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By many measures tech stocks have not been this overvalued since 1999. Similar situation. COVID + staying at home + government stimulus means there's a lot of m

By many measures tech stocks have not been this overvalued since 1999. Similar situation. COVID + staying at home + government stimulus means there's a lot of money sloshing around. Tech companies are relatively unaffected by pandemic so all this money ends up there. Lots of general public getting in on the market just like 99. Senseless valuations on companies without a dollar of revenue. A historic year for tech stocks right after a historically long bull run, just like 99. Many allegations of fraud since money is so easy to get. Tech stocks make up something crazy like 30% of value in market, again just like 99. If tech isn't in a bubble, I don't know what's going on. How does virtually every tech company become twice as valuable in 6 months? They don't. Unlike last time, most of these companies won't crash to zero. But they could easily lose 2/3 of the value as soon as life goes back to normal and everyone sees how much damage corona has done. The relatively fast early recovery has the markets in a state of euphoria. I moved all my money to "value" stocks last week. These tech valuations defy all logic. Remember when Buffet said to be fearful when others are greedy? Well right now he's investing out in Japan

88840-8855 6y ago
very speculative opinion.
- throwaway189262 6y ago
  Look at PE ratios, percent of non-professional investors in the market, average valuation of tech companies at age X, percent of stock market value in tech, length of current bull market, stock performance vs economic growth. There's so many metrics pointing towards a bubble, and not many that don't. Of course not everyone believes it, which is why market is so high. And I'm an admitted skeptic that's shorting this market so take that how you will. You will find some mainstream investors calling the market a bubble which is not really normal. All bubbles are obvious in retrospect, and even many investors that think we're in a bubble will join the frenzy assuming they won't be left holding the cards.
  - rvn1045 6y ago
    The consistent growth tech companies like Amazon are able to maintain is INSANE. They're continuing to grow at a staggering rate despite their already massive size. There's also almost half the world that doesn't even use the internet in any meaningful capacity. There's a lot of growth left.
    - mschuster91 6y ago
      > There's also almost half the world that doesn't even use the internet in any meaningful capacity. There's a lot of growth left. But unlike growth in domestic Western markets, this one will be hard for the companies to expand upon on their own. 1B people in China cannot be reached at all by Western companies, the half billion in South America will depend on someone getting rid of the cartels before meaningful buildout of infrastructure can happen (and that won't be possible until the US and Europe drastically change their approach to drugs, until then most countries will effectively be narco states), and the 1B people in Africa... an even tougher nut to crack, given that there are a lot of countries in there that can be considered "failed states" or various degrees of dictatorships, and the rest tend to be extremely poor as a result of hundreds of years of colonialism.
      - jiofih 6y ago
        I don’t know which year in the past you’re commenting from, but South America is nearing 80% penetration and already has ~500m people online. Cartels are an exclusively Colombian thing, courtesy of the USA. The African continent is really is the last big market left, and only 1B people.
    - jodrellblank 6y ago
      > "There's also almost half the world that doesn't even use the internet in any meaningful capacity. There's a lot of growth left." Albert Bartlett[1] would like to have a word. When you find a new petri-dish, and it's as large as the current one - as much space as has ever been used before in all of history, a vast bounty of unexplored space - how long will it last? One minute. One doubling period to go from 50% full to 100% full, and that's it. (paraphrased) [1] https://www.youtube.com/watch?v=DZCm2QQZVYk https://www.youtube.com/watch?v=DZCm2QQZVYk
s17n 6y ago
"Tech"* as a percentage of the economy has grown substantially since 1999 so what was a crazy percentage then might not be now. * A lot of so called tech stocks are companies that aren't all that technology-driven, of course.
- n_io 6y ago
  The problem is tech companies aren't immutable to the laws of finance and human folly. Not every EV truck startup is going to become the next Tesla... yet people behave as though this is the case.
  - tonyedgecombe 6y ago
    I'm not sure Tesla is going to become the next Tesla.
  - grey-area 6y ago
    Tesla itself is priced just now as if it is the next tesla.
  - girvo 6y ago
    Looking at you, Nikola
  - skohan 6y ago
    To me those are the real signs of a bubble: NKLA's share price continuing to grow with a total lack of evidence the company is anything besides a complete fraud, or also ZOOM's share price spiking because people confused it with ZM (the actual ticker symbol for the video communication company). If those aren't signs of a deeply irrational market, I don't know what are.
    - WrtCdEvrydy 6y ago
      A lot of it will be FOMO. Noone wants to miss out on the next Amazon because people are greedy.
    - DataWorker 6y ago
n_io 6y ago
In complete accord with your sentiment, or what it really should be called: reality. The problem is that everyone has become complicit in this euphoria because no one wants to stop the party when everyone's making money. Notwithstanding, parties eventually end and bubbles do pop. The next question is: when?
- throwaway189262 6y ago
  That's my opinion. Most investors know it's a party, but when will it end? With the election, corona vaccine, and the return to normalcy nearing everyone is wondering how long this will keep up. The trigger to a stock crash is usually unexpected. I think either car loan or student debt crises but who knows
  - garmaine 6y ago
    What return to normalcy?
    - n_io 6y ago
      P/E ratios < 1000
      - noja 6y ago
        Remember when a PE of 27 was high? https://boards.fool.com/toyotas-high-pe-ratio-10010880.aspx?sort=whole#10042974 https://boards.fool.com/toyotas-high-pe-ratio-10010880.aspx?... Now the _average_ is higher!
      - garmaine 6y ago
        That doesn't fit the context of the above statement though, which was something about pandemics and general 2020 craziness. There's no indication that a "return to normalcy" regarding that is just around the corner.
  - n_io 6y ago
    I think that sounds about right. Short of a complete black swan it's bound to be one or a combination of the factors you mentioned.
