George Soros, Reflexivity Theory and the Efficient-market Hypothesis!

Dear Reader,

I recently read the following book by George Soros:

The Crash of 2008 and What it Means: The New Paradigm for Financial Markets

Mar 31, 2009

In it the famous investor George Soros proposes his view of how financial markets work by putting forward the Theory of Reflexivity. Basically, he says financial market participants are not casual observers of the situation in markets. They are able to influence the present and future developments. This he calls the manipulative function. This is  supposed to dismantle the Efficient-Market Hypothesis which says that market participants take the events as exogenous. Supply and Demand in economic models are exogenous. Soros shows that Supply tends to influence demand and vice versa, so they are endogenous.

Yes, Donald Trump, Federal Reserve Chairmen Ben Bernanke, Janet Yellen and Jerome Powell have the power to influence markets, so Soros is right that to a certain extent there is a manipulative function of market participants. But the problem is, with open market economies, freely flowing capital and markets in existence you never quite know what the effect of a certain policy will be. During Chairman Greenspan's tenure the Federal Reserve raised rates only to see the yield on ten year treasuries actually fall- which is known as the "Greenspan's Conundrum"- this happened in 2004-2006 period. Classical economics, on the other hand, is preoccupied with the fact that market participants only observe and analyze events - or what Soros calls the cognitive function. Classical economics seems to assume that no market participant is large enough to influence supply and demand - supply and demand are exogenous. That obviously is a long stretch, because the economy of the USA makes up about 20% of world's GDP and is obviously large enough to change reality or the world. The same is true for the actions of the Federal Reserve and the President of the USA.

George Soros wonders why his theory of reflexivity has not gained enough traction in both academic and practitioner circles. One explanation is that the theory is difficult to model, according to Soros. That, actually, is not true. Refelxivity theory could quite easily be modelled. You just assume that Trump's or market participants' actions are a shock  which influences prices. This shock changes the price in one moment, than the price itself exudes a shock on market participants or Federal Reserve Chairman's beliefs, they adapt, change their beliefs and again exude a shock on the market. The markets are in constant flux or change. George Soros never mentions Bayesian statistics, so I am not sure whether he is familiar with these methods. Bayesian statistics models the current state of events as the prior, which the new information changes, so the prior changes and the posterior results change. Then the prior changes again and so on... The problem with all this is that with democracies and free markets you never quite know what effect Trump or Jay Powell's actions will have on the market. You do not know the shock outcome. But yes, reflexivity theory is not very difficult to put into models.

The Efficient-market hypothesis. Ah, that great academic construct. To put it straight, there are at least 30-40 portfolio managers whose track record in managing investments disprove the Efficient-market hypothesis. As far as I am concerned,  a portfolio manager needs to beat the market in at least 5 from 10 years to make the Efficient-market hypothesis invalid. There have been MANY occasions on which portfolio managers have disproved Efficient-market hypothesis. Warren Buffet, George Soros, Bill Miller, Benjamin Graham, Seth Klarman, Joel Greenblatt, Philip Fisher are just some of the most famous examples. Let's take a deep dive. Why is the Efficient-market hypothesis not true. First, it is very difficult to test the truthfulness of the Efficient-market hypothesis. Second, the Efficient-market hypothesis assumes that the aggregate market participants' views are always correct and there is no way to extract 'abnormal' profits. Basically, the Efficient-market hypothesis assumes there is GOD who knows all- God is the aggregate market participants' views, which are ALWAYS right. Why is this NOT true? Anyone who has invested in the markets knows why. There are simply too many frictions. Market participants DO NOT have the same information. What is more, in the Efficient-market hypothesis there are the implicit classical assumptions of classical economics that people are always rational and Supply and Demand are given or exogenous. Basically, that is NOT true. The iPhone supply created its OWN demand. Supply constantly influences Demand and Demand constantly influences  Supply. Kahneman and Tversky, Arielly and Richard Thaler have pretty clearly documented that human beings are not always rational, especially in the short term.

To put it in a one single sentence:

YES. IT IS POSSIBLE TO EXTRACT ABNORMAL PROFITS FROM FINANCIAL MARKETS. CONSISTENTLY. PERIOD(.)

Where does that leave classical economics? I am a classical economist in the sense that markets always know better than a single person or dictator. I am a free marketeer. I believe there should be minimal government intervention. I believe there should be both state and private hospitals and universities, where people could choose according to the financial means they have. However, I am Keynesian in the sense the regulators should get involved from time to time to correct the markets' excesses. Why? Because unbridled greed could cause severe damages to the capitalist system in the short run. Yes, as George Soros says, hunans are always fallible, their knowledge is imperfect, but society is after all a human construct. 

P.S. Hats off and deep bow to the Chicago School of Economcs and Eugene Fama who developed the
Efficient-market hypothesis and the Columbia Business School which since Benjamin Graham has contended that markets can be predicted and abnormal profits can be extracted from financial markets. I have always dreamt of studying in such universities!

Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Conflicts of interest: I may possess some of the securities,currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!


Kind regards,
Petar Posledovich

Are the Top IT Technology Stocks in a Bubble and When is it Going to Pop?

Dear Reader,

Many leading investors claim global leading technology stocks as Apple, Amazon, Google, Microsoft and Facebook are in a bubble. I concur with that hypothesis.

