Tilson: S&P 500 Is A Handful Of Big Tech Names and some are cheap
Gates Capital Management's ECF Value Funds have a fantastic track record. The funds (full-name Excess Cash Flow Value Funds), which invest in an event-driven equity and credit strategy, have produced a 12.6% annualised return over the past 26 years. The funds added 7.7% overall in the second half of 2022, outperforming the 3.4% return for Read More
Actually I guess your question supposes because they've taken on the chin. Why would I remain bullish is precisely because they've taken it on the chin rise wore off. You know I put my kids college accounts in those three stocks plus a bunch of Berkshire Hathaway and some Howard Hughes. And this is not a short term call it was actually sort of my buy and forget about a portfolio. But just yesterday I was talking to my parents. They're making some decisions with their retirement portfolio and I'm putting them in the same five stocks. So this is a multi-year call I think these three big tech stocks are long term winners. The fact that they're down quite a bit is just makes it a more attractive entry point here.
So some of the cases against big cap tech names antitrust concerns you've got digital tax proposals in places like the U.K. right now. You've got China and trade headwinds rising rates of those bother you.
All of them are factors to consider. But I think long term they're winners and their valuations have actually come down to you know Facebook and Google net of cash. You know if you look one year out on earnings they're sort of trading at 20 times earnings maybe Amazon's a little bit harder you got to look a few years more out to two to look at an earnings multiple there but you know these insanely great companies with a lot of growth left in them trading a little bit premium to the S&P 500 multiple.
These tech companies are massively better quality businesses with massively more growth opportunity than the average company in the S&P 500. Strikes me as pretty attractive long term. I make no near term calls here.
OK. And Larry last month you had actually said that you didn't expect that the. Outperformance we've seen in some of these bank stocks to continue given the correction we've seen in some of these shares over the past month. Is this what you anticipated or do you think there's more pain from here.
Sure. Look there's no doubt we're seeing a Halloween rally here and that Halloween rally is driven by investors embracing their fear. And you're looking past some of the spooky headlines about tech earnings about China trade about rising rates about a slowing economy in general and I think that's a good thing.
Look we came into October with too much of a sugar high pulling forward too much good news. And now that's dissipated it's gone out. But I also think what's really relevant here is this idea of divergence where you could have one segment one small segment of the economy doing so well and the rest of the world doing poorly turned out to be a fairy tale and the market is correcting that.
There's so much more to this economy than a handful of big tech names. You know the S&P 500 which is what investors have been embracing and buying recently as they worry about a bond bubble turned out not to be the S&P 500 turned out to be a handful of tech names that were driving the market averages.
So it was the wind come out of there. It was overdue and in some cases it is overdone. So there's an opportunity here. You know in basketball terms it's a jump ball the sugar high is gone right. And we can start to look for some opportunities because there are more treats than tricks through the end of the year for investors who can have a strong stomach.
Larry you putting all big tech in the same basket though. I mean we call it tech but Apple's business is very different from Amazon's business is different from Netflix. Do you think that sentiment has gotten out of hand equally on all of those. Or might there be some so-called tech names that actually are acting more like value than some others.
Sure. Look again everybody's afraid of something right. And I think a little bit of fear is a good thing that prevents us from doing something really irrational or something really responsible. Something we'll regret later and if we look at technology unfortunately many of them were trading as the basket because the irresponsible indexing when you buy an index fund you don't get a handbook you don't get a rule book that tells you what to worry about how to use it. And unfortunately investors have embraced it as a basket approach. They shouldn't have.
should be doing more due diligence. They should be doing more stock specific research. They should be looking at valuations where their opportunities look if you really really really want to get ugly with tech. What do you buy Chinese tech. A lot of the companies like Alibaba Tensei are doing business the United States doing business globally.
that stuff is still out of favor. So you can't generalize on tech. I think it is a company specific approach and hopefully towards the end of the year investors will realize that and they won't treat them as the basket because they have individual qualities different leadership different earnings trajectory and different cyclicality.
So that's going to be hard to unwind the wave of passive investment that we have had. I wonder how I mean we had this talk earlier this morning does that make you. Despite all the good things you're saying about Google in Space or does that make trading harder structurally harder.
Yeah well look the last 10 years have been hard for value investors because we've been in a pretty complacent steadily rising bull market. I've been waiting for some turmoil some opportunity to get into high quality companies that are down 20 30 sometimes more than 30 percent. So getting an opportunity on some super high quality companies you know that's what I try and do buy high quality businesses when there are short term hiccups and short term turmoil when I'm convinced the long term story is still intact.