What caught my eye this week.
Last week I suggested we all remember that bear markets exist and we’ll see one again, so invest accordingly.
But we can invert this with a reminder that bull markets come and go, too.
It’s difficult to recall the pessimism of 2008 and 2009 today, after a 10-year bull run.
But it’s maybe even harder to remember how out-of-love investors were with technology companies.
One advantage of writing your own investing blog that offsets some of the disadvantages (work, trolls, looking silly in retrospect) is that it enables you to track your thinking.
Often this is embarrassing. Occasionally you get a signal that you’re doing something right.
I did vast amounts of reading when I began investing nearly 20 years ago. Real-life lessons are more valuable, though.
For instance, when I wrote about what I called the investor sentiment cycle back in 2010, I’d only seen a couple of sector-specific booms and busts – though I’d read about many more.
And it’s somewhat gratifying to extract the following snippet from that 2010 post today:
Dot come again
For a contrasting unloved sector, consider technology companies.
It’s hard to remember a time when half the office owned shares in nonsense companies like Baltimore, Webvan, and NTX.
Yet it was only a brief decade ago that the Dotcom stocks were doubling in a month on a good press release and a name change.
Today roughly nobody except institutional investors bothers with individual technology shares – yet the Nasdaq tech market in the US has been quietly beating the Dow and the S&P 500 for months.
Especially this bit further down:
Perhaps Facebook or Twitter will float for what will seem a crazy valuation, but will look positively modest a few years later.
Keen observers of the market may know that Facebook did float at $38 a share in 2012, and many pundits thought it was overpriced.
Indeed the shares plunged below $20 a few months later on fears that Facebook would not be able to capitalise on smartphone advertising.
That seems ridiculous now, particularly when you look at Facebook’s share price.
As I write its shares are up more than ten-fold from that low, at $211.
Tech tock goes the clock
Today’s investors (to some extent me included) can’t get enough of growth and tech names.
There are good theoretical reasons for this, in a low interest rate world. (See point #10 in my post on low interest rate investing issues).
But it’s surely also true that we’re happy to hold tech shares at high valuations because they’ve shot the lights out over the past ten years. Facebook is now a $600bn company, and four US tech companies in the US are valued at over a trillion dollars each!
Will this continue?
Yes – until it doesn’t.
“Trees don’t grow to the sky”, as the old-timers used to say.
I’m not going to speculate here about when the very real potential of technological disruption is sufficiently priced-in, or whether the future will disappoint us.
But I will remind everyone again that these things move in long cycles.
Not for spooky reasons. Rather from a combination of economic reality and sentiment.
For example, emerging markets just hit a 16-year low relative to US stocks, as shown in this graphic from All Star Charts.
I would – and as an active investor probably should – bet that the slope won’t look that way in 2030.
For passive investors, it’s an umpteenth reminder to stay diversified across geographies, sectors (i.e. own the market) and not to get distracted by fads.
For naughty active investors, it’s a warning to stay aware. (And maybe to become a passive investor if your edge is simply that you own a lot of tech shares… )
Have a great weekend!
The title is a quote from Horace. But you knew that.
Why I’m not scared of my interest-only mortgage – Monevator
From the archive-ator: How gold is taxed – Monevator
Note: Some links are Google search results – in PC/desktop view you can click to read the piece without being a paid subscriber. Try privacy/incognito mode to avoid cookies. Consider subscribing if you read them a lot!1
The Body Shop will start hiring the first person who applies for any retail job – Fast Company
Pound jumps after Sajid Javid storms out of No.11 and is replaced by Rishi Sunak – ThisIsMoney
House prices rise across UK for first time since July 2018 – Guardian
US investors’ move to indexing means the average dollar invested beats the average fund – Morningstar
“She was beautiful, funny, and she scammed me…” – BBC
Failing to protect nature could cost UK economy £16billion a year says World Wildlife Fund – ThisIsMoney
Ranked: The social mobility of 82 countries – The Visual Capitalist
Products and services
NatWest unveils a bumper £175 bank account switching offer – ThisIsMoney
An overview of country specific and regional investment trusts – IT Investor
German digital bank N26 pulls out of UK, blaming Brexit – Guardian
RateSetter will pay you £20 [and me a cash bonus] within 30 days of you putting in your first £10… – RateSetter
…while Zopa will pay you £50 if you invest £2,000 [and give me a cash tip, too] – Zopa
City penthouses for sale [Gallery] – Guardian
Comment and opinion
The Getting Rich Quadrant – Safal Niveshak
Nobody told me – Humble Dollar
The wealth gap: how changing fortunes tear close friends apart – Guardian
Some thoughts about young people getting into day-trading – A Wealth of Common Sense
Finance and Instagram: What’s not to like? [Search result] – FT
What if my broker goes bust? – Finimus
Not-so-great expectations: The curse of high expected returns – Daniel Egan
Fighting complexity – FireVLondon
How will the novel coronavirus affect your portfolio? – Of Dollars and Data
Illusion of progress – Indeedably
The choice of success – The Simple Dollar
A (not so) brief history of the value factor – OSAM
Hedge funds floundering mini-special
Hedge funds have (almost) never delivered on their risk-mitigation promises – Institutional Investor
Still, five hedge fund heads made more than $1billion last year… – Yahoo Finance
…but hedge fund ‘Masters of Mayfair’ are no more, says Man chief [Search result] – FT
Naughty corner: Active antics
The coming green bubble – The Macro Tourist
The secret of stock picking – The Irrelevant Investor
Why you should hunt around for boring investments – Collaborative Blog
Beyond Meat, post-barbarianism: Reasons to invest vegan – Bennallack
ICOs make IPOs look good – Klement on Investing
What would you put in a 100-year portfolio? – RCM Alternatives
The primacy effect on trading and investing decisions – Price Action Lab Blog
The Warner music IPO and the case for investment in music – The Lefsetz Letter
Politics and Brexit
Michael Gove confirms post-Brexit trade barriers will be imposed – Guardian
Home Office tells 101-year old man Italian applying to remain in UK that his parents must confirm his identity – MailOnline
Kindle book bargains
Bitcoin Billionaires: A True Story of Genius, Betrayal, and Redemption by Ben Mezrich – £0.99 on Kindle
Zero to One: Notes on Start Ups, or How to Build the Future by Peter Thiel & Blake Masters – £1.99 on Kindle
Hit Refresh: A Memoir by Microsoft’s CEO by Satya Nadella – £1.99 on Kindle
Secrets of the Millionaire Mind: Mastering the Inner Game of Wealth by T. Harv Eker – £0.99 on Kindle
Off our beat
Kombucha slime is an edible solution to the world’s plastic problem – One Zero
All your favorite brands, from BSTOEM to ZGGCD – New York Times
Bats carry many viruses. So why don’t they get sick? – NPR
World population: 2020 overview – Yale University
You are not, and never will be, Anna from This Life – The Guyliner
“Ironically, a crash at the beginning of your investing life is a gift. In fact, any pullback in stock prices is a gift while you are in the process of accumulating your wealth.”
– JL Collins, The Simple Path to Wealth
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