Why? Simply put, global leading technology stocks are overvalued. Some of the bubbles like Tencent and Facebook already popped partially. Others, smaller, like GoPro, Zynga, GroupOn popped years ago. Why are technology stocks overvalued? Because they trade at too high earnings, revenue and book value multiples. Amazon and Netflix, for example trade at Price-to-Earning values of above 100. The others like Facebook, Microsoft and Google trade at too high both Price/Sales and Price/Earnings multiples. The market seems to be pricing that the revenues of these technology giants are going to go on growing at above 20-30% a year, which is almost impossible? Why? Because they are just too big already. Apple, Microsoft, Google and Amazon have market capitalizations either exceeding or close to 1 000 000 000 000 (trillion) USD. Just because of size effect the revenues and sales of these companies can not go on growing exponentially(at above 20% a year). The only way that could happen is if they enter successfully other huge markets like trade, finance, energy, transportation or whatever.

Wall Street Investment Banks' analysts seem to imply in their research notes and forecasts that the IT technology party is going to go on forever. As the former Citibank CEO Charles Prince famously or reportedly said "As long as the music is playing, you have to get up and dance". The music, as far as I am concerned, is going to stop soon. I forecast a deep correction of the US and global stock markets in 2020 or 2021. Wall Street's analysts have an interest in pumping up the prices of the hot technology stocks. As long as the stocks' prices of the FANG and other technology stocks keep going up, hedge funds, high net worth individuals, mid-sized clients and other short-term investors keep trading and huge stock trading commissions flow to Wall Street banks.

Many would say that the formation of bubbles is irrational. Well, in my opinion, it is not! Some people keep making money while the market is going up and on the way down, no matter that the mass investor looses. Bubbles are NOT irrational. They will keep forming and popping until the end of time in one form or another. Why? Because of fear and greed. These are prehistoric emotions since the beginning of mankind, which ensured, ensure and will ensure mankind will survive and thrive.


Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Conflicts of interest: I may possess some of the securities,currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!


Kind regards,
Petar Posledovich

Tesla, Amazon. Does Profit Matter?

Dear Reader,

In the past rolling year the market capitalization of Amazon has nearly doubled. Amazon is now worth 889 billion USD. That is a staggering amount of money. Amazon is trading at Price-to-Earnings ratio of 229.34. This is basically astonishing. If you buy the whole of Amazon you have to hold it for 229 years to get your money back. Is Amazon overvalued? Yes, it is. Investment banks' research analysts point to the recent increase in the profitability of the company, especially for the second quarter of 2018. But still, Amazon is richly valued.

Tesla is another case in point. The electric car company is on track to lose about more than 2 billion USD in 2018 and is valued at 59 billion USD, more than Ford or General Motors. A pale comparison of the production numbers and profitability of the three companies says that Tesla is many times overvalued.

So what is wrong? Does profit making matter anymore? 

Of course it does. The valuations of these companies are bubbles. Sooner or later they are going to pop. Investment banks' analysts are desperately trying to explain the value of Amazon.com Inc. with growth and new verticals. For Tesla the story is growth and profitability soon. But these were the stories for Amazon or Tesla since 3-4 years. Do not get me wrong. I appreciate being able to buy books on the cheap from Amazon.com. But Amazon has to figure out how to make more money. Amazon Web Services is a good venue. If AWS and cloud services in general continue to grow strongly, Amazon might even live up to the current hype. But still, I regard the company as overvalued. Tesla has 10 billion USD in debt and is burning a lot of cash. If the company does not break even in 2 or 3 years, Tesla's survival as a going concern would be at stake, in my humble opinion.

Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Conflicts of interest: I may possess some of the securities,currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!


Kind regards,
Petar Posledovich

What is Tesla's Intrinsic Value?

Dear Reader,

There are tons of news and analyses about Tesla and its future possibilities and intrinsic value. Recently, even Morgan Stanley's research analysts expressed doubts whether Tesla would hit its production targets. And Morgan Stanley research analysts have long been proponents of Tesla.

So what is Tesla's intrinsic value? Basically, it seems it is a binary outcome. One of the many sources for Tesla's financials is https://finance.yahoo.com/quote/TSLA/financials?p=TSLA&.tsrc=fin-srch-v1

On the positive side Tesla's has managed to also quadruple its revenue from 3.2 bln. USD to 11.8 bln. USD since end year 2014 to end year 2017. And this is the main reason investors keep funding Tesla - Tesla exhibits very fast growth. The logical argument is that as the revenue keeps growing, Tesla would become highly profitable and investors would be able to multiply their money with dividends and the rising stock price. Until recently the price of Tesla's stock did really rise a lot.

The problem? Tesla's loss increased almost sevenfold from 294 million USD in 2014 to 1.96 billion  in 2017 end year financials. Basically, nearly 2 billion USD loss is a staggering amount. Why is Tesla's future value a binary outcome? Basically, if Tesla achieves its production targets for Model 3, the company may even become profitable. If not, the company could go under.

What is my opinion on Tesla's valuation. Basically, it all depends whether the market for electric vehicles takes off. So far, it hasn't. Yes, there are orders, but I do not see many Tesla's on the streets of Europe. If you see a Tesla, it is a rarity and you check it out with curiousity. In my personal opinion, so far the market for electric vehicles is a no starter. Electric cars are just too expensive to produce. They contain too much ferrous metals, which cost a fortune.

Elon Musk seems to have underestimated how hard is to manufacture cars. Tesla's costs just keep going up. Musk says much of the costs are for research and development. Tesla has to achieve a technological breakthrough, otherwise the company would remain loss making.

