Loser Araysar
Chief Russia Correspondent / Stock Pals CEO
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It's possible. Corporate finance is part of my background, and I definitely can't do the technical stuff most people in this thread do, yourself included.
What I mean is if you value UNH solely based on its cashflows and you thought a consistent growth rate was actually pretty close to the truth for a monolithic insurance company, you would have your eye out for a situation like this.
Absurdly simplified example using FCFE since we can value equity directly. I'm choosing a performance level that makes the math illustrative, not any actual belief:
So if we want to compete with S&P on returns (with a lot more risk), we'd look at a $480ish share price. Right now we're at $440, which would imply the stock is 'cheap'. Who knows why--Sanrith Descartes presumably has a hypothesis that it's an overcorrection of the sector applying to the stock. So you pick some up.
UNH previously grew cashflow 15% YoYoY. Maybe in the earnings call they only come out 5% up, and the stock tanks further. But that still fits your hypothesis, so you pick even more up at a greater discount.
That's all I'm saying. If your hypothesis is that other people are valuing UNH highly because they expected them to start mining lithium or getting into nuclear power or receive some oligopolistic regulatory requirements, I think it makes sense to be looking for prices that seem to discount a target level of actual operating performance.
Reading the post you linked, I think the reason I wouldn't A. not buy immediately and B. exit and try again is that I'd be afraid the market would realize its mistake and correct up, and I'd miss my chance. Everything's easy to see with hindsight, and knowing you could have done better is probably a good lesson, but pulling out and regrouping only to find the opportunity closed the next day when you're talking about 20 years feels shortsighted in the other direction.
I think I understand what you're saying, here are my thoughts on that, but they are quite biased since I'm a regular day trader.
I think that retail investors (even long term retail investors) who are still looking at Boomer fundamentals like PE ratios, cash flows, etc. are doing it wrong. The market these days is driven by hype, trends and larger macro events. I see this validate itself every day when I'm at the desk. Earnings reports are mostly excuses to pump stock up or down. Great example is Rent the Runway from few days ago. The earnings forecast was horrific, and the earnings came in even worse. What did the stock do? Rocket to the moon. Why? No reason. I see this happen all the time. The market often reacts completely irrationally to earnings reports and even economic announcements. BTW, one of the common things I hear about "averaging down" is "the market can stay irrational longer than you can stay solvent"
All these fundamentals you are talking about might have been important 50 years ago in the age of Warren Buffett and value investors, but in the modern age of hedge funds and traders buying and selling same position within minutes, and companies living only to beat next quarter's estimates, it doesn't matter anymore. Clorox has a PE ratio of 230 and the stock price doesnt care
In regards to UNH in particular... its always better to miss out on gains than to lose actual money. I wouldn't worry about missing out on opportunities especially when there are a lot of opportunities every day. I could go on at length here, but I think my other posts on dangers of averaging down, etc. covered it for the most part. One other thing I will add is that one of the most important lessons early on for me was that stock trading is less about learning how to make money and more about learning how to minimize risk and loss.
That's the way to go if you just want to be on auto-pilot.
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