Why you should shun stocks
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This genius investor does dizzying levels of research to uncover...Half Price Shares!
A professional investor tells MoneyWeek where he'd put his money now. this week: Tim Price, senior investment strategist at Ansbacher & Co.
Six more weeks of winter. Such was the conclusion of groundhog Punxsutawney Phil on seeing his own shadow on Wednesday morning. (For the non-cineastes, Groundhog Day was one of the best comedies of the 1990s, based on the same events reoccurring daily.) Now financial markets seem to be caught in their own existentialist nightmare of endless recurrence. No matter what the world can throw at them (a weaker dollar, a tech-sector collapse, a tightening Fed, a Bush re-election), they just keep on muddling through. As the film asked, “What if you were stuck in the same place, and every day was the same, and nothing you did mattered?”
That about sums it up for the markets - and for chairman of the Federal Reserve, Alan Greenspan, whose five recent rate hikes have thus far done little to dampen the animal spirits of either equity or bond-market investors.
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As Richard Waters writes in the FT, Google’s admittedly impressive revenue growth proffers a tenuous lifeline for those investors who still believe “that tech is somehow ‘special’, justifying a premium valuation to the rest of the stockmarket”. The grinding bear market in technology stocks has done little to dent confidence in the sector. And yet Amazon shares fell by 17% in one day this week, their largest fall for three years, because profits failed to meet analysts’ forecasts. Of course, just as eBay is as much a retailer as ‘tech’ stock, so is Amazon, but both are afforded a premium rating by the market on account of internet pixie dust. So it is intriguing, and not a little disconcerting, to hear of the ugly effects of competition. “The picture is getting worse,” commented Safa Rashtchy of Piper Jaffray, to Bloomberg News. “Competition is seriously hurting Amazon and it needs to increase spending just to keep up with the market.” Whatever happened to the putative benefits of ‘first mover advantage’?
In an article for BusinessWeek, Timothy Mullaney asks, in the light of eBay’shigh-profile stock-price decline, “so what’s an investor, especially one with a nose for value, to do?” Mullaney suggests that smaller internet stocks are a safer bet. What I find galling about this conclusion is the implicit presumption that investors must be invested in stocks, and must be invested in internet stocks (and yes, the reference to ‘value’ in this context is also hard to swallow). Equity markets are no more rational now, with internet stocks tumbling (again), than they were back in 1999, when the sector was on fire and soaring into the ether. It’s merely surprising to see such extreme emotion at work in the market, given the vast sums destroyed in the last blitz.
How on earth can one invest with confidence in an area of the market so absurdly vulnerable to the vicissitudes of global technology markets, consumer spending and aggressive competition? The answer is that, essentially, one can’t as an individual; the winners here are, and will continue to be, those venture capital (VC) firms with wallets deep enough to get diversified exposure to such an inherently high-risk sector from the ground floor. By the time Google and its ilk make their way to the public markets, the insiders and VC backers, having only floated a tiny, unrepresentative portion of the equity, are planning their escape routes. Whether public internet stocks are “suitable” for individual investors is a bit like asking whether a weekend in Las Vegas is - it’s ultimately a function of appetite for risk.The ongoing ‘echo boom’ by a (now dwindling) number of internet and technology stocks serves as a potent reminder of the validity of Lord Overstone’s words, “No warning can save a people determined to grow suddenly rich.
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