Silhouette 6y ago
The interesting twist this time is that we might actually be seeing the start of a profound and permanent change in our lifestyles, and some part of the big increases in the values of tech stocks is probably a rational response to that. The trillion dollar question is, how much? Assuming we overcome the virus and life returns to something like what it used to be, does anyone think we won't still see a significant shift in working patterns? WFH has been a revelation to many people and many employers, and its pros and cons are probably better understood now than they ever have been before. I doubt we'll see anything as dramatic as everyone wanting to work from home full time, not least because I think a lot of people underestimated the downsides before they tried it, but I expect we'll still see a lot more remote working than before. Both our homes and other local venues amenable to it will adapt accordingly, and technologies that support remote collaboration in its many forms will continue to be vital. The shift to buying more goods and accessing more services online instead of physically going out has forced rapid changes in many businesses and other organisations. That includes many smaller places that haven't traditionally had much interest in or need for technology. Those changes won't suddenly get undone even when we all start going out more again. So again, the technologies now supporting online shopping and services probably have increased significantly in real value.
- gdyuytgh 6y ago
  My guess is that the ruling class of the US has been spoiled by the China's governance model and now wants the same here. They see USA v2 as one huge corporation: it's simply more efficient when the growth phase is over. Fed invests into the big corps to consolidate power. Some folks in the ruling class didn't like the idea and left the US to New Zealand and other places. I'd also add that 25th and 75th year of every century are turning points: the sudden influx of ideas and highly capable people stirs the pot and pushes the progress forward. We're approaching the end of the age started in 1925: opportunities depleted, morale is low, cynical people extracting whatever valuable is left. 2025 is supposed to unlock new ideas and opportunities that'll set the trajectory for the next century.
logicslave 6y ago
People have been calling tech "overvalued" since 2005. Its a misnomer, and everyone who has used that as in investment philosophy has lost tons of money. Tech is here to stay, and as an investment, offers significantly more leverage than elsewhere. Tech is twice as valuable relative to other investments. You dont understand how markets work Buffet is an old out of touch man, who got rich buying the hot stocks of his day. He has lagged the market for 15 years
- HPsquared 6y ago
  To quote Keynes, "markets can remain irrational longer than you can stay solvent"
  - n_io 6y ago
    Great quote
- function_seven 6y ago
  EDIT: Apparently I'm out of my depth here. Leaving my comment below for posterity. > He has lagged the market for 15 years Here's Berkshire's performance compared to the S&P500, over the last 20 years: https://imgur.com/Ssfon56 https://imgur.com/Ssfon56 S&P doubled your money, BRK quintupled it.
  - smabie 6y ago
    Your chart is incorrect. With split and dividend adjustments, the returns are almost identical from 2002 onwards (I don't have personal data before 2002). 2002 to date, BRK had a 8% annualized return and the S&P 500 has a 7.8% return. However, BRK has a lower Sharpe ratio (0.38) than the S&P 500 (0.4). So in a real sense, SPY has outperformed BRK. That's not to say that an investment in BRK is irrational, the beta is low (0.71) and the correlation to the market is low as well (0.65). You can't just naively compare some price chart, finance doesn't work like that. Source: I work as a quant
    - 6y ago
greatwave1 6y ago
With interest rates near 0%, equities are one of the few places you can expect to earn a reasonable yield on capital. The Fed has made it clear they don't plan to raise rates in the foreseeable future, so don't count on the demand for stocks to go away anytime soon. If you're curious about how retail confidence is holding up, here's a dashboard I'm building to track discussion on the notorious WallStreetBets subreddit: https://www.quiverquant.com/wallstreetbets/ https://www.quiverquant.com/wallstreetbets/
- deleted 6y ago
  [deleted]
- divbzero 6y ago
  Yes, and in addition to near-zero rates for the foreseeable future, the Fed has also shown a willingness to engage in QE and other unconventional forms of monetary stimulus. This is a key driver of the continued climb in equity and real estate assets that seems to defy economic reality.
  - bsder 6y ago
    > This is a key driver of the continued climb of equity and real estate assets that seems to defy economic reality. The real estate crash hasn't rippled ... yet. Lots of younger people have moved home. High cost-of-living rental areas are going to lose those renters permanently. Once those younger people swallow their pride and move home ... there really isn't anything pulling them back. Commercial real estate is like Wile E. Coyote running in mid-air trying not to look down. The commercial real estate has lots of empty spaces with no real prospect of refilling them ... yet they're placing those on the books by tacking them onto the end of the financing at the same level as they were when they were rented. That works great ... until the cash flow can't support anything at which point it all collapses together. Of course, this is all going to hang together like the traders before 2008: "They're is a crash coming. If I'm right, it's almost impossible for me to diversify enough to survive because the trashing is going to be so thorough. If I'm wrong, I look like an idiot and lose money. So, I'll close my eyes and toe the company line and see if I can cash out before the devastation."
christkv 6y ago
With the fed buying debt like a drunk sailor the money released has to go somewhere. That somewhere seems to be the stock market right now. It feels like the fed is testing to avoid 2007 again but just buying the bad debt early.
- takeda 6y ago
  They only want to keep the market a.k.a. "the economy" looking good before Nov 3rd.
  - laurent92 6y ago
    The Fed is independent from the government. But that’s theory. Can you explain more what the influences are between a given party in power and the Fed?
    - takeda 6y ago
      Fed supposed to be independent, yet they lowered interest rate to 0% before pandemic when the economy was supposedly doing really well.
    - gdyuytgh 6y ago
      Isn't the head of Fed a Trump's appointee?
mtgx 6y ago
> I moved all my money to "value" stocks last week Why not something that has less of a chance to fall in a recession, like gold?
zwarag 6y ago
If I may ask, what do you mean by “value” stocks?