In short what is my estimate of Tesla's intrinsic value. Tesla's current market capitalization is 53.85 billion USD. I think Tesla should be trading at a market capitalization of 20 billion USD at the moment.


Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Conflicts of interest: I may possess some of the securities,currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!


Kind regards,
Petar Posledovich

Warren Buffett's Investment Portfolio - A Humble Analysis!

Dear Reader,


The Investment Portfolio of Warren Buffett can be seen from numerous sites, but the one on http://warrenbuffettstockportfolio.com/ seems most obvious.

Apple constitutes 40 bln. USD or 21.27% of Buffett's investment portfolio. Wells Fargo, Bank of America,  Kraft Heinz and Coca Cola constitute 12.7%, 10.8%, 10.7% and 9.2% of Buffett's investment portfolio. American Express makes up another 7.48%.

According to various reports, in the last 20 years or so Warren Buffett's investment portfolio beat the S&P 500 Index by 2-3% year. Although this performance is not enough to make for a hedge fund fee structure to be viable, it is still a remarkable achievement.

The main themes in Buffett's investment portfolio are consumer discretionary and staples and banks(financials). Consumer discretionary and staples(Apple, Heinz, Coca Cola) make up around 40%. Banks and Financials make another circa 40%. The other holdings are quite diversified. The main theme is Warren Buffett's famous 'Margin of Safety' value. He has invested in large capitalization companies, many are mega cap like Apple, Wells Fargo, Bank of America and Coca Cola.

His main belief: to quote Master Buffett himself - 'Never bet against America'. That said, there is another implicit belief - that the stock market will always go up , at least in the long-term. Has the US stock market went up all the time in the long-run. Not in the Great Depression, it hasn't. That is when Benjamin Graham harnessed his investment prowess, learned a lot and wrote afterwords his famous book 'The Intelligent Investor" which Buffett's defines as his investment thesis.

Buffett's investment in Apple which is for 40 bln. USD and constitutes circa 21% of his portfolio is an interesting case. Buffett's has famously resented investing in technology stocks. He did not invest in technology stocks in the Dot Com boom and this turned out to be a prescient call. Nasdaq tanked heavily and Buffett's thesis was vindicated. Recently Buffett invested in IBM without much success. He sold out of IBM completely recently without making a high return. Personally, I see a problem in his large concentrated position in Apple. Apple has fallen more than 30% twice recently, the fall in 2012 exceeded 40% even. Buffett's has been quoted that the shares of Berkshire Hathaway have fallen more than 50% on at least four occasions. But if Apple falls more than 40%, Buffett's investment porfolio track record of beating S&P 500 will be in jeopardy. Apple's market capitalization is far less than 20% of the S&P 500. Apple could fall a lot driven by many factors as the end of the smartphone boom and market saturation and end of the latest technology boom.

But even if Buffett's Apple investment tarnishes his investment track record, he will still remain an investments master. I have long marveled at his investment prowess.


Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Conflicts of interest: I may possess some of the securities,currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!


Kind regards,
Petar Posledovich

What Amount of Government Debt to GDP Percentage is Sustainable?

Dear Reader,

Often numbers are cited and is claimed that a country's Government Debt to GDP is unsustainable.

But what is the right number of Debt to GDP Percentage after which the government debt can not and will not be repaid?

According to the euro convergence criteria (also known as the Maastricht criteria) it seems to be implied that level is 60%. Is this a correct estimation?

In my opinion, it depends. Germany's Debt to GDP ratio is 68.1% Can Germany repay 2.3 trillion USD? Hardly, I think. Why? Because the sum is simply staggering. Yes, I know Germany has a large manufacturing base, the Euro is a global reserve currency and so on. So what is the solution? I think Germany has to get its Debt to GDP to circa 40% to be sustainable.

How about USA's Debt to GDP ratio of 105.4% or 21 trillion USD? Is it sustainable? No. That is still an unbelievable sum of money?

How can indebted Eurozone countries and USA get out of this huge government debt problem? One solution is the government debt to be inflated. Basically USA, Germany, France, UK and Japan could borrow when their currency is strong and repay when their respective currencies are weak. The USA had a higher Debt/GDP level around World War II, but the USA managed to decrease its government debt substantially after that to below 40% of GDP in 1980s. But such exercises are dangerous experiments.This should, of course, be accompanied by high inflation. The problem is that it is not possible to have high inflation and growth everywhere in the world simultaneously. Japan's Debt/GDP is 253% which is above 10 trillion USD. Japan's solution seems to be the Bank of Japan(Japan's Central Bank) and other government owned entities buying up huge percentage of the debt. This of, course, will end badly if Japan's debt is not restructured or the country's GDP does not start growing very quickly after let us say a technological breakthrough.

For smaller countries the sustainable Debt/GDP % levels are lower than 40%, as far as I am concerned. Because smaller countries do not have global reserve currencies. Or if they have, like in the case of Switzerland, Norway and Sweden they are marginal.



Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Conflicts of interest: I may possess some of the securities,currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!


Kind regards,
Petar Posledovich

Brazil, Russia, India, China, South Africa. Are Emerging Markets Ripe for a New Crisis?

Dear Reader,


There have been many signals and forecasts that some big emerging markets are showing signs of crisis. Argentina, Turkey and Indonesia are a case in point.

Many tie these recent developments with the Federal Reserve raising rates and the US dollar appreciating. Analysts see similarities with the Asian Crisis in 1997. Will emerging markets suffer a new deep crisis?

