I was greeted one morning last week by US Economist Irving Fisher’s words on excessive levels of share prices in the States. He noted share prices have ‘reached what looks like a permanently high plateau’. He said this nine days before the Wall Street Crash in 1929. Anyone in US tech stocks points to the new paradigm now of course. We’re steering clear at these levels – very clear. We deal with investing and not sheer speculation based on excessive buying demand by greedy individuals who don’t realise that you can lose as well as gain from such strategies, when not founded on real value with what they are chasing. I have noted before that the Financial Times has been floating the most warnings that I recall seeing about this particular bubble mania but so far, to no avail.
The latest speculative froth has been the ‘Reddit’ blogs and investor frenzy over ‘Gamestop’ which has seen some of the most volatile prices of any stock – entirely speculation and at one stage the ‘short interest’ represented 261% of the total value of the Company according to Morningstar. In simple terms, this means that people had borrowed someone else’s shares to then sell them, these had then been lent-on again and so on and each person selling something he doesn’t have, expecting to buy-in lower down to replace the shares borrowed originally. So, GameStop, a failing video game retailing company, saw its shares go from $17.25 on 4 January to nearly $500 before plummeting back to $63 today. We were also reminded by Albert Edwards at Société Générale ‘One of the surest signs a bubble is close to bursting is when the retail investor piles in with leverage (borrowing)’.
And you may think you are ‘safe’ in your cheap ‘Tracker funds’ but have you stopped to look under the bonnet? The MSCI Global Index is the most followed form of passive investing with 66% of your money in the US. The biggest seven companies counting for most exposure each (not in order) are Tesla, Facebook, Microsoft, Google (through its two ‘Alphabet’ companies), Apple and Amazon. If you have money in ‘ethical funds’ then in most instances you will be replicating this list, even if these companies’ ‘ethical’ standards leave much to be desired, especially for censorship, scam promoting or paying appropriate taxes as part of their social and moral duties. The UK counts for only 4.3% of the index and Japan, which was the biggest by far in 1989, 8%. Globally, ‘information technology’ and ‘communication services’ count for 31% and some tech hides under ‘consumer’ sectors too. I share this as a warning. As value investors we aren’t playing this ‘game’.