What caught my eye this week.
For the past few years, being an investor in disruptive growth companies has been easy.
There’s been the odd hiccup – a tantrum in late 2018, and of course March 2020 when everything not nailed-down was sold in a panic.
But mostly, you just got richer every week.
Perhaps the biggest challenge this cycle was seeing your go-go shares only rise 5% in a month, while some meme stock jumped 300% and a crypto asset you’d never heard of rose 10,000%.
Bull markets don’t just make everyone (seem like) a genius.
They make greedy geniuses, too.
But investing in shares on ever-higher valuations is a game of chicken.
Even if you’re a fundamentals-based investor (like me, la-di-da) who buys into businesses, not stock charts, the market will eventually call your bluff.
You may own firms with fabulous futures, but one day they’re going to look about as appetizing as chlorinated chicken sounds. They will be tossed overboard indiscriminately.
The greatest multi-bagging companies – Tesla, Amazon, Apple – saw their value plunge 50-90% on their way to trillion dollar valuations.
It’s a matter of when, not if.
Under pressure
Friday was one such day. Which was remarkable, because Thursday had already seemed like one such day.
I’d actually messaged The Accumulator a screenshot from my portfolio tracking spreadsheet on Thursday showing how much the growth portion of my sprawling portfolio had been roiled.
But then came Friday, which guffawed: hold my beer.
Not one but two of my shares fell more than 25% on Friday. The worst was down 40%. Many of the rest were down at least 5%.
And we’re not talking tiny fly-by-night stocks. My biggest plunger, Docusign, was worth more than $50 billion a month ago.
Here’s how a random selection of growth companies fared last week:
Of course all of these companies – with the arguable exception of Meta (nee Facebook – have looked super-pricey for the past couple of years.
And there’s a definite ‘de-digitalization’ theme among the companies that have been faring especially badly.
Even as Omicron has loomed, the so-called work from home stocks that were winners in the locked-down world have proven too pricey for some tastes. Especially with higher interest rates on the way.
I wrote last month about how inflation expectations have been getting stickier all year. That had suggested Central Banks will need to tighten financial conditions sooner or more severely – or both. And that’s potentially bad for growth stocks because of the impact on discounted cash flows that I flagged up a few years ago in discussing the problems with low interest rates.
Twelve months ago, fanciful commentators were opining that paying multiples of 50-times a company’s sales (that’s revenue, not profit) was the new normal.
And it was – in that everyone was doing it.
Until they weren’t.
Another one bites the dust
Obviously I can’t sound too smug. As I say, a good part of my portfolio was pummeled this week.
I’ve been trimming growth exposure for much of 2021 on the back of re-openings and scary multiples.
But clearly in hindsight I kept too much and – hilariously – I’d even bought back some fallen high-flyers because they had begun to look tempting.
Oops.
However this is not my first rodeo. I know shares in growth companies can look too expensive for years in a bull market, and I was happy to book the gains in the good times. A kicking was coming someday. The snag was I didn’t know when.
But will the legions of new investors who only began trading in 2020 and have never seen a bear market be so sanguine?
Thursday and Friday felt like a panicked liquidation – of traders on margin, if not of actual funds – but at the index level prices only dipped a little. This was a very localized earthquake.
There’s a lot more selling to come if people truly get the fear.
Of course, as I alluded to above much of the fastest money has moved onto trading cryptocurrencies.
Doubling your money in a growth stock in a year was a snooze-fest for Boomers by comparison to alt-coins and the like.
I wonder what such traders made of the past 24 hours in crypto prices on checking their screens this morning:
Come back plunging growth stocks – all is forgiven!
It sure looks like the euphoria is over.
Don’t stop me now
If you’re a passive index fund investor then you’re entitled to feel pretty good about all this.
For UK investors, the Vanguard World Index Fund was down less than 1% in the week.
It actually rose on Friday!
The mega-tech companies that dominate the market (Alphabet, Microsoft, Amazon and the like, though not Meta) have barely wobbled so far.
Passive investors also save themselves a lot of grey hairs by avoiding days like Friday – albeit at the cost of rarely being able to brag about your returns on Twitter.