In my opinion, No. Why? Because emerging markets now are much more resilient than in the past. Their economies make up more than 34% of global GDP. What I think will happen, however, is that certain individual economies will suffer economic crises. I forecast China will suffer a severe recession due to its economy being overburdened by debt. Taking on more and more debt to finance growth is simply unsustainable. Russia, India and Brazil, on the other hand, should develop quite fast and well. India is, according to me, the next Asian tiger. And Africa is the next investment frontier. The return on investment in Africa is and is going to remain in the midterm phenomenal. Eastern Europe, although not that big, is growing strongly and healthily.

So, basically I believe as a whole Emerging Markets will continue to exhibit growth rathes much faster than the developed world and increase their share of the global GDP. Economic setbacks, here and there though are possible, likely and simply going to happen.


Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Conflicts of interest: I may possess some of the securities,currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!


Kind regards,
Petar Posledovich

What is Amazon's Intrinsic Value?

Dear Reader,


Here I am going to make an attempt to determine the real intrinsic value of Amazon Inc. Corporation.

The market values Amazon at almost 764 billion USD with Price/Earnings of 256 at a price of 1574.37 USD.

Is this market capitalization justified? No! What is the intrinsic value of Amazon Corporation? My estimate is that the real value of Amazon is about 350 billion USD or less than half the current market capitalization.

Why? Amazon simply does not make enough money to justify its current market capitalization. The company made 3.03 billion USD in profit in 2017 on 177.866 billion USD in revenue. Yes. I know revenue grew by more than 30% year on year. But still, if Amazon makes 5 billion USD profit in 2018 which is more than 60% increase year on year it will trade at 150 Price/Earnings multiple if the market capitalization remains near the current.

Yes. I know investors expect Amazon to make money by growing its main business and new verticals in the future. But they have been waiting for more than a decade. Amazon is just too big at the moment to continue to grow so fast and become highly profitable. Unless it makes a technological breakthrough or enters many new markets successfully, which franky are wild assumptions.

Amazon and Tesla have been poster stocks for this market. Yes. They are overvalued. While Tesla's stock could go down to 0, Amazon is actually worth half its current market capitalization, in my opinion.


Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Conflicts of interest: I may possess some of the securities,currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!


Kind regards,
Petar Posledovich

Deutsche Bank Permanently in Crisis. What Next?

Dear Reader,

Deutsche Bank has been in crisis since 2016. Currently Deutsche's market capitalization is below 30 bln. USD.

Why is Deutsche Bank in crisis. The main reason, as far as I am concerned, is that the bank took too much risk in the run up to the Great Recession(2008-2009). Deutsche Bank has a staggering derivatives exposure of circa 46 trillion Euro notional. Basically, the bank has to offload all toxic derivatives on its balance sheet in order to remain viable.

Will Deutsche survive on its own? According to me, the short answer is NO. Why? The bank is trading at distressed levels currently with market capitalization of 29.60 bln. USD, while its balance sheet has staggering 1.475 trillion EURs of assets. The bank is a classical takeover target. The problem is no one seems to want it? And why should the other banks want Deutsche Bank? To incur mutlibillion losses due to Deutsche Bank's derivatives exposure?

What will happen with Deutsche Bank? Essentially, there are several options. The German government could take over and restructure the bank for 4-5 years and re-privatize it again. This option, however, is unpalatable to both the German government and Deutsche's shareholders. The second option is Deutsche muddles along, cleans its balance sheet and in 4-5 years starts growing extensively again. The third option is a takeover. I view takeover of Deutsche Bank as the most likely option. The acquirer, though, has to be prepared to swallow billions in losses while the acquiring bank restructures Deutsche.

Basically, Deutsche Bank is in for a rough ride in the next 4-5 years. There will be several rounds of cuts, especially in the investment bank. Billions of losses will be accounted for.

P.S. I do realize I am talking about Deutsche Bank, Europe's biggest investment bank by revenue! Actually, I spent two and a half months as an intern at DWS(Deutsche Asset Management). But the hard facts cause me to express the opinions above.

Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Conflicts of interest: I may possess some of the securities,currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!


Kind regards,
Petar Posledovich

Some Thoughts on Warren Buffett's Investment Style and His Results!

Dear Reader,

Here I am going to make a small analysis of Warren Buffett's investment style and his results.

I know he is regarded as one of the most successful investors of all time. However, according to various reports Warren Buffett's listed stocks investments portfolio over the past circa 20 years has managed to beat the S&P 500 index by 2.1%.

Why? The reason hides mainly in Warren Buffett's investment style. He invests mainly in listed value stocks i.e. mature companies who have proven their ability to generate substantial profits and revenues in the past. However, these companies do not have excellent growth prospects mainly due to two reasons. First, they are already gigantic in  market capitalization style - most of the time more than 10 bln. USD in market capitalization or so called large cap stocks. Their sheer size constrains them from growing fast. The second reason is that these companies are leaders in already mature industries like banking, financial services, beverages, insurance etc. Even in his private equity style(holds them 'forever') portfolio you will find great difficulty to find companies which have outgrown the rate of growth of the market in terms of revenue or profit or the growth rate of US GDP by substantial amount.

A third reason is that Warren Buffett does not usually invest in growth stocks. Growth stocks in the last 20 years have been predominantly technology stocks and  biotechnology stocks. Warren Buffett is notoriously known to shun technology stocks especially in the 1998-2001 technology bubble. Actually, at these times that was quite a savvy decision.

