Good reads from around the Web.
The shares of high-flying tech firms – particularly the so-called momentum names that typically sport punchy earnings multiples – have been pummeled in 2014.
Friday alone saw shares in Amazon fall around 10%, LinkedIn and Twitter drop 8%, and the recent UK tech float AO Online languishing below its IPO price.
The latest bear to come out to call a tech bubble is famed hedge fund manager David Einhorn, who has told his investors that their fund is now shorting a basket of “cool kids” stocks.
Not everyone agrees. The following podcast (via Abnormal Returns) features a variety of veteran investors and VCs picking apart this bubble talk. While everyone on it is biased – they are all investors in high-tech companies – they are well informed, and I think it’s worth a listen if you’re an active investor.
(If you’re a passive investor in the broad indices, I don’t think you need to worry about this bubble talk. For a start, getting to ignore speculation is a big perk of passive investing. But even if there is a bubble, I agree it’s almost certainly concentrated in a handful of stocks in the tech and biotech sector).
Being the contrary sort I am, I’ve actually been having a nibble on a few of these dumped tech shares – ones that I think have a decent moat, massive market size potential, and a visible path to big profits.
Almost certainly I’m doing so too soon, and it’s only with a small amount of my funds.
The bigger story over the next few years – and the bigger profit potential – is more likely to be the outperformance of value shares versus growth shares. I mentioned this in late summer with respect to European shares, and so far it’s panning out (although Ukraine could derail things).
It seems counter-intuitive, but value shares tend to do better in growing economies than growth. The reason is that profits are easier to come by when the economy is expanding, and the debt and shonky old factories and the like that are owned by value-style companies are much less of an albatross.
As an active investor I’m finding the markets much more interesting this year – and much harder to make headway in.
Everyone is a genius in a bull market, and it was easy to feel like the Einstein of active investing in 2013.
So far 2014 has been giving out a lot of ‘C’ grades to active investors like me.
From the blogs
Making good use of the things that we find…
Passive investing
- Busting the “stock picker’s market” myth – Rick Ferri
- How to measure a fund – Maven Capital
- Cookie-cutter portfolios are fine [Ignore the US tax bit] – Oblivious Investor
Active investing
- Risk management in a small cap portfolio – Paul Scott/Stockopedia
- Beware of distorted earnings per share – Investing Caffeine
- The case for talking to management – Oddball Stocks
- Why aren’t there more value funds? – A Wealth of Common Sense
- Is the FTSE cheap or expensive? A second look – UK Value Investor
- Another way to look at (US) market valuation – Millenial Invest
Other articles
- How to best use your ISA – Under the Money Tree
- World GDP over the ages [Fascinating graph!] – Above the Market
- Frugal yet fancy homebrewing – Mr Money Mustache
- One thing you learn fast when you quit the 9-5 – Raptitude
Product of the week: Hitachi Personal Finance has launched a personal loan charging as little as 4.3% over two to five years. ThisIsMoney wonders if this is as low as loans can go?
Mainstream media money
Some links are Google search results – in PC/desktop view these enable you to click through to read the piece without being a paid subscriber of that site.1
Passive investing
- Do nothing to be a more successful investor – Amster-Burton/Mint
- Corporate bonds likely aren’t worth the extra risk – Swedroe/ETF.com
- An interview with Vanguard’s CEO – USA Today [Via Mike]
Active investing
- A contrarian would buy Russia, Argentina, and Greece – MarketWatch
- Panic trading boosts owner of the Russian stock exchange – Quartz
- What we might expect from the US market from here – Washington Post
- Why investors love hedge funds – Bloomberg View
Other stuff worth reading
- How buy-to-let returns have beaten all other assets – Telegraph
- Homebuyers face increased scrutiny as new rules kick in – Guardian
- The black economy in the Internet age [Search result] – Merryn/FT
- An interview with Michael Lewis, author of Flash Boys
– WIRED
- How realistic is it to say you’ll never retire? – Vernon/CBS
- The surprising debt capital of the UK: Bath – BBC
- What you need to know about Big Data – Institutional Investor
Amazon plug of the week: I love Amazon Prime, its free delivery membership service that essentially turns you into a reigning monarch, clicking your fingers to whisk you anything you desire. That now includes over 15,000 free streamed films and TV episodes. Go check it out.
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- Reader Ken notes that: “FT articles can only be accessed through the search results if you’re using PC/desktop view (from mobile/tablet view they bring up the firewall/subscription page). To circumvent, switch your mobile browser to use the desktop view. On Chrome for Android: press the menu button followed by “Request Desktop Site”.” [↩]
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“Corporate bonds likely aren’t worth the extra risk”: very useful indeed. Thank you.
I wonder whether it applies to Convertibles?
You’re welcome. In my view the other issue besides not being rewarded versus Government bonds is that at times when corporate bonds are attractive (such as early 2009), stocks likely offer even better risk-adjusted returns going forward. (Because such times are usually very dire looking).
Convertibles are incredibly complicated investments to properly value, masquerading as corporate bonds with upside. Some dedicated managers may do well with them, but then you’re into paying for active management and all those issues.
Hi – did you see the Business Boomers programme on BBC 2 this week about Amazon? It was jaw dropping at times. The UK pair who were tracking prices on there and buying cheap stuff locally to sell at a profit at the right time were a good example of spotting an opportunity and exploiting it – something I never have been able to do.
The consumers word was used a lot!
Describing so.com as a tech stock isn’t really fair to – well, tech. It’s a retailer, pure and simple. It happens to do all it’s business online, but it is just currys without the stores, not ARM.
You could also argue about amazon and so on (logistics?) but anyway.
Pretty much everything I invest in non-tech comes about from me diversify out of tech shares that have done well. However, I don’t buy into the “household names”, and tend to regard a company becoming well-known and/or getting onto the big board as being a good signal that I ought to be selling.
I’m not sure why people get so giddly about technology that they forget the fundamentals of investing with “buy what you know” being the most important of these.