Latest / Felix Nikolas Prehn's Podcast / Riding the Tech Stock Surge Into 2024: Maximize Your Returns with the 'Magnificent Seven'!

Transcript

Riding the Tech Stock Surge Into 2024: Maximize Your Returns with the 'Magnificent Seven'! · Felix Nikolas Prehn's Podcast

• 0:00
  Speaker 1: Felix here, good morning to you.
• 0:03
  Speaker 1: Welcome to the last trading day of 2023.
• 0:08
  Speaker 1: Everybody is wrong.
• 0:12
  Speaker 1: Wall Street is out there saying the 2023 trade is dead and everything will be different in 2024.
• 0:22
  Speaker 1: I want to walk you through the data points to show you that that is actually incorrect and that, because of the action the Fed is taking, 2024 will look very much like 2023.
• 0:35
  Speaker 1: Therefore, there are some opportunities from now we can take advantage of.
• 0:39
  Speaker 1: I'm joined by my chief financial analyst, tlula, who is my little street kitten, and we will walk you through everything and explain the data so you can come to your own conclusions, which is always what I want.
• 0:53
  Speaker 1: Of course, I give you my opinions, but I really wanted to come to your conclusions.
• 0:56
  Speaker 1: I also want to encourage you to take advantage of the 3rd of January where, at 10am Eastern time, I'll be running a live trading training Disclosing our full trading strategy three steps.
• 1:11
  Speaker 1: It's super easy.
• 1:12
  Speaker 1: It's trading one stock, it's completely ruled spaced, we have a 75% win ratio and how we automate those trades, so you walk away without knowledge.
• 1:23
  Speaker 1: You'll be able to implement it yourself if you wish.
• 1:26
  Speaker 1: All you got to do is go to philxfrenzorg slash webinar and save yourself a seat philxfrenzorg slash webinar and start 2024 off the way you intend to make it the best year for your money to work for you in the history of your financial life so far.
• 1:47
  Speaker 1: That's my intention and we will deliver on that.
• 1:50
  Speaker 1: So, philxfrenzorg slash webinar.
• 1:52
  Speaker 1: Now let me tell you what everybody is saying.
• 1:55
  Speaker 1: The magnificent seven stocks, which is Apple, tesla, microsoft, meta, netflix and Nvidia the tech stocks had a tremendous year in 2023.
• 2:08
  Speaker 1: They're up about 110% on the year, which is pretty extraordinary.
• 2:14
  Speaker 1: If you'd only owned those things, you'd be doing backflips right now out of joy or drowning yourself in champagne, whichever way you'd prefer to go and therefore everyone's saying well, they can't go any higher, they're overvalued.
• 2:27
  Speaker 1: And I want to walk you through to show you that that may not be accurate.
• 2:33
  Speaker 1: In fact, it could be horribly wrong.
• 2:36
  Speaker 1: It was a poor turn of stone, why?
• 2:38
  Speaker 1: Here's what else financial analysts are telling you.
• 2:44
  Speaker 1: They're saying the magnificent seven, the mag seven, are now a larger part of the MSCI world stock bundle, which is basically all the major stocks listed in the world.
• 2:57
  Speaker 1: They're now bigger than every stock listed in the UK and China in France and every stock listed in Japan together.
• 3:05
  Speaker 1: So every company listed in those countries UK, china, france and Japan together are worth and valued as less than the magnificent seven stocks, and people might therefore go oh my God, that's totally crazy and unreasonable.
• 3:22
  Speaker 1: They must be horribly overvalued.
• 3:24
  Speaker 1: There must be a crash and big tech coming.
• 3:27
  Speaker 1: Well, max seven stocks have also gone up $4.8 trillion in market cap in 2023.
• 3:39
  Speaker 1: So you might once again be forgiven for thinking well, if they've gone up $5 trillion, they must be a bubble, they must be at the peak of the market.
• 3:49
  Speaker 1: Okay, the top two stocks, the two largest stocks listed in the US, are Apple and Microsoft.
• 3:56
  Speaker 1: They now make up 14.7% almost 15% of the S&P.
• 4:06
  Speaker 1: Just two stocks Apple and Microsoft.
• 4:08
  Speaker 1: We've never had two stocks be a larger part of the S&P than those two.
• 4:14
  Speaker 1: Let me walk you through the previous contestants.
• 4:18
  Speaker 1: In 1983, we had IBM and AT&T at 11%.
• 4:27
  Speaker 1: In 1999, we had Microsoft there she is and General Electric seriously where the two largest stocks, with 9% off the market.
• 4:40
  Speaker 1: That was 1999, something happened in 2000, which we shan't mention, that made that go down a lot.
• 4:46
  Speaker 1: And then in 2008, we had Exxon and Walmart be the two largest stocks.