Recently Warren Buffett invested not so successfully in IBM. 1 Year ago he built a very large position in the ultimate technology behemoth - Apple Inc. Actually due to Apple's size and maturity as a company it is unlikely that this Warren Buffett's investment will also beat the S&P 500 and Nasdaq Composite by a wide margin.

If you want to invest and beat the market by a large margin you have to invest in the current growth stocks which are technology stocks and biotechnology. Or predict the future and invest in the next Big thing i.e. in the next growth stocks. The downside of this strategy is that technology and biotechnology stocks are quite risky measured by their volatility. Some of them could wipe out billions of value in weeks or even become worthless over the long run as evidenced by the 1998-2001 tech bubble.

One advantage of Warren Buffett's investment style is that if you invest in value stocks you can invest huge amounts of money and you have some downside protection - the proverbial 'margin of safety'. But as evidenced by Warren Buffett's investments in Tesco, JP Morgan, Wells Fargo, American Express etc. such companies could also lose tens of billions of market capitalization in months if not weeks. However, Warren Buffett has managed to mitigate these effects by holding a very diversified portfolio - usually holding above 30 individual stocks.

Bottom line. Warren Buffett's investment style has worked brilliantly for his own purposes. But if you are small investor looking to make 50-100% a year you have to invest in much riskier stocks than Warren Buffett does and use much less diversification.

Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Conflicts of interest: I may possess some of the securities,currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!


Kind regards,
Petar Posledovich

Exxon Mobil Corporation Valuation!

Dear Reader,


Here I am going to make an attempt to value Exxon Mobil Corporation, one of the leading global energy producing companies.

The main driver of Exxon Mobil's stock price is the price of oil. That said I forecast the price of WTI oil and Brent Crude oil to soon exceed 80 USD from the current prices of 67.39 USD and 72.58 USD  currently.

What is more the Exxon Mobil seems to be undervalued on Price to Sales of 1.38. As revenue increases with the price of oil Exxon Mobil's profit will increase accordingly. So the current Price to Earnings ratio of 16.81 will decrease. Basically, most energy companies are value stocks. Their market capitalization has been hurt horrendously in 2014 and 2016 along with the fall of the price of oil. I believe  there are still emotional scars in investors' memory from those falls, so the prices of energy stocks are depressed.

The main  reasons for the forthcoming oil increase to 80 USD are OPEC's production cuts and the possibility of a military conflict which will engulf the whole Middle East along with Saudi Arabia and Iran which are major oil producers. An eventual war could even touch Russia which is the third largest oil producer  in the world currently after USA and Saudi Arabia.

Exxon Mobil with its large scale production is poised to benefit from the coming oil price rise. What is more, the USA which is the main production site for Exxon Mobil is poised to become the world's largest oil producer this year(2018) thanks mainly to the hydraulic fracturing oil exploration boom.

So, I think Exxon Mobil  market capitalization could hit 400 billion USD in 2018 which will reflect a price of circa 94.1864 USD, a 21% premium to the current Exxon Mobil price of 77.84 USD.

Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Conflicts of interest: I may possess some of the securities,currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!


Kind regards,
Petar Posledovich

US Stocks down Circa 10%. Is it Time to Buy?

Dear Reader,

US stocks measured by the main indices are down circa 10% from their recent highs.

Is this the bottom? Is it time to buy?

Yes, I think for now this is the bottom for US stocks and this should prove a good buy the dip opportunity.

Why? I think the protectionist trade war between US and mainly China will continue. The result is that China's GDP year on year growth will slow from currently 6.7% in 2016 to 2-3% in the next 3-4 years. I will forecast that China's GDP year on year measured in USD terms will soon even start to contract. These developments will have an effect on the US economy, albeit small. US GDP growth year on year will hover just below 2%. How will this affect stocks? US stocks should continue to rise for the next 2 years driven by the recent tax cuts and continuing world GDP growth.

I think the current economic cycle will end in 2-3 years with a medium, but protracted recession. But for now US stocks should go on going higher. US big 5 technology stocks will benefit the most in the next 2-3 years until the recession ensues. When the world's GDP starts falling again US technology big 5(Apple, Google, Amazon, Facebook, Microsoft) will loose more than 40% of their current market value. Why? Because, basically the US top 5 technology stocks are overpriced, in a small bubble. The bubble will burst and will coincide with the world's economic recession, saturation of the smartphone market and stricter government regulation.

Global banks will benefit handsomely in the next 2-3 years having in mind that the Federal Reserve  and Bank of England are already raising rates and soon the European Central Bank will start raising their target interest rates. Commercial banks will benefit from the higher interest rate environment by raising the rates on credits more than they raise the rates on deposits. What is more, currently global banks are undervalued. They are value plays and they will soon start to realize their potential.

I expect soon oil stocks will rise by 20-30%. I forecast that both WTI and Brent crude oil will exceed soon 80 USD. This will benefit hydraulic fracturing oil extracting companies the most, since they are high cost producers. Other oil companies, especially major ones will also increase their market capitalization by a wide margin.

Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Conflicts of interest: I may possess some of the securities,currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!


Kind regards,
Petar Posledovich

USA Overburdened by Debt. The End of American Supremacy?

Dear Reader,


Currently the US government debt is almost 21 trillion USD or 105.4% Government Debt/GDP ratio.

Is this situation sustainable? No. Had USA similar levels of debt before? Yes, in 1946 Government Debt/GDP was 118.90%. After world war 2 the USA managed to diminish its debt burden.

