of this index as evidence of a rotation into small caps. However, 849 of the roughly 1,950 companies that reported earnings in the Russell 2000 have reported a negative EPS trailing 12 months. It remains to be seen if this rotation is going to become a trend, or if it is simply a result of institutional investors closing their short positions on the Russell.
This earnings season will be an inflection point, possibly marking a significant change in what has been driving the market. Will the Mag 7 continue to lead the market upward, or will earnings continue to disappoint and drag us down? Furthermore, is the shift into small caps and value stocks indicative of a genuine market rotation? With so many unknowns this earnings season, it will be interesting to see which direction the market will move in the coming weeks.
Trevor Ruberti
Intern, BU ’27
Join Todd Gordon and Kyle Wasson of Inside Edge Capital as they take you through all areas of the market, the economy, and the geopolitical landscape.
Inside Edge Capital, LLC is a registered investment adviser located in Saratoga Springs, NY may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements.
This presentation is limited to the dissemination of general information regarding Inside Edge Capital, LLC’s investment advisory services. Accordingly, the information in this presentation should not be construed, in any manner whatsoever, as a substitute for personalized individual advice from Inside Edge Capital, LLC. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Any client examples were hypothetical and used to demonstrate a concept.
Past performance is not indicative of future performance. Therefore, no current or prospective client should assume that future performance of any specific investment, investment strategy (including the investments and/or investment strategies recommended by Inside Edge Capital, LLC), or product referenced directly or indirectly in this presentation, will be profitable. Different types of investments involve varying degrees of risk, & there can be no assurance that any specific investment or investment strategy will be suitable for a client’s or prospective client’s investment portfolio.
Various indexes were chosen that are generally recognized as indicators or representation of the stock market in general. Indices are typically not available for direct investment, are unmanaged and do not include fees or expenses. Some indices may also not reflect reinvestment of dividends.
In our short reign as a global superpower, American companies have driven innovation across the globe attracting top talent to work in the U.S., which furthers our competitive advantage. As a result, the sheer size of the U.S. market capitalization relative to other economies is astounding. Specifically, the disparity between some of the top American companies’ market capitalizations and entire countries’ market capitalizations is staggering.
We will let the chart speak for itself, but a few things must be briefly mentioned. The total U.S. market capitalization of $54 trillion compared to other economies really puts into perspective just how much larger the U.S. market is. Well-established countries like the UAE, Denmark, Italy, and many more aren’t even at a market capitalization of $1 trillion, while the US is over 50 times larger.
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Additionally, Nvidia, Apple, and Microsoft each have market capitalizations of around $3 trillion, placing them individually above the market capitalization of all but five countries. Relatively speaking, we have seen all three of these companies gain or lose market value in one day equivalent to the entire GDP of Finland or Turkey.
The size of the U.S. market and specifically American tech companies is something that the U.S. can use to its advantage in the coming years, at the advent of the massive AI push and substantial technological innovation. Nvidia’s massive run has shown us AI is not just a quickly fading market development, and when you look at Nvidia’s earnings projections showing top-line growth of around 100% for consecutive years in the future, we start to see just how much potential there is.
Looking at the chart again, we can see that if there is substantial growth in the technology world, it will most likely stem from the U.S. as all of the world’s big tech companies are here. Apple, Microsoft, and Nvidia alone combine for a market capitalization of roughly $9.5 trillion, and the only country (besides the U.S.) with a market capitalization of $9.5 trillion and above is China sitting just above $10 trillion. With the AI boom progressing, it is very probable that the U.S. will continue to drive this innovation. This will result in huge flows of capital to the U.S. market and greater returns on domestic investments.
Another development in the world economy that the U.S. is positioned well to benefit from is the global labor shortage. It is estimated that by the end of this decade, the world will be short 80 million workers across various industries. In terms of pay, this is just about three trillion dollars in unpaid salaries. With the U.S.’s massive market and tech companies driving global innovation, the U.S. is positioned to fulfill this labor shortage not with workers, but with digital solutions. The three trillion in unpaid wages will mean that much more revenue in the future for tech companies, driving profitability even further.
