Do you sense a Sector Bubble?
Discussion
Older investors on here will remember the excitement of 1998 and 1999, subsequently known as the dot com bubble.
Put dot com in a startup company name, have some involvement in technology, then go for an IPO to raise money.
So many people wanted to buy those shares, even experienced professionals using their client's money.
The clues/warnings at that time (to suspicious investors), was these were all young loss making firms and the flotation valuations were astronomic.
I did not join in any of those 'opportunities', so my overall portfolio performance lagged while that frenzy was going on. Tech share prices were rising and I was not part of it. Even the BT share price rose strongly during that period.
However, when the party finally stopped and the 'gamblers' sold in panic (if the administrators became involved first, nobody could sell anyway), traditional and defensive shares regained popularity and I was OK again.
I have not njtaken a close interest in the new US electric vehicle companies, but instead of dot com, do you think EV is a new sector bubble?
The Rivian business was listed late last year at a price of $78. The stock climbed as high as $172, giving the company a market value of more than $100 billion. That was more than Ford Motor Co. and General Motors combined !
Possibly the value of all these new EV businesses can only be justified, if all the 'old guard' car manufacturers go bust.
Have Rivian begun customer production yet? Is it true that they are contracted to supply the first 100,000 EV vans to Amazon, whereas Amazon have an option to cancel ?
How many new EV vehicle manufacturers are now listed ?
This investment sector is not for me.
As I've harped on about before, the spreads between value and growth were at near-record levels, so I'd argue it's a much broader issue than one or two companies having lumpy valuations.
https://www.aqr.com/Insights/Perspectives/Thats-it...
You can see what a difference we've had this year
https://www.institutionalinvestor.com/article/b1wp...
https://www.aqr.com/Insights/Perspectives/Thats-it...
You can see what a difference we've had this year
https://www.institutionalinvestor.com/article/b1wp...
Derek Chevalier said:
As I've harped on about before, the spreads between value and growth were at near-record levels, ....
Thank you Derek.
Fortunately, the shares I originally selected (decades ago) have allowed me, so far this year, not worry about the 'spreads between value and growth'.
In fact, I don't know what that means. I try to keep things simple and only study businesses, not market behaviour patterns.
The 2022 upward motoring has still continued.
Last Friday's YTD score was, up 16.62% incl. divs received so far (All-Share Index; down 0.54%) (100 Index; up 2.17%).
Shell is now in second position (+33.9% plus one quarterly 24c dividend).
It is fun to wallop the Index, but as always with markets, nobody can tell what is going to happen.
Perhaps the London opening on Tuesday, might reflect Wall Street's fall last Friday. We will find out, but I need to see a significant market fall before starting to think about any purchases. Such opportunities do not occur very often. 1987; 2000 to 2003; 2008 to 2009; 2020. I gave away my March 2020 purchases as gifts. The recipients should be pleased now with their value gains, but they are too young to know.
Something like half of NASDAQ constituents are down by at least 50% from their all-time highs.
Go look at what the constituents of the likes of ARKK have done.
Depends when you got in and when (or if) you got out but bubble or violent re-rating feels a bit like semantics when you're down that sort of money.
Go look at what the constituents of the likes of ARKK have done.
Depends when you got in and when (or if) you got out but bubble or violent re-rating feels a bit like semantics when you're down that sort of money.
The buyers of these hopeful businesses have learned the hard way then.
They cannot have been relying on much practical investment experience. Simply carried away by the excitement of the moment.
There is another problem, as happened during the dot com bubble. Out of say several hundred new-start high tech fledgling businesses, perhaps one might become a future big timer. The chance though of picking that one is very slim. Best to give temptation a pass.
Bubble events remind me of something Charlie Munger often says.
"We like to remain in the market very long-term and the reason we have grown rich, is because we are competing against idiots."
There is usually a deeper meaning though, than his one liners portray.
When a start-up EV manufacturer, briefly achieves a market value more than Ford and General Motors combined, but reports delivering only 1,000 vehicles in 2021, investors might need to reach for the worry beads.
Here is a game for you.
Play - Pick from this list of quoted EV companies, the business which will have the highest market value in 2040.
vulture1 said:
Last year when the s and p was hitting new highs people were all saying is this a bubble are we in a bubble, especially with the EV stuff. they were also saying you never know you are in a bubble until after it pops and is on the way down. Kinda like now.
The point which you mention, of course makes it far more difficult for businesses with falling share prices, to raise additional capital.
During the early years of start-ups, when profitability is non existant, cash is obviously needed to keep the show on the road. Investors can lose all that they have put in, under those circumstances.