Most people will do much better with index funds than stock picking, which is why we recommend passive investing so much on Monevator.
But I wouldn’t get too complacent.
An interesting feature of the recent sell-off is that it’s occurred while the all-important US ten-year yield has actually been softening.
Indeed market expectations for US interest rates are flattening across all maturities recently.
Say what?
Basically, as of recent days, the market is seemingly expecting US interest rates to rise less in the future.
That could be because it foresees another recession, maybe virus-driven.
It could be because it’s thinking that inflation is more transitory, after all.
Or it could be that bond investors are growing increasingly fearful in general, perhaps due to the same flight to safety instinct that drove the mass dumping of expensive growth stocks this week.
After all, if you expected Omicron to lock us all inside again, then the likes of Zoom Video should perhaps be rising.
So there’s some circles to be squared here.
I could speculate about this all day but it’s not really our beat.
Suffice to say we’re potentially in one of those periods of dislocation for the markets, where things change and it only looks obvious how in hindsight.
It had seemed like stock markets were getting ‘healthier’ in 2021.
Last year’s returns were dominated by the biggest companies. But the spoils had been shared more evenly recently, as Morningstar reported:
Will this continue?Maybe the recent sell-off is evidence of investors coming to their senses, as value investors might put it, and dumping their growth shares for solidly profitable companies?
Or is a new bear market coming – taking out the easy targets before moving on to the biggest prey?
Who knows. Anyone being too defensive has made a mistake for most of the past ten years.
I was too exposed to growth stocks in partly because the end of the year is usually so strong, and the outlook seemed favourable until a fortnight ago. Things can change quickly.
Who wants to live forever
We’re all playing a long-term game. As an active investor, I believe I can outperform the market by discerning the best companies that will prosper over the next 5-10 years (albeit I shuffle my cards continually, which is heresy in the circles I hail from).
I even bought some growth shares on Friday – buying into boutique cloud provider Digital Ocean and adding to old favourite Mercadolibre (the so-called ‘Amazon of Latin America’, only not that Amazon…)
These still look like long-term winners to me. But in the short-term anything can happen.
Meanwhile for passive investors, the best defense is and always will be diversification. Even steep crashes will eventually look like blips provided you’re properly diversified and can hold and add through such declines.
Because a time will come – maybe next week, maybe next decade – when the sort of falls growth stocks ‘enjoyed’ on Friday will occur at the index level.
The S&P 500 will be down 8% in a day. The FTSE 100 will be off double-digits.
It’s always inconceivable until it happens. But it does happen.
Maybe this week was the market re-calibrating for a long expansion ahead. Perhaps the old companies that burn and bash stuff are due some time in the sun.
The bull market is dead – long live the bull market!
Perhaps, but I fancy it still isn’t a bad time to make sure you’ve got the right balance in your portfolio for navigating whatever comes next.
Have a great weekend.
From Monevator
Buy the rumour, sell the news – Monevator
What your retirement could look like – Monevator
From the archive-ator: Bonds are for pessimists, shares are for optimists – Monevator
News
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UK shelves proposals to raise capital gains tax rates and cut allowance [Search result] – FT
New rules for London Stock Exchange aimed at attracting IPOs – ThisIsMoney
Economic uncertainty as Omicron cancels the Christmas office party – BBC
Seedrs bought by US firm Republic for $100m – TechCrunch
Zog Energy becomes 25th UK supplier to go bust in three months – Guardian
One British family’s experience of the soaring cost of living – Guardian
Products and services
AJ Bell to strike back in 2022 with a commission-free trading app – AJ Bell
The best deals for first-time buyers on a 90% or 95% mortgage – Which
