WEALTHTRACK How to handle signs of a bubble in quality stocks with influential newsletter editor Whitney Tilson.
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Aug 22, 2024 Whitney Tilson, an influential newsletter editor and former hedge fund manager, discusses troubling signs of a potential bubble in high-quality stocks. He highlights the risks of inflated valuations and shares strategies for investing in leading companies like Costco and Nvidia. Tilson offers fascinating insights into activist investing's impact on firms such as Nike, and emphasizes the importance of a disciplined, long-term portfolio strategy. He also draws wisdom from Charles T. Munger's teachings, illustrating the need for continual learning in the pursuit of quality investments.
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Quality Stocks Show Valuation Bubble
- High-quality companies have soared in valuation beyond their revenue and earnings growth.
- Tilson calls this a valuation bubble even though the companies themselves are not worthless.
Lock Partial Gains On Rich Winners
- Let winners run but consider selling a portion to lock gains rather than full exits.
- Use partial sales or trailing stops to protect against large drawdowns in richly valued winners.
High Multiples Can Doom Long-Term Returns
- Paying extreme multiples can destroy returns even if a company executes well.
- Cisco's 1999 peak shows earnings growth can't always overcome nosebleed valuations.