• 4:55
  Speaker 1: Yes, seriously, that's how few years ago.
• 4:58
  Speaker 1: That was when Walmart was going to be the thing that would kill Amazon.
• 5:03
  Speaker 1: That was seriously the story back then.
• 5:05
  Speaker 1: There were 8% together and right now we're sitting at 15% and people are saying, oh, it can't be it, it must collapse and Apple and Microsoft must be decimated and it just can't go on.
• 5:16
  Speaker 1: It's just irrational, right.
• 5:21
  Speaker 1: But this is where this gets interesting.
• 5:23
  Speaker 1: The allocation of investors to technology right now is a little overweight, but not very much, and it's, in effect, about 15% overweight.
• 5:44
  Speaker 1: So from where they normally are to where they are right now.
• 5:49
  Speaker 1: So normal would be like we are investing in every stock in every sector the same amount of money and you would think, in the kind of climate that we live in, that tech would be a little bit more, just because there's a lot of tech innovation in the last couple of decades and right now they're only putting 15%.
• 6:08
  Speaker 1: More of them, 30, 15% of people are putting more of their investors, are putting more of their money into tech and if you go into, say, 2020, that was almost 50%, something like that, 45% perhaps.
• 6:27
  Speaker 1: So right now it's only 15%.
• 6:30
  Speaker 1: And if you go into 2013 and 2014, 2015 and so on, we were all always around that 40% overweight mark.
• 6:37
  Speaker 1: So actually a lot more people out there could buy tech and they haven't.
• 6:43
  Speaker 1: Why haven't they?
• 6:44
  Speaker 1: Well, let's continue.
• 6:48
  Speaker 1: The other reason why people say big tech, the magnificent seven, can't possibly go any higher is that they're saying, well, they're overvalued.
• 6:59
  Speaker 1: Now the ultimate valuation metric in my book is what's your profit per share next year?
• 7:10
  Speaker 1: That's really how the market value stocks in the long run.
• 7:13
  Speaker 1: And in the short term we get excited about this tech and that CEO and this product and something shiny, and then short term.
• 7:20
  Speaker 1: But in the longer term we are looking at what are the future profits of this company.
• 7:26
  Speaker 1: And right now the NASDAQ, the tech index, has higher earnings per share, higher profits per share than the S&P, and therefore it makes sense to put more money into tech versus the S&P.
• 7:48
  Speaker 1: It's not financial advice, I'm just saying that is a logical conclusion and that's bullish big tech, because NASDAQ is largely big tech.
• 8:00
  Speaker 1: Now then people are saying and I can hear them shouting from the rooftops the PE ratio, which is just profit price of the shares divided by earnings, which is profits, is at 35 times.
• 8:16
  Speaker 1: So it would take 35 years of current earnings of these magnificent seven stocks to pay back what you're paying for the share.
• 8:28
  Speaker 1: So you might think that's quite a lot 35 years.
• 8:31
  Speaker 1: That's pretty quite a lot, isn't it?
• 8:32
  Speaker 1: But it depends on whether you think profits are going to go up in the future, because if they are, then that multiple is actually fairly irrelevant.
• 8:41
  Speaker 1: Now is 35 high.
• 8:43
  Speaker 1: Well, 35 is what we are right now.
• 8:47
  Speaker 1: In 2021, at the beginning of 2021, we were at about 53.
• 8:54
  Speaker 1: At the top of the 2020 bubble and I think that was a bubble we were at 57.
• 9:01
  Speaker 1: And before COVID, we were at about 52.
• 9:07
  Speaker 1: Now we're at 35.
• 9:09
  Speaker 1: So there don't actually seem particularly stretched these multiples right.
• 9:17
  Speaker 1: So again, bit of perspective.
• 9:21
  Speaker 1: And the next thing people should throw out at the magnificent seven stocks is they're saying there is resistance, there's lots of resistance and you hear me talk about resistance because I'm a trader and resistance matters but resistance doesn't mean it can't go any higher.
• 9:37
  Speaker 1: Resistance is used by short term traders like me who want to make money by next week.
• 9:44
  Speaker 1: We don't care about six months or 12 months out from the trading point of view.
• 9:48
  Speaker 1: I care about that for my long term stock portfolio.
• 9:51
  Speaker 1: And if you look at a chart of the magnificent seven and you look at the resistance areas that we've had, well, we've had quite a lot of can't possibly go any higher type ranges and therefore this is actually completely relevant.
• 10:10
  Speaker 1: Whether RSI says it's overboard or not doesn't matter in the longer term.
• 10:17
  Speaker 1: It only matters if you're doing trades in the next couple of days, maybe a week or two out.
• 10:23
  Speaker 1: So therefore, this is complete nonsense.