When looking forward to the developments of the coming years, it is apparent to us that the U.S. has positioned itself very well to thrive. AI innovation is already driven by American companies, and the U.S. has all the tools to fulfill the coming labor shortage. Because of its massive market capitalization, technological changes in the next few years will all flow through the U.S., and position the U.S. market perfectly to thrive.
Trevor Ruberti
Intern, BU ’27
In this update, we cover the market correction that has emerged the last two weeks following 2024’s earlier historical bull run. We also take a look at two potential headwinds: interest rates and the Iran/Israel conflict.
Inside Edge Capital, LLC is a registered investment adviser located in Saratoga Springs, NY may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements.
This presentation is limited to the dissemination of general information regarding Inside Edge Capital, LLC’s investment advisory services. Accordingly, the information in this presentation should not be construed, in any manner whatsoever, as a substitute for personalized individual advice from Inside Edge Capital, LLC. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Any client examples were hypothetical and used to demonstrate a concept.
Past performance is not indicative of future performance. Therefore, no current or prospective client should assume that future performance of any specific investment, investment strategy (including the investments and/or investment strategies recommended by Inside Edge Capital, LLC), or product referenced directly or indirectly in this presentation, will be profitable. Different types of investments involve varying degrees of risk, & there can be no assurance that any specific investment or investment strategy will be suitable for a client’s or prospective client’s investment portfolio.
Various indexes were chosen that are generally recognized as indicators or representation of the stock market in general. Indices are typically not available for direct investment, are unmanaged and do not include fees or expenses. Some indices may also not reflect reinvestment of dividends.
Uber broke above former all-time highs of $64.65 on above average volume and does not seem to be looking back. Some are concerned about the business model, excessive valuation, and other factors but it’s been a core holding in our growth model at Inside Edge Capital and I am looking to increase my position size.
Moving down to the daily chart you’ll notice that in Q4 of ‘23 Uber initially was rejected from the all-time highs of $64.65 and retreated in a 9.9% decline. After regathering itself the stock mounted another attack on the key breakout level, achieved it, and traded as high as $81.86.
Since then another pullback has developed and using a concept called symmetrical price projections we see that another 9.9% decline may have just completed. It’s amazing how often these symmetrical percent moves happen in the charts when you start to look for them. The anticipated support level was $73.53 and we closed Tuesday at $77.05.
We hold a 3% allocation of UBER (established 1% in Feb ‘23, added 1% in Nov ‘23, added 1% in Feb ‘24) and are looking to add another 1-to-2% in the coming week. Once we get through the Fed meeting and, should the market stabilize, we will consider increasing our position.
Is the technical breakout corroborated by the fundamental story. I think the answer is yes. Yes to what the markets expect of them and yes to what the company has demonstrated to us.
UBER has come a long way in a short period of time as a publicly traded company. In just 5 years the business model has evolved from just a digital ride hailing company to also offer delivery, freight, and advertising.
Looking backwards, they used to burn a lot of cash! They were burning as much as $5 billion in 2020, $3 billion in 2021, but in 2022 actually went to a positive $2 billion in free cash flow. It approached positive EBITDA in 2022 and achieved it in 2023.
The positive cash flow was a result of fewer ride incentives offered and a smaller marketing spend as the brand recognition began to carry the company. How often do you say “do you want to Lyft to the restaurant”? In fact, in about 10 minutes I’m going to suggest to my wife that we “Uber” to the restaurant to celebrate her birthday!
Looking ahead analysts are calling for 40% EPS growth to $1.22 in earnings in 2024 compared to last year’s earnings. That figure gives us a forward multiple of 63 times earnings. Not cheap!
I think the heavy valuation reflects the company’s vision of autonomous transports for both transportation and delivery. The company has partnered with several autonomous driving companies including Nuro, Waymo, Aptiv, and Hyundai. They are also collaborating with Toyota to move further into autonomous ride sharing and are using Nvidia’s AI technology to power the computing systems in their autonomous driving efforts.
In this update, we cover this week’s earnings, MSCI All-World Index closing at new all-time highs, U.S. consumer sentiment, USD, and gold.
Inside Edge Capital, LLC is a registered investment adviser located in Saratoga Springs, NY may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements.
