Somehow any previous models and assumptions seemed to not apply anymore, and those stocks deserved a much higher valuation. The market was willing to pay 2x-4x as much for each dollar of their earnings as in previous years (see chart below). The chart below shows a group of internet stocks that enjoyed what we thought was an incredible boost. It looks like a big air bubble that inflated and burst right after, only to be back to square one.Īnother way to look at the fast and furious stocks of the last two years would be the valuation. The Profitless Tech UBS stock basket dropped from 100 to 60 in March 2020 then it rose to 220 by early 2021 it hovered at 200 through most of 2021, only to take a nosedive back to 60 most recently, a 72% drop. These are tales we heard before, and we had our suspicions that eventually, the reversal to the mean will bring them back in line and closer to reality – Has that happened already? They seemed to promise growth beyond anyone’s imagination. Their valuations expanded, and their stock prices reached what we thought were eye-popping levels. The fast and furious stocks drove the markets higher in 2020-2021. They are slow and steady rather than fast and furious. They might fall behind when the broad market rises quickly, but they may hold their ground better when the market drops. They are not immune to market gyrations, but given that they tend to have strong balance sheets and sustainable earnings power, they usually march to their own beat. We prefer to hold 30-60 well-selected companies, each with its own specific story. Their daily price and movement may give some idea of the market’s general direction, but it’s an imperfect picture.Īs you remember, we don’t manage our portfolios to any particular index. They are constructed in various ways, and their composition is subject to change. The indices can comprise anything from 30 to thousands of stocks. The same the markets might go up or down at times, but it hardly ever is all we should know. On average, it might have been a shallow lake, but it was not the complete picture. The water there was cold, and you could feel the current that could take you out to the middle of the lake like a feather. As kids, we were curious and found the edge of it many times.
It had steep walls and dropped to 20 feet or more. He said so because that particular lake had seemingly never-ending vast ankle-deep shallows, but then there was an old river valley in the middle. He’d say that one can drown even in a lake only inches deep on average. When I hear about market indices and averages, I think of a lake I grew up visiting as a kid with my cousins. It’s no surprise that we are all wondering where the bottom could be. The major US indices fell some 20%-33% from their highs recorded late last year.
We’ve had days and weeks recently when stock prices only pointed downwards.
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