The stock market has had a dizzying run since the 2008 Financial Crisis. The Dow Jones Index is up 400%+ since then, thanks to multiple rounds of stimulus measures designed to boost the economy.
While it certainly did help to pull us out of the depths of a large recession, recently it seems that the only way to generate some cash is to put the money in the stock market. Anything remotely related to Technology seems to be on a one way march up.
Tesla, stock ticker TSLA. From August 2019 where the price was around USD 45 per share, Tesla has shot up to 846.00 at a price earning ratio of 1,618.00. That is a dizzying valuation that shows no signs of dropping.
Similarly Amazon (AMZN), Facebook (FB), Microsoft (MSFT), Google (GOOG) and other technology companies have seen their valuations sky rocket despite the pandemic where the reliance on technology and remote working has given their stocks a boost.
The traditional pay for actual historical performance valuation model has given way to expected earnings and fundamental shifts in perceived competitive advantage. Thousands of new startups are able to find capital through the Private Equity and Venture Capitalist investors that are betting on a tiny fraction of their bets hitting the big jackpot. And with interest rates close to 0% around the world the party is not expected to end soon.
The market seems to send a very strong message – do not look for profits, just grow at all costs and get to a sizeable user base and the profits and market valuations will follow. There will be a long queue of investors to snap up the equity at ever inflated values.
While the last 12 years have certainly held true for that philosophy, nothing lasts for ever. No monopoly continues to exist forever and there will be new disruptors to eat the current tech giants cake.
There is a saying, you make money at when you buy at the right price, and lose money when you sell below your cost. Do not be the last one holding the bag. In this game of musical chairs, make sure you find your seat quickly…because the last man standing is the one that leaves the game…
Warren Buffet famous words – be greedy when others are fearful and fearful when others are greedy. Wise words indeed.
Are markets indeed in a bubble. One will only know when we hear the sound of bubble popping. Until then…get your money for nothing!!!