Open a SIPP with Interactive Investor and pay no SIPP fee for six months. Terms apply – Interactive Investor
American Express’ Shop Small cashback scheme returns this month – Which
The duo-oligopoly of ETF/index providers – Klement on Investing
Doing the sums on 40-year fixed rate mortgages – ThisIsMoney
Cosy cottages for Christmas, in pictures – Guardian
Comment and opinion
How to avoid another lost decade… – Compound Advisors
…starts with avoiding investment manias – Compound Advisors
Read before selling – Humble Dollar
Healthy, wealthy, and wise – Klement on Investing
Fear Of Losing Big – Humble Dollar
Don’t overdo money obsession – The Belle Curve & Female Finance
How can couples make peace over money? [Podcast] – Morningstar
The pros and cons of borrowing to buy stocks – MarketWatch
For the bond market, this time might be different… – Morningstar
…but for now you can’t escape the hard truth about TIPS [US but relevant, nerdy] – ThinkAdvisor
Crypt o’ crypto
We built a crypto index – The Irrelevant Investor
Fleshing out a crypto investment strategy – Banker on FIRE
Bitcoin and electricity – Marginal Revolution
How to meme a Banksy painting via an NFT – Felix Salmon
The DAO of DeFi Index funds [Podcast] – A Wealth of Common Sense
Naughty corner: Active antics
A deep dive into Disney [Podcast/transcript] – Telescope Investing
Interview with fund manager Terry Smith [Video] – I.C. via YouTube
The importance of execution – The Undercover Fund Manager
What are the odds of success for a US seed funded start-up? – Crunchbase
Oh Omicron! From panic to possibility – Investing Caffeine
Can prospect theory explain anomalies like the momentum factor? – Alpha Architect
Workaday mini-special
Remote work should be (mostly) asynchronous – Harvard Business Review
How leisure time became work – The Atlantic
For many US workers, leaving their jobs has been exhilarating – Guardian
Covid comeback
First data points to Omicron reinfection risk… – BBC
…with more than half the UK cases in double-jabbed – Guardian
Variant driving record infection rates in South African province – Guardian
Why firm answers about Omicron could be weeks away – Stat
The inside story of the Pfizer vaccine: ‘a once-in-an-epoch windfall’ [Search result] – FT
Kindle book bargains
Economy Gastronomy by Allegra McVedy and Paul Merrett – £0.99 on Kindle
How Will You Measure Your Life? by Clayton Christensen- £0.99 on Kindle
Anthro-vision: How Anthropology Can Explain Business and Life by Gillian Tett – £0.99 on Kindle
Alchemy: The Surprising History of Ideas That Don’t Make Sense by Rory Sutherland – £0.99 on Kindle
Environmental factors
Ten million a year [On air pollution] – London Review of Books
This is what it sounds like, when bugs cry – BBC
Carbon-cutting app aims to ease Londoners into net zero future – Guardian
Off our beat
Assured misery – Morgan Housel
Predicting with ‘superforecasters’ [Podcast] – The Ezra Klein Show
And finally…
“Never invest in any idea you can’t illustrate with a crayon.”
– The Motley Fool Guide to Investing for Beginners
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Thanks again @TI for another interesting and timely article.
As someone who is planning on moving to ii from HL in the next 12 months, I was curious to see what Aberdeen’s (sorry, I mean abrbn – awful rebrand, isn’t it?) takeover of ii will entail for investors in the mid to long run. No change, they say.
https://www.investmentweek.co.uk/news/4041462/interactive-investor-confirms-proposed-abrdn-acquisition
Like the Queen theme to your headings this week!
Sadly despite the 2021 bull market I am still 6 % down from Feb 2020
When I pumped in a few bob just before the crash.
@TI What happened to that cunning plan to beat everyone to the exits? 🙂 I actually did rebalance a little out of equities, based on the musings of last weekend, maybe not enough.
@Calculus — Haha, you never beat everyone to the exits. Short-term it’s about having more foot out the door than in. Long-term is all that really matters. (I have massive headroom from last year’s performance to chop through, though not half as much now. 😉 ) Obviously it’s all not advisable etc etc 😉
I have been tracking the valuation of all my portfolios once a week for about 6 years. This week (as of yesterday evening after the markts closed in the US), I was actually up a tiny bit. From a fortnight when all this started, I am down about 1.34%.