This presentation is limited to the dissemination of general information regarding Inside Edge Capital, LLC’s investment advisory services. Accordingly, the information in this presentation should not be construed, in any manner whatsoever, as a substitute for personalized individual advice from Inside Edge Capital, LLC. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Any client examples were hypothetical and used to demonstrate a concept.
Past performance is not indicative of future performance. Therefore, no current or prospective client should assume that future performance of any specific investment, investment strategy (including the investments and/or investment strategies recommended by Inside Edge Capital, LLC), or product referenced directly or indirectly in this presentation, will be profitable. Different types of investments involve varying degrees of risk, & there can be no assurance that any specific investment or investment strategy will be suitable for a client’s or prospective client’s investment portfolio.
Various indexes were chosen that are generally recognized as indicators or representation of the stock market in general. Indices are typically not available for direct investment, are unmanaged and do not include fees or expenses. Some indices may also not reflect reinvestment of dividends.
Getting a tax break when you sell a declining investment is one of the few upsides of seeing an investment underperform. So, you wouldn’t want to lose that tax break by triggering an IRS rule called a “wash sale”.
A wash sale occurs when an investor sells a security at a loss and then repurchases the same security (or a substantially identical investment) within 30 days before or after the sale.
The intention behind this rule is to discourage investors from selling securities solely for the purpose of generating a tax loss while maintaining their investment in the same or similar security. Under this rule, when wash sales are triggered the investor will carry forward the purchase price of their original investment instead of the newer purchase price.
One unique aspect of the wash sale rule is the concept of “substantially identical securities”. This refers to securities that are nearly identical in terms of their underlying holdings and characteristics. For example, selling shares of one mutual fund and buying shares of another mutual fund with a very similar investment strategy and portfolio could be considered a wash sale. The same applies to selling common stock and buying preferred stock of the same company, or selling bonds and buying new bonds with nearly identical terms. By being aware of the rules, substantially identical securities are relatively straightforward to avoid.
Interestingly, there is currently an exception on wash sale rules for cryptocurrencies. Cryptocurrencies are treated as property, not securities, by the IRS. As a result, the wash sale rule does not currently apply to crypto transactions. This means that crypto investors can sell their assets at a loss and repurchase them without waiting 30 days, allowing them to claim a tax-deductible loss while maintaining their investment. It also means that an active investor could sell a stock or fund and buy crypto to avoid wash sale. The crypto property rule might change as regulations evolve, so investors should be cautious and stay informed about any changes.
When a wash sale is triggered, you are able to add the amount of the loss back onto of the cost basis of the replacement security, helping with taxes later. It’s also important to remember that you only pay taxes on what you make. If your overall investment strategy is profitable and a portfolio manager decides to repurchase a sold security within 30 days, the impact of wash sales could be less significant in the grand scheme of the portfolio. Ideally, however, that repurchase could wait until the 31 day mark.
In conclusion, wash sales can affect an investor’s ability to claim losses on their taxes. It’s important to avoid wash sales to optimize portfolio management. Given the complexities of wash sales and many other tax-related investment strategies, it’s essential to consult with a financial planner when you’re wondering about the tax bill on your portfolio investments.
Kyle Wasson
Following the horrific assassination attempt on Donald Trump this weekend, along with a sincere desire for national unity, we also wonder what a more likely Trump election looks like for equity markets and the US economy.
In reaction to the shooting, the possibility of Trump’s re-election has surged as Vegas odds climbed to 68% from 60% over the weekend. Despite these increasing odds, history shows that surviving an assassination attempt is far from a guarantee of winning an election.
On March 30, 1981, President Ronald Reagan narrowly escaped an assassination attempt outside the Washington Hilton Hotel. This was during a very tough market, with an economically-punishing Federal Reserve policy which was necessary to temper high inflation rates. Despite this, In the aftermath Reagan’s public image was bolstered significantly. This renewed public support contributed to his landslide victory in the 1984 election.
In contrast, on October 14, 1912, President Theodore Roosevelt was shot while campaigning in Milwaukee, Wisconsin. Remarkably, Roosevelt insisted on finishing his speech while wounded, declaring, “It takes more than that to kill a Bull Moose.” While his resilience captivated the nation, Roosevelt ultimately lost the 1912 election.