• 10:25
  Speaker 1: People say to you you can't possibly go any higher.
• 10:29
  Speaker 1: I think it's somewhat challenging to break up massively over the next week, but beyond that doesn't really tell you very much.
• 10:39
  Speaker 1: Now, the market was also completely wrong last year well, this year, 2023, saying interest rates are going to go up while they did, and therefore the big tech stocks should collapse.
• 10:53
  Speaker 1: And what happened is that from here, from early 2022, rates went to the moon and at the same time, the magnificent seven stock prices collapsed, something like minus 45%.
• 11:10
  Speaker 1: But what people were?
• 11:13
  Speaker 1: Why would that happen?
• 11:15
  Speaker 1: Because you're thinking well, now your financing costs are higher, your debt, you're going to have to pay more for it.
• 11:22
  Speaker 1: But if you look at what actually happened, companies like Apple sit on lots and lots of cash.
• 11:33
  Speaker 1: They'd issued their debt already when they didn't need it, which is the small thing to do at near zero interest rates, and their income from interest only went from near zero, I don't know 100 million a quarter or something like that, to almost a billion dollars right now a quarter.
• 11:55
  Speaker 1: That's Apple.
• 11:58
  Speaker 1: So Apple is like a bank they're making a billion dollars a quarter on the cash they're sitting on thanks to higher interest rates.
• 12:06
  Speaker 1: Interest rates, higher interest rates, have been glorious for companies like Apple.
• 12:10
  Speaker 1: You look at Mike at Amazon, for example same story.
• 12:13
  Speaker 1: They were making almost nothing, maybe 100 million a quarter from, and I mean nothing.
• 12:19
  Speaker 1: 100 million is obviously more than nothing, but you know, for Amazon this is not a lot, and now they're making something like 800 million dollars in a quarter on interest.
• 12:30
  Speaker 1: So actually they're enjoying the higher interest rates and so the market was kind of nonsensical on this.
• 12:37
  Speaker 1: But I said, it is off and these large stocks are also disappearing.
• 12:45
  Speaker 1: They are rarer than Bitcoin, and don't get me started on crypto.
• 12:52
  Speaker 1: I like the concept of blockchain, but I think a lot of these coins out there are a massive scam.
• 12:58
  Speaker 1: Not necessarily Bitcoin, but you know Bonkcoin, for example, with just up 18,000%.
• 13:04
  Speaker 1: Microsoft has been buying back its own shares, for example.
• 13:09
  Speaker 1: So in 2004, there were 11 billion Microsoft shares out there 11 billion.
• 13:17
  Speaker 1: Right now there are 7.5 billion, and so we've lost.
• 13:26
  Speaker 1: About what was that?
• 13:26
  Speaker 1: Two and a half, three and a half billion shares.
• 13:30
  Speaker 1: So we've lost 30% of shares.
• 13:33
  Speaker 1: That means the value of your shares have intrinsically gone up, and this is a trend that's continuing for all of these guys, while inflation is raging and debt is going through the roof and in everything else.
• 13:48
  Speaker 1: So another reason that's very supportive for these big guys.
• 13:57
  Speaker 1: Now, further argument is and we're gonna debunk them all here is that, well, november and December has been such a glorious rally it couldn't possibly go any higher.
• 14:07
  Speaker 1: The world is gonna collapse, the roof's gonna come down.
• 14:10
  Speaker 1: Well, if you look at the actual data, whenever we've had a November, december with a 10% gain or more, what happened to the next year?
• 14:22
  Speaker 1: Well, we go up about 20% on average.
• 14:28
  Speaker 1: The next year, 20% on average.
• 14:31
  Speaker 1: So, again, it doesn't mean that.
• 14:33
  Speaker 1: It doesn't mean you can't go higher just because you have.
• 14:37
  Speaker 1: The only reason you collapse is because something fundamental changes in the economy or the world, or profits collapse at companies, and at the moment, that doesn't seem to be happening.
• 14:50
  Speaker 1: Yes, there is a banking crisis, but the Fed will pour more petrol on it.
• 14:55
  Speaker 1: Sorry, stuff that puts fires out.
• 14:56
  Speaker 1: You know what I mean, but are we in a bubble?
• 15:01
  Speaker 1: Is it an AI bubble.
• 15:03
  Speaker 1: Is it a bubble where everything is just over exuberant and everything else?
• 15:08
  Speaker 1: Well, normally when you get bubbles, like in 1999, the, or in 2008, 2009,.
• 15:20
  Speaker 1: Quite a big section of the S&P goes up like doubles in a year.
• 15:30
  Speaker 1: In 1999, 8% of S&P stocks went up 100% plus.
• 15:36
  Speaker 1: In 2009, it was about 10%.