- skohan 6y ago
  Stocks with a low P/E ratio. I.e. the total market cap is low relative to their earnings.
  - dmurray 6y ago
    That's not the definition used in the article, which looks at stocks which have low market cap compared to book value, i.e. total reported assets.
    - mcguire 6y ago
      Those are two valid definitions of value stocks. Earnings are easy to calculate but not terribly good. Book value is a better measure but it's just a made-up number.
  - mxschumacher 6y ago
    The p/e ratio is extremely crude and should be avoided at all costs. The metric completely disregards capital structure (debt to equity) and uses earnings at a single point in time. Earnings can easily be manipulated. Better to look at Enterprise value / free cash flow
skohan 6y ago
So I read somewhere that 40+% of all investors are currently leveraged, which seems like an insane figure given the recent influx of "Robinhood investors" into the market. It makes me wonder: who's on the hook if all these unsophisticated investors get wiped out? For a lot of these investors, it will be catastrophic to their personal finances, and this might have knock-on effects on landlords for example when these people can't make rent. Presumably this would also result in a lot of bankruptcies, and if that is the case who is on the hook for all that debt? Probably credit card companies, mortgage lenders, but what I don't know is who is the owner of the debt for leveraged trading? Is that the brokerage themselves? Is it banks? Someone else?
- dmurray 6y ago
  > 40+% of all investors are currently leveraged, which seems like an insane figure This does sound insanely high given how many investors have passive portfolios. I'm guessing "leveraged" means something closer to "owns at least one option" than "would be wiped out in a 25% market correction". As for people not being able to make rent if their investments go bad, there aren't many people who are paying their rent out of their personal savings and relying on their investments. Most people work, pay rent out of their earnings, and if they're lucky put some of the excess into savings or brokerage accounts. People with larger savings are likely to own their own home. Of course, if there's a market downturn this will lead to bankruptcies, rent defaults and a knock on effect on landlords, lenders, etc. But the main causal method there is people losing their jobs, not their savings.
  - skohan 6y ago
    > I'm guessing "leveraged" means something closer to "owns at least one option" than "would be wiped out in a 25% market correction". I hope so, but do we know this? My understanding is that apps like Robinhood make it very easy to do options trading, and there's a whole online subculture around this type of trading. Can we actually rule out the possibility that a non-trivial percentage of the recent run-up of the stock market is based on "dumb money" from unsophisticated investors, much of which they may not actually have? edit: Also I just searched Robin-hood options trading on youtube and this video was the second result: https://youtu.be/EQRLRYvRYOM?t=568 https://youtu.be/EQRLRYvRYOM?t=568 I find the UI effect when he finishes the option buy to be very telling, and it's interesting to think about who the intended audience of this content is.
wsc981 6y ago
Buffett also moved into the gold market [0], which he never really liked in the past. Perhaps he still doesn’t like it but believes it’s one of the better places to allocate his resources right now. --- [0]: https://www.marketwatch.com/story/warren-buffett-undergoes-a-conversion-on-gold-should-you-follow-him-2020-08-17 https://www.marketwatch.com/story/warren-buffett-undergoes-a...
- mxschumacher 6y ago
  It's probably not Buffett who made that decision but rather one of the two other investors tasked with putting berkshire's cash to work: todd Combs and ted weschler. The investment in barrick gold is tiny in relation to brk's other investments. About $500m in a $210bn+ portfolio of public stocks (which in turn are smaller than their privately owned firms). Additionally, Berkshire's holds about $147bn in cash so let's please not get carried away with the gold comments.
x87678r 6y ago
The thing about low rates is discounted future cashflows make fast growing companies very valuable, which is why you're seeing Tech outperformance.
mlthoughts2018 6y ago
> “ How does virtually every tech company become twice as valuable in 6 months? They don't.” I think you’re actually wrong on this point. Entrenched incumbent companies like Amazon and Microsoft do become 2x valuable in a time when all kinds of growing startup competition is shuttering due to covid-19 related economic changes. It’s not an expression of say Amazon’s existing business capabilities, but rather its moat and financial security to be in leader position when the crises subside, and in a position to squash or acquire poorly capitalized new competition that couldn’t endure the financial stress of the economic situation. Very unlike 2000, you have several huge, multi-industry conglomerate tech companies with vastly more products, reach and relative capital reserves. It makes total sense to speculate those incumbents will completely rule the day for the next 10 years, and it will take a long time for new, effective competition to return. When people consider where Amazon will be in 10 years, ~2x price change during the middle of a global crisis where Amazon seems to be doing ok - this makes sense. Like any price speculation, there’s risk and it might not be correct. But it’s not a wildly crazy bubble like 1999 - the situations are very different and the types of businesses seeing high valuations are totally different.
- dannyw 6y ago
  In 2019, Apple paid ~1.7% in dividend yield when 10YR treasuries were paying ~1.7%. In 2020, Apple now pays ~0.77% in dividend yield, and 10YR treasuries pay ~0.7%. Stocks doubling is just monetary policy in action.
quickthrowman 6y ago
> Tech bubble like 1999 It’s not 1999, the biggest tech companies make a ton of money. > Remember when Buffet said to be fearful when others are greedy? Well right now he's investing out in Japan Berkshire bought into the SNOW IPO last week... That’s an American tech company. > I bought into value stocks last week You can hold IWM, I’ll stick with XLK. I bet I’m up more than you one year from today. Mega caps can use 0% financing a lot more effectively than small caps can.
- freehunter 6y ago
  Microsoft, IBM, and Sun were all profitable in 1999 too. It’s not the big tech companies that people were/are worried about, it’s the billion dollar startups who will collapse in a year or two. Uber and Palantir (et al) aren’t Hewlett-Packard, they’re Pets.com.
  - quickthrowman 6y ago
    > Microsoft, IBM, and Sun Did not make up 20% of SPX in 1999. FB, AAPL, MSFT, GOOG and AMZN do.
- louthy 6y ago