With the increased likelihood of a Trump victory, on Monday stock markets reacted positively with the S&P500 and Dow Jones Industrial Average reaching new all-time highs. Cryptocurrencies were also up nearly 5%. The US bond interest rate yield curve is continuing to steepen, signaling a healthier bond market and increased investor confidence.
Generally speaking, Trump policy is considered pro-crypto and market-friendly. In a hypothetical term, we envision Trump would continue to prioritize a healthy economy and market. During the pandemic in 2020, his administration responded aggressively to help keep the economy afloat, opening the government spending floodgates to help the ailing economy. We think Trump would continue to favor cheap energy policies that help US businesses and consumers. The US tax cuts that are set to expire in 2025 would likely be extended, avoiding the economic headwind of a tax increase.
However, there are risks of economic headwinds with a Trump presidency. A potential split-government with a Republican Executive branch and Democrat Congress could cause headwinds. Trump Tariff policy could hit U.S. growth as well. High government spending and increasing the debt to stimulate the economy would add to US debt concerns.
In conclusion, the increasing prospect of a second Trump presidential term has introduced market optimism. As we watch and prepare for the most likely outcomes, the only guarantee about this election cycle is that it will continue to raise eyebrows.
Kyle Wasson
In this article, we reflect on the philosophy of one of the titans of investing: Peter Lynch.
Peter Lynch’s success as an investor is evident in the impressive performance of the Fidelity Magellan Fund under his management. During his tenure from 1977 to 1990, the fund achieved an average annual return of around 29%, significantly outperforming the broader market indices. His ability to identify and invest in successful growth stocks contributed to his reputation as one of the most successful mutual fund managers in history.
Some of Peter Lynch’s wisdom is captured in the following quotes:
“Invest in what you know.”
Personal experience is a powerful tool in the world of investing. By leveraging familiar industries or companies, an investor is better enabled to make well-informed decisions about their capital allocation. As an American wealth management company, we focus our individual stock selection primarily with US companies.
“The best stock to buy may be the one you already own.”
It can be unnerving when a stock you own decreases in value. Like many investors, Lynch’s emphasis on long-term investing draws from both his personal successes and failures. If you still like a stock and its future prospects then it usually works out to be patient and not overreact to short-term fluctuations.
“The stock market is filled with individuals who know the price of everything, but the value of nothing.”
“Although it’s easy to forget sometimes, a share is not a lottery ticket… it’s part ownership of a business.”
Lynch points out the importance of distinguishing between price and intrinsic value. Knowing the current market price and technicals without understanding the underlying fundamentals can lead to uninformed investment decisions. Successful investors recognize that a stock’s long-term value is derived from strong fundamentals like financial health, current and future growth prospects, and overall market conditions.
Encouraging clients and prospects to explore opportunities in overlooked or undervalued stocks, Lynch challenges conventional wisdom and opens doors to potential hidden gems in the market.
“Go for a business that any idiot can run – because sooner or later, any idiot probably is going to run it.”
Ever finish up a task or a chore, and then tell yourself you made that harder than it needed to be? The same thing happens with company leadership. This witty quote highlights the importance of resilience of investments. Over time, management changes are inevitable and a robust business should be able to withstand less-than-ideal leadership. When researching companies to invest in, simplicity and durability are key attributes to look for.
In closing, Peter Lynch’s legacy is not just a tale of remarkable returns. It is an atlas of insights that resonates with both seasoned investors and those at the start of their financial journey. As we reflect on Lynch’s contributions, we are reminded that the journey to financial prosperity involves knowledge, patience, and a touch of contrarian thinking.
Benjamin Graham emphasized the importance of striking a balance between aggressiveness and conservatism in investment.
As an accomplished analyst, investor, and mentor to some guy named Warren Buffett, Graham believed in the concept of “margin of safety,” which involves purchasing securities at a price below their intrinsic value to provide a buffer against potential losses. He also advocated for a middle ground with asset allocation, avoiding extremes in either direction. With this philosophy, Graham earned himself the title of “father of value investing”.
We see Benjamin Graham’s wisdom captured in some of his quotes:
“The essence of investment management is the management of risks, not the management of returns.”
This underscores the importance of thoroughly assessing potential downsides before pursuing potential gains. This includes understanding both the historical volatility and the potential volatility of a portfolio’s investments. Graham stresses that successful investment management revolves around a meticulous handling of risks rather than a myopic focus on returns.
