What caught my eye this week.
The speculative stock sell-off I flagged up at the start of December has started to chip away at the markets more widely.
The US Nasdaq index is more than
10% 14% off its highs.
Several mega-cap tech shares – a big chunk of the US indices, and hence a meaningful stake in global tracker funds – are down about the same, too.
Microsoft and Meta (née Facebook) are 10-20% off their highs. The biggest, Apple, is getting there.
And ‘FANG’ stock Netflix1 plunged more than 20% overnight on earnings suggesting pandemics don’t last forever and growth is slowing hard.
Other former blue-sky high-fliers have already lost more than three-quarters of their value.
The first cut is the cheapest
So far the declines only amount to about a 6% drop in a global tracker fund, from a UK perspective.
Pretty piddling. Could it get worse though?
Who knows – but veteran investor Jeremy Grantham is sure it will.
Today in the U.S. we are in the fourth superbubble of the last hundred years.
Previous equity superbubbles had a series of distinct features that individually are rare and collectively are unique to these events. In each case, these shared characteristics have already occurred in this cycle.
The checklist for a superbubble running through its phases is now complete and the wild rumpus can begin at any time.
Read Grantham’s entertaining note for more, including graphs like these:
As Geralt Grantham sees it, the bottom-right corner is about to get… interesting.
Now, you should know that Grantham has been calling the US overvalued for years. In 2013 Grantham foresaw the market going 20-30% higher before crashing. He’s been using the word ‘bubble’ since at least 2014.
Timing is the perennial curse of those who’d oppose a runaway market – but eight years is still a long time to claim you weren’t wrong but early.
With that said, anyone who lived through the Dotcom bust will recall the pattern of the frothiest stocks falling first.
We’ve seen sufficient crazy madness over the past two years to tick Grantham’s ‘euphoric’ box, too.
Add rising yields (even in Germany), expectations of rate hikes in the US – roiling growth stocks and government bonds alike – and a flattening yield curve, and Grantham might have all the ammo his bubble-bursting needs.
Steady as she goes
Naughty active investors (like me) will act as we see fit, for good or ill.
Wiser passive investors shouldn’t panic. Not least because they’ll probably do better than most active types just by sticking with their plan.
Think how often our Slow & Steady portfolio updates begin with The Accumulator shrugging off some brouhaha, then detailing further gains.
As Aswath Damodaran – dubbed Wall Street’s ‘Dean of Valuation’ – conceded this week even as he calculated stocks were 10% overvalued:
If you look at history, it seems difficult to argue against the notion that market timing is the impossible dream…
The most important thing is to have a well-constructed, diverse portfolio.
You could have owned almost anything up until late 2021 and seen it go up.
Everyone is a genius in a bull market.
In a bear market we all feel like idiots. Crashes come with the territory of investing, but don’t make it harder on your future self than it needs to be.
Put yourself in a position to hold – and ideally buy more – in a slump.
For now: have a great weekend![continue reading…]