  > I bet I’m up more than you one year from today. Those are exactly the types of exuberant comments that are hyper prevalent before a crash.
  - quickthrowman 6y ago
    What are your positions? My retirement funds are 100% US equities, overweight tech. My taxable account is 150% into pure tech. I’m not just saying words on the internet, I’m putting money behind my thesis.
    - freehunter 6y ago
      Yep and there are plenty of gamblers on /r/wallstreetbets going broke (and sometimes committing suicide) following strategies like this. It may be working for you and you may have the risk appetite for it, but encouraging other people to pursue ultra-risky investments (really, to gamble with money they don’t have) is incredibly dangerous and has resulted in at least one human death.
looping__lui 6y ago
I think the idea behind “value stocks” if I remember the Intelligent Investor correctly was about “book vs. market value” in many aspects. “Buy stocks worth a dollar for pennies”. I think times have changed. When the automotive industry falters, the assets won’t be worth anything near “book value”. A very wealthy (now retired) investment banker once told me: “The stock market over-reacts, but is right about the general direction”. Growth potential, margins and inflation drive stock prices. I don’t see how tech could be anything but a winner. If anything, Corona has accelerated the need for digitization and buying patterns change. Buffet did horribly during the crisis. He admittedly undervalued Tech and invested in Airlines - big regrets. I do not think a lot of industries will go back to the way things were. Why travel in planes if you can do zoom meetings? Why your own car when you can work from home? Personally, I would rather be worried about the real estate market and office buildings folding in value...
- letstryagain2 6y ago
  If value investing ever worked is up for debate, at least in the sense of Buffet. The government bailed him out in 2008 “The stock market over-reacts, but is right about the general direction”. This is similiar but different to what Kostalany said: "Stockmarket and economy move like a dog and his owner; the dog walks sometimes behind, sometimes in front of him but always comes back." I like the description from Kostalany more. But in fact I believe that stocks and economy move only together in very long cycles. But you thing the automotive industry will falter AND people will move more to the country side? You obviously have never lived outside a big city.
- playingchanges 6y ago
  Thanks for that quote, an interesting idea to chew on. Another I’ve heard is ‘always assume you’re in a bull market until proven otherwise’.
  - looping__lui 6y ago
    Thats another good one...
- 6y ago
fredgrott 6y ago
not entirely true..as while early stage startups saw an increase in VC flow, the non early stage startups did not
deleted 6y ago
[deleted]
tempsy 6y ago
Just because value is logically "cheaper" doesn't mean its a prudent strategy... Should definitely reconsider putting all your eggs in one basket when it comes to value vs growth.
dangus 6y ago
One of the big reasons that tech and knowledge companies outperform their book value is because of intangible assets. You can’t represent unmeasurable assets on a balance sheet (thanks intro to financial accounting, I got my tuition money’s worth I guess) Things like future performance and intangible competitive advantages (e.g. Apple’s growing “ecosystem”) aren’t part of financial statements. We should expect value to be low right now. Many businesses are closed or below normal operating capacity. But in the future? These tech companies aren’t going anywhere and if anything COVID-19 is cementing their position. I think tech companies have more elastic costs than companies with physical products and factories. The tech companies facing unfortunate circumstances (Uber, Groupon) can just cut payroll and run on a skeleton crew with few consequences. They aren’t paying rent on thousands of retail storefronts. Their cloud computing scales down. The software is already written. Even if people are just using companies to store their money while interest rates are low, I’m not sure it matters, because there’s no good reason to sell.
flyGuyOnTheSly 6y ago
One thing a lot of people fail to see or think about is the federal reserve literally propping up the stock market with cheap available cash. This year, the federal reserve not only added over $3T (trillion) USD to the money supply, they effectively inflated the money supply infinitely by removing the reserve requirements of partner banks (who add to the money supply by creating loans on collateral given to them) completely. I am not kidding. [0] As of March 26th 2020, banks literally need to hold no capital in reserve to hand out loans (aka inflating the money supply). Stock values are increasing because there is an infinite amount of money floating around and most everybody you know is blissfully unaware of that fact. We are in uncharted waters now. The reserve requirement was always 10% I believe from the day the federal reserve opened up shop. Now it's 0%. That is insanity. I seriously worry the US is in for a taste of hyperinflation very soon. [0] https://www.federalreserve.gov/monetarypolicy/reservereq.htm https://www.federalreserve.gov/monetarypolicy/reservereq.htm
- BurningFrog 6y ago
  Right, in this view stocks are not overvalued. The US dollar is. Not sure that is the dominant factor, but I'm buying Bitcoin for the first time in my life.
derefr 6y ago
> How does virtually every tech company become twice as valuable in 6 months? If every human suddenly became a celiac — with some cases definitely being temporary and some definitely being permanent, but most being indeterminate — the gluten-free food industry would experience unprecedented projected growth. Instead, every human is stuck in their houses at once, and every job has become remote at once... with some cases being definitely temporary, some definitely permanent, but most indeterminate. Why wouldn’t the industry that delivers products and services to enable people to work, have fun, eat, communicate, etc. from home, not then experience unprecedented projected growth?
BenoitEssiambre 6y ago
>Remember when Buffet said to be fearful when others are greedy? Except everyone seems to be having this same discourse. I hear this as everyone being fearful, time to be greedy?
starpilot 6y ago
Calibrate this comment with the fact that HNers are perma-bears and were saying it was time to sell during the bottom of the COVID-19 crash. "Like catching a falling knife," "Historical crashes dropped 60% more than this. A long way to go" and the like. Ignore HN if you have any plans to make money from this market. That's what I did.
switch11 6y ago
you know something is wrong when Hacker News has better investment advice than all the 'experts' on Wall Street anyways, very happy to see so many people get it