I can’t claim to be a passive purist though. I have gone from almost 100% stocks in 2016 to something much more ballanced in the end of 2017. I also always had a macroeconomic view that tilts what would otherwise be a purely passive ballanced portfolio. I am happy with my track record so far, but only 6 years of real world data is not enough to be confident everything will be fine in the future. I suspect that I have been very lucky so far. It would be a mistake to assume that my luck can last forever 😉
@Tom-Baker — Aren’t you only a third or so in equities? No wonder you were up last week. 🙂
From memory you have your own spin on a Permanent Portfolio? I’m very interested in what happens to the gold portion of that. I’ve owned more gold for the past couple of years than I’ve owned in the previous ten years combined (roughly!) and like many have been wondering what the rise of Bitcoin (which has also swelled to a non-trivial allocation for me, albeit by accident) means for precious metals. Any thoughts?
Of course if today’s price action in BTC continues it could soon be a moot question 😉
VWRL had multiple daily swings of 10% up/down in March last year. If anything I found it very reassuring that it coped extremely well with the volatility and buying was never a problem.
To be honest, anything up to a 50% crash doesn’t bother be at all, I’m FI.
80 – 90% drop in the all world still wouldn’t bother me as long as there was no massive global catastrophe.
@ TI #7 – I was referring to the total valuation across all of my portfolios in #6. The portfolio inspired on the permanent portfolio which has only about 35% stocks and about 25% gold is only a bit more than half of everything. The other portfolios have a higher proportion of stocks. Still, you you are right in pointing out that I have got a lowish allocation to Stocks: total Stock allocation is only a bit over 45%.
Yes, I am keeping an eye on the rise of bitcoin. IMHO, I think that it is currently far from being a safe haven asset that people could use for capital preservation.
The fact that there is no physical real asset behind it is one of the reasons I have been avoiding it.
Another worry I’ve got about bitcoin is the very likely possiblity of its technology becoming out of date very soon. In fact, I think that quantum cryptography is already a big threat to bitcoin and other cryptocurrencies. Quantum cryptography is far more developed as a practical technology than quantum computing. I can easily imagine the whole internet switching to quantum cryptography in the near future.
Docusign….. ? Never ‘eard of ’em.
Must admit, my eyes, and mind, glazes over every time I read that this or that outfit is ‘worth’ 10, 20 50, 80 Billions.
Always keeping it honest @TI. Thanks for the thoughts.
Is it just me or is BTC behaving more and more like a leveraged bet on growth stocks in the past 2 years.
Also too early to tell, but looks like Nick of ofDollarsanddata called the top 2 weeks ago, with his “This will not last” article. That’s based on the number of US stocks with price-to-sales > 20x which skyrocketed in 2021.
De-risking makes sense but won’t be found in ex-US or crypto in my view.
@Andrew Peston — Fair enough, but I think that is more about you than Docusign. They are already a $2billion run-rate revenue business, and between them and Adobe (which I also hold) look set to eat up a vast amount of the paper-transaction chain over the next few years. (Crypto notwithstanding).
@TBDW — Understood re: Bitcoin, standard fears which could be right, time will tell. (I think very little chance of it specifically being super-ceded by a ‘better’ cryptocoin for ‘digital gold’ but of course if it was broken by quantum computing then that’d be different. Widespread quantum computing as popularly represented as a bogeyman would kill all existing authentification of course, so not sure your bank account or even your government records would be safe, let alone your Facebook password… 😉 On the other hand if it happens slowly and non-catastrophically then presumably the Bitcoin protocol can be modified to take into account quantum techniques in its favour. But we are deep in the woods here! 🙂 )
@Foxy — Hi, you write:
It’s interesting deciding how to evaluate this stuff. Nick is obviously excellent which is why we feature him so much here, but countless smart people have written such articles over the past ten years. I’m sure I’ve made such allusions myself in the past couple of years! So is Nick a genius or will he just be lucky to have gotten around to it at the right time? 🙂 I don’t mean that maliciously and maybe the answer is that he kept his nerve… but it’s worth noting that these high price-to-sales disruptive stocks have in some cases been falling for 6-8 months (not all cases).
Anyway this is all fun speculation which I love but which is not ‘core Monevator’. Hopefully fellow addicts will be able to join me behind a membership wall sooner or later. 🙂
@TI. “Basically, as of recent days, the market is seemingly expecting US interest rates to rise less in the future.”