Can the US continue to lead and manage the world with so much government debt? No. It can not. At least, not to the same degree as recently. China holds large portion - more than 1 trillion USD of US government treasury securities. Currently, the US President Donald Trump is being confrontational with China with his trade policies and other measures. This could lead to China selling off large portions of its US treasury debt load and the yields on US Treasuries could shoot sky high.


The US is vulnerable in that respect. I think Trump realizes that. If the USA does not manage to clear its debt like it did after the Second World War, America is headed for trouble. The US dollar continues to be the world's foremost reserve currency and this cushions the situation so far, but that may not be the solution forever.

The bottom line? I think the USA will continue to lead the world, but because of its high indebtedness USA's position is weakened. Can America get rid of the huge debt load? Yes. How? Strong growth, inflationary spiral, technological breakthrough are some obvious solutions. Will America cut down its government debt. Yes. I bet on USA surviving this mini crises and going on to lead the world again along with the other superpowers.


Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Conflicts of interest: I may possess some of the securities,currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!


Kind regards,
Petar Posledovich

Protectionist USA, Debt Bubble Soon to Burst in China?

Dear Reader,

The US President Donald Trump announced new protectionist measures in order to further the interests of US producers and enhance US employment. As is obvious from the news, Europe and China will follow with retaliatory protectionist measures. I forecast global trade will diminish henceforth and this will slow global growth. If a full scale trade war erupts between USA and China this will seriously disrupt the supply chains of many global corporations. Apple is a case in point. Its products(IPhones, Ipads and Macs) are basically manufactured in China by Foxconn.

If a global trade war erupts this will hurt global growth, but it should not cause a recession. I forecast the next recession will  again have financial roots and it will be invoked by too much leverage in the financial system.

China is an interesting case. The Chinese economy, both corporate,consumer and state has too much debt. Shadow banking disguises the leverage, so the debt load is even bigger. I forecast sooner or later there will be an abrupt end of the Chinese economic growth an the economy will suffer a severe recession and will grow much slower after that. The Chinese GDP could fall by something like 10% before it resumes its growth again. That should not necessarily be a huge problem, since the Chinese economic system will clear its high debt load and start growing on a fresh note.

So I think the next global recession can be caused by the China debt bubble bursting. The high growth of Exchange traded funds which now proliferate in financial markets will exacerbate the crises. That said, I do not think in the next 2 years there will be a global recession. So the current economic cycle of growth should prove the longest in history, albeit with a reasonably slower growth of GDP.


Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Conflicts of interest: I may possess some of the securities,currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!


Kind regards,
Petar Posledovich

Are Large Capitalization US Technology Stocks Overvalued?

Dear Reader,

US and global stocks continue recovering from the recent correction. That said, are the top five US and global technology stocks Apple, Google, Microsoft, Amazon and Facebook overvalued?

In short, if they are overvalued it is not by a lot. If I have to pin it down the five aforementioned stocks are overvalued anywhere between 10 and 30% at the current pace of economic growth.

If the global economy,US including, enters a recession the top 5 US technology stocks could fall anywhere between 20% to 55%. Why? Simply because these top 5 tech stocks are leveraged mainly on the average consumer. With the exception of Microsoft, of course, which is geared to businesses. However, business would also suffer in a downturn, so Microsoft is not insulated.

For the next 2 years I presume, the 5 large capitalization US technology stocks will continue to party like it's 1999-2000 again.


Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Conflicts of interest: I may possess some of the securities,currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!


Kind regards,
Petar Posledovich

US and Global Stocks. Leverage(Debt). Recession. China!

Dear Reader,

US and global stock markets recovered some ground in the past week from the market rout two weeks ago.

I forecast the fall in US stock markets two weeks ago was just a momentary blip. Global stock markets will continue to party like its 1999 -2000 again. I think there will be recession and a large global stock market fall in 2020-2021.

US technology stocks will continue to lead the US stock market higher for the  next two or three years. The Federal Reserve will continue hiking the federal funds rate. US banks will benefit mildly from this development.

So what will cause the next recession? I think the next recession will be a bit shallower than the Great Recession of 2008 - 2009. Basically, it will be triggered by the too large leverage of the economic and financial system. The leverage has been building in the last two years and will continue to build for 2-3 more years. Some countries like China, Canada, Sweden, Australia and partly the US are heavily leveraged. Now that global rates are going up driven partly by the Federal Reserve, the tide could turn, adjustable loan rates will rise and it will become clear who is in trouble.

China is a case in point. Its growth since 2009 has been driven primarily by taking on more and more debt. This can not go forever. Sooner, rather than later the Chinese economy will register a large fall in GDP after many companies and households encounter difficulties paying their debts. Actually, the next recession could be triggered by the deterioration of China's economic prospects.


Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Conflicts of interest: I may possess some of the securities,currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!


Kind regards,
Petar Posledovich

Market Rout. Where is the Bottom?

Dear Reader,

In the past week we witnessed a remarkable market rout. The panic in certain days was palpable. Fear was omnipresent. And no wonder after the recent euphoria and the buy the dip mentality which together with other factors caused a remarkable stock market rally since march 2009.

So where is the bottom of the stock market? Personally, I think the main indices S&P 500, DJIA, and Nasdaq Composite will shed 15-20% of their value from the their peaks in January, before recovery ensues.