88840-8855 6y ago

very speculative opinion.

throwaway189262 6y ago
Look at PE ratios, percent of non-professional investors in the market, average valuation of tech companies at age X, percent of stock market value in tech, length of current bull market, stock performance vs economic growth. There's so many metrics pointing towards a bubble, and not many that don't. Of course not everyone believes it, which is why market is so high. And I'm an admitted skeptic that's shorting this market so take that how you will. You will find some mainstream investors calling the market a bubble which is not really normal. All bubbles are obvious in retrospect, and even many investors that think we're in a bubble will join the frenzy assuming they won't be left holding the cards.
- rvn1045 6y ago
  The consistent growth tech companies like Amazon are able to maintain is INSANE. They're continuing to grow at a staggering rate despite their already massive size. There's also almost half the world that doesn't even use the internet in any meaningful capacity. There's a lot of growth left.
  - mschuster91 6y ago
    > There's also almost half the world that doesn't even use the internet in any meaningful capacity. There's a lot of growth left. But unlike growth in domestic Western markets, this one will be hard for the companies to expand upon on their own. 1B people in China cannot be reached at all by Western companies, the half billion in South America will depend on someone getting rid of the cartels before meaningful buildout of infrastructure can happen (and that won't be possible until the US and Europe drastically change their approach to drugs, until then most countries will effectively be narco states), and the 1B people in Africa... an even tougher nut to crack, given that there are a lot of countries in there that can be considered "failed states" or various degrees of dictatorships, and the rest tend to be extremely poor as a result of hundreds of years of colonialism.
    - jiofih 6y ago
      I don’t know which year in the past you’re commenting from, but South America is nearing 80% penetration and already has ~500m people online. Cartels are an exclusively Colombian thing, courtesy of the USA. The African continent is really is the last big market left, and only 1B people.
  - jodrellblank 6y ago
    > "There's also almost half the world that doesn't even use the internet in any meaningful capacity. There's a lot of growth left." Albert Bartlett[1] would like to have a word. When you find a new petri-dish, and it's as large as the current one - as much space as has ever been used before in all of history, a vast bounty of unexplored space - how long will it last? One minute. One doubling period to go from 50% full to 100% full, and that's it. (paraphrased) [1] https://www.youtube.com/watch?v=DZCm2QQZVYk https://www.youtube.com/watch?v=DZCm2QQZVYk

s17n 6y ago

"Tech"* as a percentage of the economy has grown substantially since 1999 so what was a crazy percentage then might not be now. * A lot of so called tech stocks are companies that aren't all that technology-driven, of course.

n_io 6y ago
The problem is tech companies aren't immutable to the laws of finance and human folly. Not every EV truck startup is going to become the next Tesla... yet people behave as though this is the case.
- tonyedgecombe 6y ago
  I'm not sure Tesla is going to become the next Tesla.
- grey-area 6y ago
  Tesla itself is priced just now as if it is the next tesla.
- girvo 6y ago
  Looking at you, Nikola
- skohan 6y ago
  To me those are the real signs of a bubble: NKLA's share price continuing to grow with a total lack of evidence the company is anything besides a complete fraud, or also ZOOM's share price spiking because people confused it with ZM (the actual ticker symbol for the video communication company). If those aren't signs of a deeply irrational market, I don't know what are.
  - WrtCdEvrydy 6y ago
    A lot of it will be FOMO. Noone wants to miss out on the next Amazon because people are greedy.
  - DataWorker 6y ago

n_io 6y ago

In complete accord with your sentiment, or what it really should be called: reality. The problem is that everyone has become complicit in this euphoria because no one wants to stop the party when everyone's making money. Notwithstanding, parties eventually end and bubbles do pop. The next question is: when?

throwaway189262 6y ago
That's my opinion. Most investors know it's a party, but when will it end? With the election, corona vaccine, and the return to normalcy nearing everyone is wondering how long this will keep up. The trigger to a stock crash is usually unexpected. I think either car loan or student debt crises but who knows
- garmaine 6y ago
  What return to normalcy?
  - n_io 6y ago
    P/E ratios < 1000
    - noja 6y ago
      Remember when a PE of 27 was high? https://boards.fool.com/toyotas-high-pe-ratio-10010880.aspx?sort=whole#10042974 https://boards.fool.com/toyotas-high-pe-ratio-10010880.aspx?... Now the _average_ is higher!
    - garmaine 6y ago
      That doesn't fit the context of the above statement though, which was something about pandemics and general 2020 craziness. There's no indication that a "return to normalcy" regarding that is just around the corner.
- n_io 6y ago
  I think that sounds about right. Short of a complete black swan it's bound to be one or a combination of the factors you mentioned.