Well not really. It’s expecting rates to rise more and faster in the short term given Fed speak over recent days but that this may be a policy error, leading to poorer growth longer term. The curve is starting to genuinely invert beyond end 2023 through to 2026 and is only marginally upward sloping beyond that.
It’s a fair shout from the market given that inflation is either supply side driven (Omicron makes that worse) or driven by ephemeral forms of domestic demand (mainly wealth transfers from govt to private sector, causing assets bubbles, driving more wealth etc).
The issue now is how long this scenario can persist. At some point if the market is right, all these central banks will work out that these hikes are a policy error and not hike. Or the inflation isn’t so ephemeral. Either way the curve steepens. Not a trade for today but at least it gives me plenty of ways to make a crust next year.
As for the equity markets, I didn’t notice. My direct equity exposure is around 30% of my portfolio and very indexed. I find it hard to register moves of less than 400 points in the S&P these days. Just noise.
@ZXSpectrum48K — Naturally you’re right and it’s useful extra clarification, but within the constraints of writing for thousands of everday investors within a quick article I think my point stands — as you know the most important (IMHO, from a stock valuation perspective) US ten-year yield has gone from 1.7% and rising towards 1.35% and falling in the past week or two. And I did mention the curve flattening in the article.
If *you* don’t how to trade Central Bank action at the moment that reassures me that I’m in the right place in feeling confused/that something is on the move… 😉
@ TI #12 – I definitely agree with you that a large enough quantum computer that would be able to break bitcoin’s cryptography algorithm seems quite a long way away. I was not referring to quantum computing though.
The technological threat I was referring to is Quantum Cryptography which is already mature technology. It protects users not only against the remote threat of a Quantum Computer, but also against some of the current threats to data security. For example, it makes it impossible for someone to intercept a quantum cryptographic message without that interception becoming obvious to those who were exchanging the message. Moreover, the evesdropper would just see noise.
Quantum cryptography is already used by the US military and by Russia and China. I am almost sure we dominate it too. I can envisage the whole internet adopting Quantum Cryptography in the near future. It’s a low hanging fruit. Definitely not as hard as realising a million qbits Quantum Computer 😉
@TI. I wanted to clarify because that sentence could be intepreted as implying that the market thinks that the Fed (and other central banks) will raise rates less.
As I said in a prior comment, I never would never be so silly as to think I know how to trade central bank action. Trading the actual actions of a central bank is a fool’s errand. It requires you to understand stuff like macroeconomic fundamentals, policy reaction functions etc. That’s hard.
Sensible people like me just trade the delta in the market expectations for central bank action. Find a scenario priced at zero and wait for the market to price it at something. Then take it off and run for the hills. For example: Fed tightening wasn’t expected until early 2024 only six months ago. Tightening in 2022 was priced at close to zero. Now 2022 is the central scenario and by 2024 the market is thinking about cuts. Much easier money than all that macro malarky.
In case someone missed, Warren Buffett’s wise old pal, Charlie Munger, made this interesting comment about the current state of the market and cryptocurrencies at a conference in Australia recently:
https://www.bnnbloomberg.ca/berkshire-s-munger-says-now-is-even-crazier-than-dotcom-bust-1.1690496
[Comment deleted by request – @TI]
Docusign doesn’t look like it has much of a moat to me, at least compared to Adobe. As far as I can see signing documents should be a commodity service.
@far_wide #19 – Yes, I think Charlie Munger is as sharp as he has always been. He is making a great point there as usual and those who ignore him will probably regret it.
@tom baker Was a short article! I think they’re crazy too, but not sure I’m in favour of banning them. If they do ever go pop and a load of greedy people loose their shirts then so be it. Likewise if people get lucky and get rich and are clever enough to exit at the right time then all the best. As long as we don’t see any silly govt bailouts or something like that. It seems to me the whole point of buying these coins is someone else paying more than you did it the future. They have no utility or income and you can’t even make any nice shiny jewellery out of them.
@Jim #22 – I am also hesitant to agree with banning it. On the other hand, I think that when someone like Munger, who has always been against overregulation, praises China for banning it we should pay attention.
