The biggest challenge for me right now is maintaining a strict valuation discipline, with a focus on individual companies and margin of safety, while attempting to filter out the deluge of broader, often contradictory noise. While some companies have certainly gotten cheaper over the past few months, most are still quite expensive unless one utilizes heroically optimistic assumptions. For example,
There are some counter-arguments to the 'margins are too high argument'
1) Taxes. The recent tax changes make the net margins higher. Unless you expect the U.S. Congress to change course, this margin gain won't mean revert.
2) Interest payments. American companies are less leveraged today than in the past. This means higher net margins. Higher rates should compress net margins, but it'll take time, because a signifcant amount of them have fixed rate debt.
3) Mix change. Now companies like Apple, Microsoft and Google are way more of the profits and they are higher margin.
4) Financial sector margin expansion. This is a matter of accounting (provisions, higher capital requirements, etc) and I think they should be studied apart.
The S&P 500 ex-financials margins increased just by a bit: 12.5% operating margins in 2011 to 14% in 2021. The non-tech sector reduced operating margins between 2011 and 2021.
I look forward to hear your views and I enjoy your work, keep it up!
There are some counter-arguments to the 'margins are too high argument'
1) Taxes. The recent tax changes make the net margins higher. Unless you expect the U.S. Congress to change course, this margin gain won't mean revert.
2) Interest payments. American companies are less leveraged today than in the past. This means higher net margins. Higher rates should compress net margins, but it'll take time, because a signifcant amount of them have fixed rate debt.
3) Mix change. Now companies like Apple, Microsoft and Google are way more of the profits and they are higher margin.
4) Financial sector margin expansion. This is a matter of accounting (provisions, higher capital requirements, etc) and I think they should be studied apart.
The S&P 500 ex-financials margins increased just by a bit: 12.5% operating margins in 2011 to 14% in 2021. The non-tech sector reduced operating margins between 2011 and 2021.
I look forward to hear your views and I enjoy your work, keep it up!