Silhouette 6y ago

The interesting twist this time is that we might actually be seeing the start of a profound and permanent change in our lifestyles, and some part of the big increases in the values of tech stocks is probably a rational response to that. The trillion dollar question is, how much? Assuming we overcome the virus and life returns to something like what it used to be, does anyone think we won't still see a significant shift in working patterns? WFH has been a revelation to many people and many employers, and its pros and cons are probably better understood now than they ever have been before. I doubt we'll see anything as dramatic as everyone wanting to work from home full time, not least because I think a lot of people underestimated the downsides before they tried it, but I expect we'll still see a lot more remote working than before. Both our homes and other local venues amenable to it will adapt accordingly, and technologies that support remote collaboration in its many forms will continue to be vital. The shift to buying more goods and accessing more services online instead of physically going out has forced rapid changes in many businesses and other organisations. That includes many smaller places that haven't traditionally had much interest in or need for technology. Those changes won't suddenly get undone even when we all start going out more again. So again, the technologies now supporting online shopping and services probably have increased significantly in real value.

gdyuytgh 6y ago
My guess is that the ruling class of the US has been spoiled by the China's governance model and now wants the same here. They see USA v2 as one huge corporation: it's simply more efficient when the growth phase is over. Fed invests into the big corps to consolidate power. Some folks in the ruling class didn't like the idea and left the US to New Zealand and other places. I'd also add that 25th and 75th year of every century are turning points: the sudden influx of ideas and highly capable people stirs the pot and pushes the progress forward. We're approaching the end of the age started in 1925: opportunities depleted, morale is low, cynical people extracting whatever valuable is left. 2025 is supposed to unlock new ideas and opportunities that'll set the trajectory for the next century.

logicslave 6y ago

People have been calling tech "overvalued" since 2005. Its a misnomer, and everyone who has used that as in investment philosophy has lost tons of money. Tech is here to stay, and as an investment, offers significantly more leverage than elsewhere. Tech is twice as valuable relative to other investments. You dont understand how markets work Buffet is an old out of touch man, who got rich buying the hot stocks of his day. He has lagged the market for 15 years

HPsquared 6y ago
To quote Keynes, "markets can remain irrational longer than you can stay solvent"
- n_io 6y ago
  Great quote
function_seven 6y ago
EDIT: Apparently I'm out of my depth here. Leaving my comment below for posterity. > He has lagged the market for 15 years Here's Berkshire's performance compared to the S&P500, over the last 20 years: https://imgur.com/Ssfon56 https://imgur.com/Ssfon56 S&P doubled your money, BRK quintupled it.
- smabie 6y ago
  Your chart is incorrect. With split and dividend adjustments, the returns are almost identical from 2002 onwards (I don't have personal data before 2002). 2002 to date, BRK had a 8% annualized return and the S&P 500 has a 7.8% return. However, BRK has a lower Sharpe ratio (0.38) than the S&P 500 (0.4). So in a real sense, SPY has outperformed BRK. That's not to say that an investment in BRK is irrational, the beta is low (0.71) and the correlation to the market is low as well (0.65). You can't just naively compare some price chart, finance doesn't work like that. Source: I work as a quant
  - 6y ago

greatwave1 6y ago

With interest rates near 0%, equities are one of the few places you can expect to earn a reasonable yield on capital. The Fed has made it clear they don't plan to raise rates in the foreseeable future, so don't count on the demand for stocks to go away anytime soon. If you're curious about how retail confidence is holding up, here's a dashboard I'm building to track discussion on the notorious WallStreetBets subreddit: https://www.quiverquant.com/wallstreetbets/ https://www.quiverquant.com/wallstreetbets/

deleted 6y ago
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divbzero 6y ago
Yes, and in addition to near-zero rates for the foreseeable future, the Fed has also shown a willingness to engage in QE and other unconventional forms of monetary stimulus. This is a key driver of the continued climb in equity and real estate assets that seems to defy economic reality.
- bsder 6y ago
  > This is a key driver of the continued climb of equity and real estate assets that seems to defy economic reality. The real estate crash hasn't rippled ... yet. Lots of younger people have moved home. High cost-of-living rental areas are going to lose those renters permanently. Once those younger people swallow their pride and move home ... there really isn't anything pulling them back. Commercial real estate is like Wile E. Coyote running in mid-air trying not to look down. The commercial real estate has lots of empty spaces with no real prospect of refilling them ... yet they're placing those on the books by tacking them onto the end of the financing at the same level as they were when they were rented. That works great ... until the cash flow can't support anything at which point it all collapses together. Of course, this is all going to hang together like the traders before 2008: "They're is a crash coming. If I'm right, it's almost impossible for me to diversify enough to survive because the trashing is going to be so thorough. If I'm wrong, I look like an idiot and lose money. So, I'll close my eyes and toe the company line and see if I can cash out before the devastation."

christkv 6y ago

With the fed buying debt like a drunk sailor the money released has to go somewhere. That somewhere seems to be the stock market right now. It feels like the fed is testing to avoid 2007 again but just buying the bad debt early.

takeda 6y ago
They only want to keep the market a.k.a. "the economy" looking good before Nov 3rd.
- laurent92 6y ago
  The Fed is independent from the government. But that’s theory. Can you explain more what the influences are between a given party in power and the Fed?
  - takeda 6y ago
    Fed supposed to be independent, yet they lowered interest rate to 0% before pandemic when the economy was supposedly doing really well.
  - gdyuytgh 6y ago
    Isn't the head of Fed a Trump's appointee?

mtgx 6y ago

> I moved all my money to "value" stocks last week Why not something that has less of a chance to fall in a recession, like gold?

zwarag 6y ago

If I may ask, what do you mean by “value” stocks?

