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Preparing For The End Of The Cycle: November Update

Dec. 05, 2018 12:08 PM ETMA, MCO, MMM, TCEHY, META, SPY5 Comments
Daniel Schönberger profile picture
Daniel Schönberger
10.82K Followers

Summary

  • A few weeks ago, I started my series covering high-quality companies which aren't a good investment yet due to overvalued stock prices.
  • A central premise is a declining US stock market because otherwise these high-quality companies probably won't reach the preferred entry point.
  • With the yield curve flattening, the weekly initial unemployment claims rising, and valuations still extremely high, it seems like the end of the cycle is near.
  • Out of the five companies - Moody's, Mastercard, 3M, Tencent, and Facebook - the last seems to be the most interesting and is closest to our entry price.

As I promised in my article about Facebook (FB), I will provide regular (monthly) updates on the stocks and companies I covered in my series "Preparing for the end of the cycle" so far. As you probably expected, these articles will include an update on the stocks and new information about the different companies that might alter our investment thesis, intrinsic value, or preferred entry point. But I will also include an update on the general (US) stock market - represented by the S&P 500 (SPY) and the macro factors.

Macro Economy And Stock Market Overview

As I mentioned several times in my articles, this whole series is covering exceptional great companies that often trade at a premium and have to decline sometimes 50% or more in order to reach my preferred entry point. And cutting the market capitalization of these companies in half seems highly unlikely without some kind of scandal or a deep fundamental change in the business (in that case, we have to question if the company can still be a part of our "exclusive" list of high-quality companies). What could also drive these companies down is a bear market combined with panic and bearish sentiment, which is dragging even great companies down to the fair value or even to a state of undervaluation. Therefore, a deeper analysis of the general stock market is important for our series.

When you read my articles about the US stock market and macro economy, you probably know that I was not necessarily bearish during the last two years (in the sense that a stock market decline has to happen right away or that shorting was a good idea), but I was very cautious and skeptical how long the bull market can last. In the meantime, I have learned that bull markets might go on longer

ChartMMM data by YCharts

ChartMMM data by YCharts

This article was written by

Daniel Schönberger profile picture
10.82K Followers
Part-time investor and contributor for Seeking Alpha since 2016. My analysis is focused on high-quality companies, that can outperform the market over the long-run due to a competitive advantage (economic moat) and high levels of defensibility. Focused on European and North American companies, but without constraints regarding market capitalization (from large cap to small cap companies). My academic background is in sociology and I hold a Master’s Degree in Sociology (with main emphasis on organizational and economic sociology) and a Bachelor’s Degree in Sociology and History.I also write about investing, economy and similar topics on Medium: https://medium.com/@danielschonberger

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

I own derivatives which are profiting from a declining Nasdaq-100 and Dow Jones Industrial Average.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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