Market Sentiment

As we enter a new year, the Covid-19 vaccines (and for the UK, Brexit) will dominate the shifts of sentiment for some time but a light at the end of a very long tunnel is fast approaching and it isn’t a train coming the other way. That’s good news but as the twenty-first anniversary of the peak of the Tech Bubble fast approaches (31 Dec 1999), we celebrate that by seeing the US market on its most expensive valuation on numerous criteria since then and way above the excesses which preceded the 1929 Wall Street Crash (curiously driven-up by some of the ‘same’ things, the ‘invisible opportunities’ expected from mains’ electricity, the white goods alongside that and the advent of radio). In context too, the US market is at twice its long-term average valuation base. Why is it that the cycles show that humankind becomes so carried-away with the values of things which cannot be seen, moreso than things which can be, like a lump of gold, which has its own tangible excesses? History has also been a helpful guide to how quickly sentiment can head into reverse and the carnage that can cause.

Should mainstream investors be worried? Yes, if you have buckets full of ‘tech’ and index-trackers which hold that stuff and the US market (theoretically ‘worth’ a phenomenal $41trillion now) dominated by it too. Curiously in 1999/2000, the FTSE250 (so the UK companies from 101-250 in market size) didn’t even flinch and ended the next year higher and without any blip in value at all. The tech heavy NASDAQ peaked similarly and by 31 March 2001, it had dropped by 40%. That could happen easily now – and maybe even more as so many tech companies are stratospherically inflated and supported by so much hot money that only likes it when things keep going up excessively. Interestingly too but perhaps the most respected and independent financial publication in the World, the Financial Times, is running more and more warnings about these excessive valuations – is anyone listening… we are and have been for some time. ‘Value’ on old-fashioned criteria could be in for a great resurgence so its future looks bright! Again, contextualising this, G4S shares fell to 70p in March. Yes, we have quite a few and that showed a big paper loss for us. However, the whole Company is being bid by corporate entities which know it is too cheap. The latest price on the market? £2.56 as two suitors are battling against one another. That’s almost four times higher than March and some fools were selling-out then. That may still be lower than the peak in 2017 but we chased them down as low as we could, thereby averaging down the cost price.