Is there a danger for a systematic shock for the global financial system? Yes, there is danger. And it lurks in the proliferation of exchange traded funds(ETFs). ETFs have seen huge influx of money in the recent years which greatly contributed to the stock market rally in recent years. Now, the danger is what happens when the ETFs start selling? There could be an avalanche effect. Many banks, especially in Europe, have produced structured ETFs which basically hang on the creditworthiness of the issuing bank. Look what happened last week to the volatility ETF of Credit Suisse . If banks start incurring losses, the crisis could easily morph into a global systematic financial and economic shock.

Will the recent stock sell off turn in a global financial and economic shock? No, I do not think so. Basically, banks are now much more capitalized and look more stable. The global economy does not grow euphorically as in  2006 and 2007. Another wild card is China. If China's debt burden topples China, the crises could still become global.

In a nutshell, I think when the  S&P 500, DJIA, and Nasdaq Composite fall by more than 15% from their recent peaks, global stocks should begin to recover.

Will the economic cycle end soon, i.e. is a recession coming soon? Yes, I think there will be a shallow recession in the next two or three years, basically by 2021. However, it will not be provoked by the current market fall.

And after that, as in recent years, the global economic growth(GDP growth) will stay quite subdued 2-3% at the most per year.


Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Conflicts of interest: I may possess some of the securities,currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!


Kind regards,
Petar Posledovich

Oil Valuation!

Dear Reader,

Here I am going to make an attempt to value oil.

Currently Brent oil trades at 70.52 USD, while WTI oil is priced at 66 USD.

I think Brent could go to 80 USD, while WTI oil could climb to 75 USD.
Why?

Basically, I think the main reason is the global economic recovery. The economic growth of the major economic regions and economies is remarkably synchronous. Furhermore, the production cuts of OPEC and Russia are having their influence on price. US shale oil and gas producers are experiencing a renaissance. USA recently overtook Russia as the largest natural gas producer.

For the whole of 2018, I think Brent price would average 75 USD, while WTI should average 70 USD.

Such prices, however, would represent something of a cap on the price of oil. Canada and Brazil will increase their oil production. Canada and Brazil are producers of expensive sands and deep water oil respectively. But with oil above 50 USD, both Canadian and Brazilian oil production is profitable.

The main beneficiaries from the recent and future oil price rise will be the largest oil and gas exploration and production companies like Exxon Mobil, Chevron, BP, Total, Royal Dutch Shell, Gazprom and Petroleiro Brazileiro. Large shale oil and gas fracking companies like Marathon Oil Corporation and Continental Resources should also benefit handsomely. The largest oil comapnies of the world have since the oil price fall in June 2014 recorded financial losses or poor results. After the oil price increase in the last 3-4 quarters their results should improve markedly and with that their market valuation should increase.

The countries which stand to gain the most are Russia, Brazil and Canada. Russia is stricken by Western sanctions, but the country should slowly adapt to the new environment and the higher oil price should drive a Russian economic recovery.

Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Conflicts of interest: I may possess some of the securities,currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!


Kind regards,
Petar Posledovich

Tesla, Bitcoin, Stocks, S&P 500, Nasdaq. Bubbles?

Dear Reader,

2018 started with something like an euphoria in stock markets, especially US stocks.

Some say the financial markets are frothy - you have froth, many small bubbles. In tech stocks in 2000 and with real estate in 2007-2008 you had big bubbles - one in technology stocks and another in real estate.

This time it seems we have many small bubbles. However, taken together they form a very big bubble.

The stock markets, US stock indices especially are in the very early stages of a bubble. They keep going up constantly. One of the characteristics of a bubble is that there is a revolutionary technology which is going to change the world. Like the internet in 2000. The internet did transform our world, but the growth priced in some of the stocks back then was simply delusional. Now Tesla(electric cars) and Bitcoin(blockchain) fit the bill perfectly. Revolutionary technology that is going to change the world? Let's look at the facts. What have electric cars and blockchain changed up till now. Not much. Very few cars run on electricity. If you take out hybrids out of the occasion the numbers are tiny. If the government does not subsidize electric cars, without a breakthrough the industry will die. Blockchain harbours the promise to change financial transactions. But which banks have integrated it in their back offices. I do not now of one, So it must be that electric cars and blockchain have future potential. But they have been around for at least four years. When will that potential be realised?

So, in my opinion electric cars and bitcoin seem like bubbles. US stocks are in the early stages of a bubble. The price earnings multiples of US stock indices are near historic highs. But the bull run in US stocks, according to me will run for 2-3 years longer. What could trigger the next big crash in financial markets? I believe the triggers could be many. But the exchange traded funds industry could be key here. There has been stunning growth in the assets under management of the exchange traded funds(ETF) industry. The ETFs now manage more than 4 trillion USD. When the markets start falling the ETFs will start selling and this could exacerbate the fall dramatically.


Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Conflicts of interest: I may possess some of the securities,currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!


Kind regards,
Petar Posledovich

Microsoft Valuation!

Dear Reader,


Here I am going to attempt to value Microsoft Corporation, the world leader in the personal computer operating systems with MS Windows and world leader in enterprise software with the MS Office suite.

Currently the market values Microsoft at 659.67 billion USD with a price of 85.51 USD which is a truly staggering sum. Is the company worth the money? In my opinion, in the current economic climate the answer is yes. Actually, I think Microsoft is worth 20% more or circa 783 billion USD at a price of 106 USD.

Why? Simply put Microsoft corporation is at the forefront of the cloud computing revolution with its Office 365 enterprise suite and Azure cloud computing platform. MS Windows and MS Office are the biggest revenue generators for Microsoft. And the companies are switching more and more to the Office 365 subscription model. Azure is the second most popular cloud computing platform after Amazon Web Services. In addition, Microsoft is earning a lot with the Xbox console. The company entered the hardware business with its Surface Tablet and Surface Book laptops.