Jon39 said:
The buyers of these hopeful businesses have learned the hard way then.
They cannot have been relying on much practical investment experience. Simply carried away by the excitement of the moment.
There is another problem, as happened during the dot com bubble. Out of say several hundred new-start high tech fledgling businesses, perhaps one might become a future big timer. The chance though of picking that one is very slim. Best to give temptation a pass.
Bubble events remind me of something Charlie Munger often says.
"We like to remain in the market very long-term and the reason we have grown rich, is because we are competing against idiots."
There is usually a deeper meaning though, than his one liners portray.
I almost got burnt myself with some of the racier Baillie Gifford stuff.
Some of these stocks are down 60-80% or more and they're still trading at very high multiples.
Just grim if you're in them.
Jon39 said:
Bubble events remind me of something Charlie Munger often says.
"We like to remain in the market very long-term and the reason we have grown rich, is because we are competing against idiots."
There is usually a deeper meaning though, than his one liners portray.
https://www.cnbc.com/2022/04/30/warren-buffett-rip...
"“We have people who know nothing about stocks being advised by stock brokers who know even less,” "
It is tough to avoid though. 2 years a year ago looking a zoom , beyond meat , palinter rocketing up while my p and G plodded along up maybe 10%. You start to think did I do wrong? Then they all tank 80/90 % and you still have all your value plus a couple of dividends and realise that it was right all along.
Boring is the way to make money
Boring is the way to make money
I don't think there's any more evidence than the recent that (most) tech had indeed become overvalued. It was in a bubble, and if I was exposed heavily to it today I would be concerned. The difficulty going forward is picking the tech companies that will buck the trend, grow into companies worth investing in. I'm certainly not smart or savvy but my gut instinct felt it coming back end of last year and so I started adjusting my portfolio from mid-Jan this year - or to be precise it was the day after the first Netflix negative reporting - to me that was the first wake up call
Phooey said:
The difficulty going forward is picking the tech companies that will buck the trend, grow into companies worth investing in
I would suggest the difficulty is accepting that neither you, or anyone you have access to, is going to be able to do this consistently. Fortunately, successful investing outcomes are unlikely to require this skill/ability.It would seem as if parts of the EV chain were in a bubble but putting Tesla to one side a lot of this has deflated, that is not to say that it can't fall further nor are values back to correct levels.
The issue is where one sits in this whole thing, a long term investor, Speculator or trader, how anyone makes money even semi consistently short term trading is beyond me.
I can say that speculating on sections of this market can be very profitable, again excluding Tesla, the EV vehicle stocks have been a minefield but small cap miners can offer insane returns but many many busts along the way. There is no point in my opinion taking a tip from somewhere on a small cap miner and thinking it is anything other than random luck if it goes your way, except of course if it got momentum but hang around too long and you'd be back to the beginning or worse.
As for Arkk, I saw an amazing piece on how it was numerically impossible for all the people who claim to have done well out of it as it had something like $20m assets in 2016 ( i can't recall exact figures) but from low to high, only the smallest proportion of investors could have been involved, the rest bought in on the very fast up.
The market based on history should over the longer term see one right but living through drawdowns or no growth is easy on a chart but not so easy in real life.
The issue is where one sits in this whole thing, a long term investor, Speculator or trader, how anyone makes money even semi consistently short term trading is beyond me.
I can say that speculating on sections of this market can be very profitable, again excluding Tesla, the EV vehicle stocks have been a minefield but small cap miners can offer insane returns but many many busts along the way. There is no point in my opinion taking a tip from somewhere on a small cap miner and thinking it is anything other than random luck if it goes your way, except of course if it got momentum but hang around too long and you'd be back to the beginning or worse.
As for Arkk, I saw an amazing piece on how it was numerically impossible for all the people who claim to have done well out of it as it had something like $20m assets in 2016 ( i can't recall exact figures) but from low to high, only the smallest proportion of investors could have been involved, the rest bought in on the very fast up.
The market based on history should over the longer term see one right but living through drawdowns or no growth is easy on a chart but not so easy in real life.
DaveA8 said:
how anyone makes money even semi consistently short term trading is beyond me.
It's relatively straightforward 
, all you need is:1. Huge computing power
2. Exceptional mathematical ability/stats, machine learning etc, market knowledge
3. Some leverage
But most importantly, plenty of "dentists"/day traders/punters on the other side of the trade attempting to do the same thing but failing miserably (to take money from).
https://blogs.cfainstitute.org/investor/2020/05/01...
