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2023-09-17 A stock pick...

Though I'm lazy and I'm not writing a long winded investment analysis, today's suggestion is to buy stock in Dollar General (DG), and lots of it. The current price is $115.68 per share. If I get the time, I will write more deeply about it, but the short explanation is that it's a wonderful firm having a poor year. The stock price has fallen, which is not irrational, but it has fallen an irrational amount. Since it is also a good business, this creates an excellent opportunity.

To get a quick feel of valuation levels, imperfect as it is, on average DG's stock traded at almost exactly 1 times its trailing year sales in the stretch from mid 2011 to end 2018. (it then traded at an average of 1.41 times sales in the five years since then, but let's ignore that for the sake of conservatism). It is currently trading at almost exactly 2/3 of trailing year sales, so to get back to the older (lower) multiple of 1.0 times sales the price would have to rise 50% from here.

Meanwhile, sales per share keep growing. They've risen at 12.5%/year in the last dozen years, for a combination of reasons: they increase their number of stores (still rising by about 4% a year), the sales per store rise, and the number of shares falls slowly.

Now, maybe the multiple of sales will be a bit lower in future because their net profit margins fall a bit, and maybe the sales per share will grow somewhat more slowly than in the past. But they still make a ton of money and are not going bust, so things will still work out well. I don't usually set price targets, but here's one: buy now, sell only when it's trading for $220 (or more). I believe their cyclically adjusted earnings per share will rise up through $11 fairly soon, and some time not long after their old market multiples of over 20 times earnings will show up from time to time--in combination, a price of $220 should be seen sooner or later. My optimistic hunch is that this will happen in less than two years, which would be a fantastic return of 38%/year compounded. But even it if takes four years, that's still 17.4%/year compounded. A fella could do worse.

2022-10-01 Market bottoms...

As some may be aware, one of my hobbies is building models to predict the stock market. It's not something that can be done with reliability, but I find it's not too hard to do somewhat better than a coin toss.

I have two models for spotting market bottoms. One aims merely to spot short term bottoms, the sort of day that is "one of the better moments this year to be a buyer". It generally leads to pretty good returns on US markets in the subsequent 1-4 weeks. It also gives a degree of confidence...sometimes it's more certain than others.

It's recent pronouncements:
2022-09-23 strong "short term bottom" signal
2022-09-26 strong "short term bottom" signal
2022-09-27 weak "short term bottom" signal
2022-09-28 silence
2022-09-29 strong "short term bottom" signal
2022-09-30 silence

The other model is a "major bottom" detector. It's signals are quite rare, but often quite useful. Occasionally it is too early, giving buy signals several times on the way down during a really bad market tumble. This was really only a problem in 1974 and 2008. But other than those stretches, usually the signals are pretty good.
The other catch is that it often signals several days in a row, so the safest interpretation is to wait for the first market day that it does NOT signal. This signal triggered on Sept 29, but not Sept 30, so (to the extent that it has any value) the US market is a buy now. The market might tumble some more, but it's usually quite a bit higher a year after such a signal. If you were to buy after the first "no signal" day after a signal day, on average the S&P 500 is 12% higher 6 months later, 21% higher a year later, and 36% higher two years later. Not adjusted for dividends or inflation.

It's far from perfect, but if I had some short term short market positions, I'd close them.