skohan 6y ago
Stocks with a low P/E ratio. I.e. the total market cap is low relative to their earnings.
- dmurray 6y ago
  That's not the definition used in the article, which looks at stocks which have low market cap compared to book value, i.e. total reported assets.
  - mcguire 6y ago
    Those are two valid definitions of value stocks. Earnings are easy to calculate but not terribly good. Book value is a better measure but it's just a made-up number.
- mxschumacher 6y ago
  The p/e ratio is extremely crude and should be avoided at all costs. The metric completely disregards capital structure (debt to equity) and uses earnings at a single point in time. Earnings can easily be manipulated. Better to look at Enterprise value / free cash flow

skohan 6y ago

So I read somewhere that 40+% of all investors are currently leveraged, which seems like an insane figure given the recent influx of "Robinhood investors" into the market. It makes me wonder: who's on the hook if all these unsophisticated investors get wiped out? For a lot of these investors, it will be catastrophic to their personal finances, and this might have knock-on effects on landlords for example when these people can't make rent. Presumably this would also result in a lot of bankruptcies, and if that is the case who is on the hook for all that debt? Probably credit card companies, mortgage lenders, but what I don't know is who is the owner of the debt for leveraged trading? Is that the brokerage themselves? Is it banks? Someone else?

dmurray 6y ago
> 40+% of all investors are currently leveraged, which seems like an insane figure This does sound insanely high given how many investors have passive portfolios. I'm guessing "leveraged" means something closer to "owns at least one option" than "would be wiped out in a 25% market correction". As for people not being able to make rent if their investments go bad, there aren't many people who are paying their rent out of their personal savings and relying on their investments. Most people work, pay rent out of their earnings, and if they're lucky put some of the excess into savings or brokerage accounts. People with larger savings are likely to own their own home. Of course, if there's a market downturn this will lead to bankruptcies, rent defaults and a knock on effect on landlords, lenders, etc. But the main causal method there is people losing their jobs, not their savings.
- skohan 6y ago
  > I'm guessing "leveraged" means something closer to "owns at least one option" than "would be wiped out in a 25% market correction". I hope so, but do we know this? My understanding is that apps like Robinhood make it very easy to do options trading, and there's a whole online subculture around this type of trading. Can we actually rule out the possibility that a non-trivial percentage of the recent run-up of the stock market is based on "dumb money" from unsophisticated investors, much of which they may not actually have? edit: Also I just searched Robin-hood options trading on youtube and this video was the second result: https://youtu.be/EQRLRYvRYOM?t=568 https://youtu.be/EQRLRYvRYOM?t=568 I find the UI effect when he finishes the option buy to be very telling, and it's interesting to think about who the intended audience of this content is.

wsc981 6y ago

Buffett also moved into the gold market [0], which he never really liked in the past. Perhaps he still doesn’t like it but believes it’s one of the better places to allocate his resources right now. --- [0]: https://www.marketwatch.com/story/warren-buffett-undergoes-a-conversion-on-gold-should-you-follow-him-2020-08-17 https://www.marketwatch.com/story/warren-buffett-undergoes-a...

mxschumacher 6y ago
It's probably not Buffett who made that decision but rather one of the two other investors tasked with putting berkshire's cash to work: todd Combs and ted weschler. The investment in barrick gold is tiny in relation to brk's other investments. About $500m in a $210bn+ portfolio of public stocks (which in turn are smaller than their privately owned firms). Additionally, Berkshire's holds about $147bn in cash so let's please not get carried away with the gold comments.

x87678r 6y ago

The thing about low rates is discounted future cashflows make fast growing companies very valuable, which is why you're seeing Tech outperformance.

mlthoughts2018 6y ago

> “ How does virtually every tech company become twice as valuable in 6 months? They don't.” I think you’re actually wrong on this point. Entrenched incumbent companies like Amazon and Microsoft do become 2x valuable in a time when all kinds of growing startup competition is shuttering due to covid-19 related economic changes. It’s not an expression of say Amazon’s existing business capabilities, but rather its moat and financial security to be in leader position when the crises subside, and in a position to squash or acquire poorly capitalized new competition that couldn’t endure the financial stress of the economic situation. Very unlike 2000, you have several huge, multi-industry conglomerate tech companies with vastly more products, reach and relative capital reserves. It makes total sense to speculate those incumbents will completely rule the day for the next 10 years, and it will take a long time for new, effective competition to return. When people consider where Amazon will be in 10 years, ~2x price change during the middle of a global crisis where Amazon seems to be doing ok - this makes sense. Like any price speculation, there’s risk and it might not be correct. But it’s not a wildly crazy bubble like 1999 - the situations are very different and the types of businesses seeing high valuations are totally different.

dannyw 6y ago
In 2019, Apple paid ~1.7% in dividend yield when 10YR treasuries were paying ~1.7%. In 2020, Apple now pays ~0.77% in dividend yield, and 10YR treasuries pay ~0.7%. Stocks doubling is just monetary policy in action.

quickthrowman 6y ago

> Tech bubble like 1999 It’s not 1999, the biggest tech companies make a ton of money. > Remember when Buffet said to be fearful when others are greedy? Well right now he's investing out in Japan Berkshire bought into the SNOW IPO last week... That’s an American tech company. > I bought into value stocks last week You can hold IWM, I’ll stick with XLK. I bet I’m up more than you one year from today. Mega caps can use 0% financing a lot more effectively than small caps can.