I’m not sure if we would be able to ban it now though, but we might still be able to do something to limit the damage somewhat.
On this general topic of crowd manias, there’s an interesting article that was linked here before that might be useful for those who missed it at the time:
https://novelinvestor.com/how-the-south-sea-bubble-burst/
I really don’t understand why anyone would want to ban cryptocrap. On one end of the scale we have the likes of Ether or Solana, which might actually have some value in “Web3.0” given their functionality. On the other side, the bulk of crypto is essentially worthless or close to worthless.
But humans constantly buy things which are worthless. The art market relies on it. Rolex watches don’t tell the time better than a cheap Sekonda. Many people hold large chunks of Gold in their portfolio despite gold only being worth a fraction of it’s current spot value as as actual commodity. If you buy the thesis that Bitcoin is “Digital Gold” then if you want to ban Bitcoin then you need to ban holding gold.
The point about currencies is there are not investments. Gold is not an investment. Spot currencies are uncompensated volatility which makes them awful passive investments but fantastic trading vehicles. Anyone who buys and holds Gold has totally missed the point. You buy Gold or Bitcoin simply to sell it later when you want to buy something else that is now cheap. It’s a speculative trade but what is wrong with that?
@ZXSpectrum48K #24 – It’s wonderful that people have different options! In investing though, I would be worried about being too overconfident and opinionated about anything. The price can be very high in the end when reality catches up with overconfidence.
IMHO, it’s better to be surrounded by people with different options from you and listen to them than have your head stuck in the sand and just listen to whoever agrees with you.
Very good article.
Just wonder are cryptocurrencies one of the common traits set out by the late Prof JK Galbraith Economist on Bubbles. Of course investors financial memory loss allows these Bubbles to form over and over again.
> the so-called work from home stocks that were winners in the locked-down world have proven too pricey for some tastes
Yeah. But we have seen this movie before. Some wag years ago in response to the services are all mantra that we can’t all go round cutting each other’s hair, and I’d say the same applies to digitalisation. We can’t all sit on our arse and diddle with our smartphones all day. Some bugger has to go out and make the world work and move stuff from A to B.
Facebook may be onto something with the metaverse, but we have had virtual worlds before, in pretty much every video game and Second Life etc. Take a few moments to think about what paying 50* earnings actually means. Sure, you know this is going to grow like gangbusters, in which case fair enough. But they can’t all grow like gangbusters. Didn’t with the railways 200 years ago, didn’t with the dotcom boom 20 years ago. Some of them grow, and many turn to ash when valuations go that high. The crash and burn rate increases with valuations, too.
Still, I have more cash and gold than I should have for my age. I look forward to exchanging some of it for more reasonably priced equities. Bring on the bear market, if only to winnow the deadwood and allocate capital in a more balanced way.
Yes, the psychology of holding gold ( which I do ) is interesting. Having it as a bulwark against semi -catastrophe appeals but logically you would have to sell during the panic to benefit from any retained value. Given the psychology, not sure being able to sell when everything else is in ruins would be that easy.
> Given the psychology, not sure being able to sell when everything else is in ruins would be that easy.
It’s never easy. I have managed to do it twice, would I say I know I can do it again? No, not for sure, you never step into the same bear market twice. While I have sympathy with the principle that whom the Gods would destroy, they first make mad/overconfident, there are some things that can make it easier. One is don’t fire all your guns at once. Buying into bear markets is awful, because the damn things go down after you have bought. You gotta do it again. And again, and maybe once more, spread out over time. One of the articles linked from here in a WR earlier this year said pretty much that – stage yourself, and if at all possible, prepare your viewpoint ahead of time..
I guess you can automate that to some extent, things like the Permanent Portfolio would rebalance, which is another way of doing that job, though bear markets are typically shorter than bulls, so a rebalancing frequency that is fine for bull markets may not be right for bear markets. OTOH I am of the view that if you are going to do bear markets, you have to take it on manual anyway, otherwise keep calm and carry on dollar cost averaging ain’t such a terrible thing to do if you are in accumulation.