DaveA8 said:
As for Arkk, I saw an amazing piece on how it was numerically impossible for all the people who claim to have done well out of it as it had something like $20m assets in 2016 ( i can't recall exact figures) but from low to high, only the smallest proportion of investors could have been involved, the rest bought in on the very fast up.
Maybe this one?https://www.morningstar.com/articles/1071658/arkk-...
DaveA8 said:
The market based on history should over the longer term see one right but living through drawdowns or no growth is easy on a chart but not so easy in real life.
Yep, the puzzle of the missing billionaireshttps://www.youtube.com/watch?v=R_7ngg3Jubw
Derek Chevalier said:
As you know Derek, I certainly agree with the very long-term strategy being described.
Did you notice the low number of YouTube views, over about 4 years?
There are a couple of aspects though, which I thought were stretching matters quite far.
We are now of course in a position of having a big advantage, looking back at the market performance over that entire 120 year period and knowing the outcome.
Imagine putting £1million into the market in 1900, then encountering 1929 and the 1930 to 1950 period.
That surely would test everyones confidence to continue staying in.
Secondly, expecting the fund to contunue to be spread amongst all of the descendants. After paying death duties (if applicable at the time), then assuming none of them wanted to spend any of their inheritance, does seem rather theoretical.
A good lesson overall though, regarding the philosophy.
Jon39 said:
Did you notice the low number of YouTube views, over about 4 years?
People (think they) want investment market/share commentary, which is the hot fund to buy, and how to adjust their portfolio depending on market conditions.
Jon39 said:
Imagine putting £1million into the market in 1900, then encountering 1929 and the 1930 to 1950 period.
That surely would test everyones confidence to continue staying in.
NowWatchThisDrive said:
I'm often intrigued by the mystique around quant hedge funds, and places like Renaissance in particular. I reckon most people who are interested in this sort of thing and have a reasonable understanding of markets and statistics would be a little underwhelmed if you showed them what happens "under the hood". Conceptually, most quant HF strategies aren't that hard to understand in the financial or scientific sense - you don't need a CFA charter or a PhD in astrophysics to get your head around them - and could be run manually if you had enough neurons, arms and legs. The sophisticated techniques, and the edge, are to be found in automating and industrialising that process of ingesting every kind of noisy, unstructured data imaginable, cleaning and processing it, and sifting through it to find actionable signals - all at levels of scale and efficiency that mean the data themselves, and the fundamental basis for whatever correlations are observed, are essentially an abstraction.
I never invest in anything which I don't fully understand, and as you have lost me in your first sentence, I am duly warned. -
I spotted this on the internet, which of course means we have no idea whether it might be true.
According to the stock platform Etoro, they found that a whopping 80% of day traders lose money over the course of a year with the median loss of -36.30%! It's no surprise more than 75% of all day traders end up quitting within just two years.
Introduce some leverage for magnification to that, and the results might become quite interesting !
b
hstewie said:
hstewie said:Jon39 said:
The buyers of these hopeful businesses have learned the hard way then.
They cannot have been relying on much practical investment experience. Simply carried away by the excitement of the moment.
There is another problem, as happened during the dot com bubble. Out of say several hundred new-start high tech fledgling businesses, perhaps one might become a future big timer. The chance though of picking that one is very slim. Best to give temptation a pass.
Bubble events remind me of something Charlie Munger often says.
"We like to remain in the market very long-term and the reason we have grown rich, is because we are competing against idiots."
There is usually a deeper meaning though, than his one liners portray.
I almost got burnt myself with some of the racier Baillie Gifford stuff.
Some of these stocks are down 60-80% or more and they're still trading at very high multiples.
Just grim if you're in them.
https://twitter.com/jeffbezos?lang=en
"Bill is without doubt one of the smartest people I know and always worth listening to. Most people dramatically underestimate the remarkableness of this bull run. Such things are unstoppable … until they aren’t. Markets teach. The lessons can be painful."
In reply to Bill Gurley's post
"An entire generation of entrepreneurs & tech investors built their entire perspectives on valuation during the second half of a 13-year amazing bull market run. The "unlearning" process could be painful, surprising, & unsettling to many."
"Previous ‘all-time’ highs are completely irrelevant. It’s not ‘cheap’ because it is down 70%. Forget those prices happened."
Fortunately, Wall St analysts are still positive
https://fortune.com/2022/05/02/amazon-earnings-buy...
"In fact, the vast majority of banks still have a “buy” rating on Amazon’s shares, with only 3 out of 52 Wall Street analysts holding a neutral or negative rating, "
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