freehunter 6y ago
Microsoft, IBM, and Sun were all profitable in 1999 too. It’s not the big tech companies that people were/are worried about, it’s the billion dollar startups who will collapse in a year or two. Uber and Palantir (et al) aren’t Hewlett-Packard, they’re Pets.com.
- quickthrowman 6y ago
  > Microsoft, IBM, and Sun Did not make up 20% of SPX in 1999. FB, AAPL, MSFT, GOOG and AMZN do.
louthy 6y ago
> I bet I’m up more than you one year from today. Those are exactly the types of exuberant comments that are hyper prevalent before a crash.
- quickthrowman 6y ago
  What are your positions? My retirement funds are 100% US equities, overweight tech. My taxable account is 150% into pure tech. I’m not just saying words on the internet, I’m putting money behind my thesis.
  - freehunter 6y ago
    Yep and there are plenty of gamblers on /r/wallstreetbets going broke (and sometimes committing suicide) following strategies like this. It may be working for you and you may have the risk appetite for it, but encouraging other people to pursue ultra-risky investments (really, to gamble with money they don’t have) is incredibly dangerous and has resulted in at least one human death.

looping__lui 6y ago

I think the idea behind “value stocks” if I remember the Intelligent Investor correctly was about “book vs. market value” in many aspects. “Buy stocks worth a dollar for pennies”. I think times have changed. When the automotive industry falters, the assets won’t be worth anything near “book value”. A very wealthy (now retired) investment banker once told me: “The stock market over-reacts, but is right about the general direction”. Growth potential, margins and inflation drive stock prices. I don’t see how tech could be anything but a winner. If anything, Corona has accelerated the need for digitization and buying patterns change. Buffet did horribly during the crisis. He admittedly undervalued Tech and invested in Airlines - big regrets. I do not think a lot of industries will go back to the way things were. Why travel in planes if you can do zoom meetings? Why your own car when you can work from home? Personally, I would rather be worried about the real estate market and office buildings folding in value...

letstryagain2 6y ago
If value investing ever worked is up for debate, at least in the sense of Buffet. The government bailed him out in 2008 “The stock market over-reacts, but is right about the general direction”. This is similiar but different to what Kostalany said: "Stockmarket and economy move like a dog and his owner; the dog walks sometimes behind, sometimes in front of him but always comes back." I like the description from Kostalany more. But in fact I believe that stocks and economy move only together in very long cycles. But you thing the automotive industry will falter AND people will move more to the country side? You obviously have never lived outside a big city.
playingchanges 6y ago
Thanks for that quote, an interesting idea to chew on. Another I’ve heard is ‘always assume you’re in a bull market until proven otherwise’.
- looping__lui 6y ago
  Thats another good one...
6y ago

fredgrott 6y ago

not entirely true..as while early stage startups saw an increase in VC flow, the non early stage startups did not

deleted 6y ago

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tempsy 6y ago

Just because value is logically "cheaper" doesn't mean its a prudent strategy... Should definitely reconsider putting all your eggs in one basket when it comes to value vs growth.

dangus 6y ago

One of the big reasons that tech and knowledge companies outperform their book value is because of intangible assets. You can’t represent unmeasurable assets on a balance sheet (thanks intro to financial accounting, I got my tuition money’s worth I guess) Things like future performance and intangible competitive advantages (e.g. Apple’s growing “ecosystem”) aren’t part of financial statements. We should expect value to be low right now. Many businesses are closed or below normal operating capacity. But in the future? These tech companies aren’t going anywhere and if anything COVID-19 is cementing their position. I think tech companies have more elastic costs than companies with physical products and factories. The tech companies facing unfortunate circumstances (Uber, Groupon) can just cut payroll and run on a skeleton crew with few consequences. They aren’t paying rent on thousands of retail storefronts. Their cloud computing scales down. The software is already written. Even if people are just using companies to store their money while interest rates are low, I’m not sure it matters, because there’s no good reason to sell.

flyGuyOnTheSly 6y ago

One thing a lot of people fail to see or think about is the federal reserve literally propping up the stock market with cheap available cash. This year, the federal reserve not only added over $3T (trillion) USD to the money supply, they effectively inflated the money supply infinitely by removing the reserve requirements of partner banks (who add to the money supply by creating loans on collateral given to them) completely. I am not kidding. [0] As of March 26th 2020, banks literally need to hold no capital in reserve to hand out loans (aka inflating the money supply). Stock values are increasing because there is an infinite amount of money floating around and most everybody you know is blissfully unaware of that fact. We are in uncharted waters now. The reserve requirement was always 10% I believe from the day the federal reserve opened up shop. Now it's 0%. That is insanity. I seriously worry the US is in for a taste of hyperinflation very soon. [0] https://www.federalreserve.gov/monetarypolicy/reservereq.htm https://www.federalreserve.gov/monetarypolicy/reservereq.htm

BurningFrog 6y ago
Right, in this view stocks are not overvalued. The US dollar is. Not sure that is the dominant factor, but I'm buying Bitcoin for the first time in my life.

derefr 6y ago

> How does virtually every tech company become twice as valuable in 6 months? If every human suddenly became a celiac — with some cases definitely being temporary and some definitely being permanent, but most being indeterminate — the gluten-free food industry would experience unprecedented projected growth. Instead, every human is stuck in their houses at once, and every job has become remote at once... with some cases being definitely temporary, some definitely permanent, but most indeterminate. Why wouldn’t the industry that delivers products and services to enable people to work, have fun, eat, communicate, etc. from home, not then experience unprecedented projected growth?

BenoitEssiambre 6y ago

>Remember when Buffet said to be fearful when others are greedy? Except everyone seems to be having this same discourse. I hear this as everyone being fearful, time to be greedy?

starpilot 6y ago

Calibrate this comment with the fact that HNers are perma-bears and were saying it was time to sell during the bottom of the COVID-19 crash. "Like catching a falling knife," "Historical crashes dropped 60% more than this. A long way to go" and the like. Ignore HN if you have any plans to make money from this market. That's what I did.

switch11 6y ago

you know something is wrong when Hacker News has better investment advice than all the 'experts' on Wall Street anyways, very happy to see so many people get it