The trouble with the PP is that it’s not right for most folk on here, because they are trying to make their fortunes. The PP has a lot of deadweight in it, arguably 50% in non-productive assets, so it’s better for old gits trying to hang on to their wealth than young’uns trying to make it. And anyway, we all know that passively buying into the market regularly is the one true way. Though I expect people’s mettle to be tested sometime in the next five years, when the tide goes out we will see who is swimming naked, as Warren Buffett likes to say 😉
Id agree with @ZX in it making no sense to ban it, although it strikes me Bitcoin is good for trading on two time frames; the infinitely short and the infinitely long.
@ermine (#29):
Re: “OTOH I am of the view that if you are going to do bear markets, you have to take it on manual anyway”
Does this imply that your buy the drop strategy has developed/matured since we discussed it a couple of months back?
> Does this imply that your buy the drop strategy has developed/matured since we discussed it a couple of months back?
What drop 😉 Look at VWRL, and it’s back down to what it was in – drum roll – start of Nov. That’s not a drop, it’s random noise. I sympathise with TI’s woes on the specifics of what he owns but I ain’t got any of that stuff explicitly. TI is younger than I am, those sorts of stocks are a younger person’s game. A man is rich enough in what he can leave alone. Plus I am a veteran of the dotcom bust. It wasn’t all different then, either. Something is rotten in the state of the global stock market IMO. I’m not clever enough to know what that something is – all the money pumped in to try and avoid the 2007 GFC perhaps, market crashes are to capitalism as fever is to the immune system, forestall either at your peril because that’s how the system heals itself. But it could be all sorts – increasing cost of energy, the secular decadence and decline of the West – whatever.
Taking a leaf from Spitznagel from a comment on here early Nov I think, I am buying 60-day puts on the SPX (because that’s about half of VWRL and is the cheapest in spread) targeted about 15% down. I expect to lose hand over fist for months, maybe years, but it’s low-cost – about £600 a year to insure half of my ISA, which is now the most expensive thing I own. Some of that is valuations are up in the sky, some of that is a gradual drift upwards from reinvestment. Dearer pro-rata than insuring my house, but the risk of the stock market going titsup is hopefully higher than my house disappearing.
I saw those puts come back in the money recently, which isn’t right. Nobody seriously believes the SPX is going to drop 15%, but it appears that they think the idea is less bonkers than they did mid November. That feels like one of the lower insignificant warning lights on the instrument panel flipping red. This here post from TI is maybe another lamp winking red. They could wink out again. But I want to keep an eye on it 😉
BTC takes a thumping yells the Graun. Hold my beer, guys. It’s not below what I bought at a few months ago when I decided that mebbe TI was yet again, perhaps right and I was wrong and I should at least have some skin in the game. While being open minded to it all going titsup, either for some of the things enumerated in the comments above, or hey, that’s just the way this cookie crumbles. Shocking volatility is what crypto is all about, because there are absolutely no fundamentals anywhere in flipping sight, that compass knows no north by design. It’s been up in the sky of late probably because of astrology for all I know. #26 and ZX#24 are dead right 😉
All little bits of the big picture. Some day this bull market is going to blow, and I have more firepower now. I want it and I want it now. As indeed, do all the rest of you on here if you are in accumulation. High market valuations are not your friend if you are trying to buy a future income stream. Nevertheless I expect the FI/RE space to empty rapidly in the next suckout…
For a bit of perspective on Growth stocks, For the week ending 3 December the MSCI ACWI Growth Index was down about 1.1%, Value was up 0.4% and the market weighted index down about 0.5% (all in pounds, dividends reinvested). Over 4 weeks Growth is down 2.9%, Value down 1.6%, but year to date Growth is up 16.9%, Value up 18.7%. There has been considerable volatility this year as well.
The title “First they came for the growth stocks?” seems a little OTT with respect to growth stocks “in general”.
@ermine, judging by implied volatility there must be a lot of people out there who, as you do, consider that it is worthwhile insuring against a fall of the SPX. The VIX is at 26.5 right now and went over 30 on Friday. Buying puts is seriously expensive and I question your view that your insurance is cheap. eg Feb puts, 15% OTM is a strike of about 3900 and costs about 1.1% of the spot. Slightly more than 60 days, so call it 1%, or 6% per year. 6% per year seems very expensive insurance to me and likely to kill you long term returns.