• 15:38
  Speaker 1: In 2023, it's only 2%.
• 15:41
  Speaker 1: And why does that matter?
• 15:42
  Speaker 1: It means investors are being selective on quality Rather than just going, oh, it's sort of tech, it must go up, which is what happens in a bubble, right, the junk goes up with it, and I said at the end of last year that this is going to be a stock pickers market 2023, and it's been very much a stock pickers market.
• 16:12
  Speaker 1: Buying the index hasn't worked and I doubt it'll work in the next 12 or 24 months, so learning to pick stocks is something that's really, really good to do.
• 16:23
  Speaker 1: We've got a couple of videos on that if you want to dive deeper into this.
• 16:27
  Speaker 1: Now, what else is good?
• 16:32
  Speaker 1: Inequality, and it's very sad that this is good news.
• 16:36
  Speaker 1: I know I laugh, but the top 1% of American earners now have more wealth than the entire middle class of the United States, and that's the first.
• 16:51
  Speaker 1: That has literally only happened for the first time just right now, in 2023.
• 16:56
  Speaker 1: And why is that?
• 16:58
  Speaker 1: Well, it's maneuvered that way.
• 17:01
  Speaker 1: The money printing has done it.
• 17:03
  Speaker 1: That's really what's done.
• 17:04
  Speaker 1: It's the inflation and the money printing that's done it Because the middle classes have been getting paid less and asset prices have tremendously gone up thanks to money printing.
• 17:14
  Speaker 1: So it's an engineered thing by Fed and government and you get the politics of it.
• 17:21
  Speaker 1: But what does it mean?
• 17:21
  Speaker 1: Well, now the 1% earn more wealth than ever and they're not as fickle.
• 17:28
  Speaker 1: They don't sell us quickly, they don't get spooked or panicked because, well, first of all, they hear about the news while they're on a yacht or having their foot massaged in Palm Beach or, you know, martha's Vineyard or someone like that, and you know, but in all seriousness, that they don't need to.
• 17:46
  Speaker 1: They don't need to access the capital If the markets could go down a little bit.
• 17:50
  Speaker 1: They're just like let's buy some more because I've got lots of money, because I'm at the top 1% of earners.
• 17:56
  Speaker 1: So this is actually in a weird way for us investors, supportive for the market, and I don't think it's a good thing overall, but yeah, it's a really really weird thing.
• 18:07
  Speaker 1: Now, how about?
• 18:10
  Speaker 1: There isn't any money around to buy more stocks because the Fed's shredding it all.
• 18:15
  Speaker 1: Well, yes, they are shredding money the fastest rate ever, but if you look at global fund flows over time and where it's gone, let's have a look from the beginning of 2023.
• 18:29
  Speaker 1: Let's do this this is the beginning of 2023 to where we ended the year.
• 18:37
  Speaker 1: Well, you can see that cash went up.
• 18:41
  Speaker 1: Let me measure this.
• 18:44
  Speaker 1: Cash was about a trillion dollars more, so about a thousand billion went into cash last year.
• 19:01
  Speaker 1: That money, as interest rates come down, would be expected to flow into bonds or stocks.
• 19:11
  Speaker 1: Now, bonds have had an inflow of something like 300 billion, something like that, and that would also be expected to start to flow out as interest rates go down.
• 19:24
  Speaker 1: And where would it therefore go?
• 19:26
  Speaker 1: Well, it would therefore go into stocks, who had actually not a particularly great year in terms of fund inflows.
• 19:33
  Speaker 1: So there is easily a trillion dollars or a trillion and a half lying around that could buy stocks next year.
• 19:39
  Speaker 1: And what are they going to buy?
• 19:39
  Speaker 1: A lot of them are going to buy index funds.
• 19:41
  Speaker 1: A lot of them are going to buy simply the S&P or the NASDAQ.
• 19:44
  Speaker 1: And what are the biggest components of those indices?
• 19:48
  Speaker 1: Well, it's the magnificent seven stocks.
• 19:51
  Speaker 1: That's why they're called magnificent, because they are the seven largest stocks.
• 19:55
  Speaker 1: So there's my little rant, and I want to encourage you to seriously make 2020 for the best year for your money ever.
• 20:06
  Speaker 1: I want it to be the year where your money starts to make more money than you bring in.
• 20:12
  Speaker 1: That's always the goal.
• 20:14
  Speaker 1: So make your money, be the bigger earner than you and, as a step in that direction, come and join me on the coming Wednesday, 3rd of January, and I'll teach you, for free, our trading protocol, our system that I use, how I trade one stock.
• 20:32
  Speaker 1: Only three rules 75% win ratio.
• 20:35
  Speaker 1: All you've got to do is grab yourself a seat at phoenixfrontorg slash webinar.