What are the risks for my forecast that the real(intrinsic) value of Microsoft is 783 billion USD, price of 106 USD or 20% above its current market price of 85.51? Basically, the global economy could go into a recession or negative GDP growth for two or more quarters. Usually, the information technology stocks are geared(leveraged) to the economic cycle and their prices should fall by a higher percentage than the main indices like S&P 500 or Dow Jones Industrial Average. Usually the Nasdaq composite falls by more. Companies will still continue to buy MS Windows and MS Office, but they are likely to cut costs and maybe buy fewer Microsoft licenses.

In short, if the global economy enters a recession I expect Microsoft's value to fall by more than 30%.

At the moment though, I stick to my forecast that the intrinsic price of Microsoft's stock is circa 106 USD or 20% above the current price of 85.51 USD.

Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Conflicts of interest: I may possess some of the securities,currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!


Kind regards,
Petar Posledovich

Bitcoin Valuation!

Dear Reader,

Here I am going to attempt the (almost) impossible - to value Bitcoin.

Currently the digital currency Bitcoin, yes I think it is actually a currency, trades at 14771.75 USD.
The Commodity Futures Trading Commission thinks Bitcoin and other crypto currencies are commodities. That is why this Sunday the Cboe Global Markets Inc. will start trading futures on Bitcoins.

Why do I think Bitcoin is curency? The definition of a currency is: unit of account, store of value and means of exchange. Actually Bitcoin would cover all three attributes if it was regulated. Currencies which have a central bank and respectively a government standing behind them tend to store value because the central bank ensures the currency(USD for example) stores value by targeting stable inflation rates, usually 2% change in  the price level year on year. Actually, if Bitcoin did not fluctuate so much it would cover all three pillars of the definition of money.

However if the central banks(governments) start regulating it would Bitcoin lose its appeal? Possibly.

So what is the 'correct' price of Bitcoin? Since there is no cash flows behind Bitcoin the traditional valuation methods do not apply! So, basically I think technical markets analysis should come in handy here. Whenever Bitcoin breaks through resistance levels like let's say round numbers like 20 000 USD or 50 000 USD the probability of Bitcoin's value rising increases. There is some fundamental touch, though. This is the choice of governments. If governments decide in tandem they could shut Bitcoin down and drive its price to 0 (zero).

I think Bitcoin will hit 100 000 USD and then crash by more than 30%. If governments do not shut it down, after the fall Bitcoin should start slowly rising again.
 

Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Conflicts of interest: I may possess some of the securities,currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!


Kind regards,
Petar Posledovich

Facebook Valuation!

Dear Reader,

Now I am going to make an attempt to value Facebook Inc., one of the two most popular internet sites with www.google.com

At Price Earnings ratio of 34.69 the valuation of Facebook looks lofty, but not so much if you consider it is a technology growth stock. Actually, Facebook is wildly profitable. Its net profit margin is in excess of 40% for the most recent(Q32017) quarter. At the current run rate the company would clock in in excess of 40 billion USD in revenue. Currently the company has a market capitalization of 520 billion USD. According to the Price Sales ratio, I would say the company is overvalued. That said, Facebook is 'printing' money, the company is extremely profitable.

So what is the true intrinsic value of Facebook Inc.? The key word for the answer is growth. The company has circa 14% of the world digital(internet) advertising market and together with Alphabet Inc(Google's parent) account for more than 50% of the global internet advertising market. Basically, the digital advertising market is a duopoly. The global internet advertising market is growing year on year in excess of 15%. As long as this growth continues Facebook Inc. price will go on rising.

In my opinion Facebook Inc. price should be around 200 USD or circa 10% above the current price of the company of 179 USD. One of the reasons for the relatively conservative estimate is that Facebook itself expects its growth to slow due to inability to place too many more adds in the users' news feed.


Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Conflicts of interest: I may possess some of the securities,currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!


Kind regards,
Petar Posledovich

Tesla Inc. Valuation!

Dear Reader,

Here I am going to make an attempt to value Tesla Inc., the famous maker of Tesla electric automobiles.

Basically, I think Tesla Inc. is grossly overvalued. I my opinion, the real value is half its current market capitalization of 51.52 billion USD.

Why? Basically, Tesla Inc. is losing too much money. In the third quarter the company lost 619.38 million USD on sales of 2.98 billion USD or -0.208% net profit margin for the third quarter of 2017. For the whole 2016 things look a little better with a negative net profit margin of circa - 10%. At the same time another luxury sedan maker like BMW's net profit margin for 2016 is 7%. The car-making business is notorious for its low profit margins. Volkswagen's margins are even thinner than BMW. Than what is the problem with Tesla? The truth is electric vehicles are simply too expensive to make. They use too much ferrous metals which cost a fortune. The battery is too expensive simply. Even though the US government subsidizes Tesla Inc., the company still loses huge sums of money.

Can Tesla's  stock go to 0(zero)? Yes it can. If there is no breakthrough in the electric car manufacturing technology, investors will not be pumping money into losing enterprises forever.

So, basically I think Tesla Inc.'s stock intrinsic value is 153 USD, half the current 306.53 USD stock price. Tesla's market capitalization should be around 25 billion USD.


Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Conflicts of interest: I may possess some of the securities,currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!


Kind regards,
Petar Posledovich