Why not just invest what you are comfortable with for the long term and just forget about the drops?
Best of luck with your crypto junk. Personally I would never invest in anything priced on nothing but the bigger fool theory.
@Naeclue @ermine
Yes, I wrote “for the disruptive growth stocks” first but it was a mouthful. 🙂 It’s really the high price-to-sales multiples / low profit stocks.
The FT wrote about it yesterday:
https://www.ft.com/content/ec35749e-ed58-4ee8-8580-fd490e7bfd42
I actually thought about you @Naeclue when I wrote the piece as you’ve pointed to stable indices before when I’ve made a point about underlying volatility.
That’s not a complaint by the way! I incorporated that sentiment in this article.
It is a reason why I want to get my active posts behind a membership wall or similar though. Anyone who picks stocks knows how volatile the past couple of weeks have been, and it’s counter-productive to have to caveat everything or focus on the index advantages when I’d really want to dive into (for my sins, and the sins of active readers) speculation about why and what next. 🙂
There’s quite a common pattern before big corrections of second-line / smaller / more speculative stocks getting whacked first with a thinner wedge of larger companies prevailing for longer and falling last.
So watching for this stuff is worthwhile if one is trying to play the painful game of active investing.
(It hasn’t helped at all here in the short-term — given yesterday and today’s rally, last Friday looks more like capitulation! 🙂 )
@Naeclue #34
You are absolutely right, of course. I don’t expect to carry that insurance for long. Either things will settle down and I will knock it off, just in time for The Big One to come along and whack us all around the back of the head. Or not. I accept the cost of taking an opinion.
> Why not just invest what you are comfortable with for the long term and just forget about the drops?
Because that’s not what saved me when my job went bad in the GFC. I don’t have 30 years of steady index investing behind me. It isn’t the only way, but sure, I agree with you it is probably the best way for most, particularly if they have the time. It may turn out to be the best way for me, but I can afford to accept the risk of being shown to be a peacock now.
As for crypto, I agree more with your sentiment on it than I do with TI’s view on it. To wit:
Nah. I don’t buy that, at a gut level. Probably I will be proved wrong. Why do I hold some? Because as TI also said
Education budget, not investment budget. If it falls below what I initially paid, I will buy a little bit more. I may get soaked. If people are out there spending £27k they don’t own on a degree that often doesn’t pay off, spending a few hundred sods that I do own on BTC and its stablemates ain’t a bad price to pay for learning. Maybe I will come round to TI’s view that it is an alternative store of value, in which case I will allocate it to diversification.
@TI > I want to get my active posts behind a membership wall or similar though.
Absolutely. Get on with it. Please 😉 I feel a little bit bad after having taken your active kick up the backside ~ten years ago and it taking me successfully to retirement age, now polluting your blog with non-passive heresy, perhaps you can banish that sort of thoughtcrime behind the wall!
@ermine @TI – on the contrary, the blog would be much less interesting to me without the occasional active/passive discussion on the comments. If there was enough “engagement” otherwise, sure. Perhaps taking a page from other blogs and removing them from the main index after the week they run may be sufficient.
@mr_jetlag @ermine — Thanks for the thoughts / encouragement. I suspect when the active membership wall is erected it’ll be a little less than rapturously received because it’s almost certainly going to be a paywall.
We basically continue to search for a business model that enables us to keep doing this site mostly for free to bring as much value as we can to those who need it, while paying our way and hopefully providing a lot of information and entertainment for those who want to dive deeper.
I think I’ve only written about 3-4 active posts in 2021 not counting Weekend Reading speculation, so it’d actually be not much of a loss to Monevator proper for it to be pay-walled. And I’ll keep musing in Weekend Reading!
But there’s a lot of active/speculative/whatnot stuff I’d like to write about because it’s what interests me / is my hobby, but which I genuinely don’t think the average reader should worry about so don’t want them exposed to. That’s the circle we’re hoping to square. 🙂
Wasn’t there also some talk about a book? Just sayin’