“The intelligent investor is likely to need considerable willpower to keep from following the crowd.”
Here, Graham warns against succumbing to herd mentality, emphasizing the need for independent thinking. The intelligent investor, according to him, resists the impulse to blindly follow market trends and instead relies on individual analysis.
“In the short run, the market is a voting machine, but in the long run, it is a weighing machine.”
This highlights the temporary nature of market fluctuations. Graham urges investors to look beyond short-term market sentiment, whether panic or hype, and focus on the long-term intrinsic value of investments and the market as a whole.
“The stock market is filled with individuals who know the price of everything, but the value of nothing.”
This points out the common pitfall of fixating on stock prices without considering the underlying value of investments. This cautionary advice urges investors to assess the fundamentals rather than getting swayed by short-term market movements.
“To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks.”
Here, Graham underscores the challenges of achieving superior investment results, urging investors to approach their endeavors with realistic expectations and a commitment to disciplined analysis.
“The investor’s chief problem—and even his worst enemy—is likely to be himself.”
Graham acknowledges the psychological aspect of investing, recognizing that personal biases and emotions can pose significant challenges. This quote encourages investors to remain self-aware and disciplined in their decision-making.
Benjamin Graham’s words continue to resonate in the investment world, serving as a reminder to execute a value-based approach that balances the risk and reward.
In the world of wealth management, it’s surprising how many wealth builders, from their 30’s to their older years, underestimate the value of a personal financial plan. According to a 2023 Charles Schwab survey, around one-third of Americans have a financial plan for their goals.
Managing your wealth without a financial plan is like flying a plane without a map or navigation tools. Sure, the plane is filled with fuel, the wings and engine are working, and ideally you can see points of reference to guide you along the way. But without a flight plan, how effectively is the plane getting to where it wants to go?
To detail the significance of this invaluable tool, here are five reasons to put a financial plan in place and keep it updated.
Guidance for Life Transitions:
As people find themselves at the crossroads of various life transitions, be it changing jobs and careers, starting a family, sending kids to college, or preparing for retirement, a financial plan provides a roadmap tailored to your unique circumstances, helping you navigate those transitions. From adjusting investment strategies to optimizing tax planning, do your planning in advance so you can avoid missing out on strategic opportunities.
Risk Mitigation and Asset Protection:
A good portfolio manager will mitigate investment risks to the best of their capabilities, but that does not take into account all of the risks a wealth builder experiences. Risk mitigation starts with a diversified investment portfolio, but also includes insurance coverage, estate planning, and many other strategies that are reflective of your specific financial situation.
Reference Point for Financial Decisions:
Financial plans are a living document that should be updated annually or regularly. Making updates and seeing where things are and how things have progressed is a great reference point when making important financial decisions. A financial plan is the friendly reminder that yes, you’re still on the right track to financial success if you make that decision, even if-and-when life presents the occasional detour. And when those detours happen, financial planning is even more useful.
Long-term Investment Success:
Our financial plans are designed to align perfectly with your investment preferences and objectives. A financial plan provides insight to our portfolio management since we will know your current situation, long-term goals, risk tolerance, and time horizon. This disciplined approach helps us stay on the same page, helping you feel confident leaving the day-to-day investment management to us.
Peace of Mind and Empowerment:
Perhaps the most underrated aspect of having a comprehensive financial plan is the peace of mind and confidence that originates from knowing you have a well thought roadmap tailored to your specific financial aspirations. As we often say, partnering with us brings the peace of mind that comes with having a plan that is designed to help you achieve your goals. If you spend any time wondering about your financial progress, it will answer your questions and enable you to focus on what’s important to you. A financial plan empowers you to make informed decisions and “get a handle” on a subject that is exhaustive and bewildering to millions of people.
Whether you’re actively managing your portfolio or entrusting it to a financial advisor, having a strategic roadmap for your future is critical. According to Schwab’s survey, of the one-third of Americans who have a financial plan, 7 in 10 said they were more in control of their finances and 9 in 10 were confident they will reach their financial goals.
At IEC we have a Certified Financial Planner ready to help you build a financial plan and put it into action. Without one, you might as well be an airplane pilot with no flight plan.