In today’s Exponential Investor

  • One major correction?
  • $30 trillion Tesla
  • 20-year winners?

Shouldn’t your portfolio be healthier than ever? Shouldn’t you be rich like everyone else right now?

That’s what the financial media seems to be saying.

The US markets in particular just keep going onwards and upwards.

The Nasdaq Composite hit another all-time high last week. There’s just no stopping that index, and everyone is getting rich.



The correction that no one has told you about

In fact, not only has the global stock market been in the midst of a major correction but it has been absolutely wrecked over the last nine months.

While this may give pause for some serious concern, I believe that quite the opposite is true.

I suggest that now is the greatest time there has been to be an investor. If you’ve got the appetite for a bit of risk and a pretty decent timeframe, then roll out the capital because we might be looking at one of the most attractive lists of 20-year opportunities ever.

Please read on – and especially if the comment in this introduction about the major correction sounds outrageous to you…

Trillion is the new billion

On 16 November, the New York Stock Exchange (NYSE) Composite Index hit its all-time high of 17,364 points.

Monday 22 November, just two days ago, the Nasdaq Composite index hit its all-time high of 16,212 points.

When looking at these indices, it’s pretty fair to say: “up the numbers go”.

Now if you’d held these as index trackers over the last five years, you’ll have done pretty well… well at least with the Nasdaq. The Nasdaq Composite is about three-times higher than it was five years ago.

The NYSE Composite is up about 54% over the last five years. Again, that is nothing to sneeze at considering the rampant bull market that we’ve seen over that time.

And there’s a pretty good argument that when building a portfolio for the long term, some passive style “defensive” plays like these aren’t a bad idea.

However, we all know there have been some absolutely insane single stock performances over that time frame too. Most of these have been concentrated to “tech” stocks.

These are stocks like Tesla Inc (NASDAQ:TSLA) that, over five years, are up by around 2,600%. Another example is Square Inc. (NYSE:SQ), which is up around 1,500% over five years. Shopify (NYSE:SHOP) has been another market darling, rising by around 3,600% in the last five years.

If you have one or two stocks like that in your portfolio… riches will be yours.

However, when you look at the market today, some of the valuations of the companies that have been great performers over the last few years are a bit scary.

Look at the market capitalisations (i.e. the number of shares in each case multiplied by the share price): Tesla, $1.16 trillion; Shopify, $201 billion; and Square, $92 billion.

The question you then start to think about is, can any of these continue that trajectory?

In another five years will Tesla be worth around $30 trillion?

Will Shopify be creeping towards $7.5 trillion?

Can Square crack the big one, and then head towards $1.5 trillion?

Is the trillion-dollar company the “new” billion-dollar company?

Time to buy?

Instinctually my first reaction to those questions is (in order from Tesla), no, no, no and probably yes.

As an investor, you look at a company and try to figure out if it will be worth more in the future than it is today.

You also try to figure out just how much bigger it could be and what kind of return you’re aiming for.

If you’re thinking about single-digit returns, maybe solid double-digit returns, then you probably aren’t even thinking about stock picking – why would you when the indexes (it seems) are more than capable of achieving that, and then some.

But if you’re hunting for real portfolio changers, the likes of Tesla, Shopify and Square, in today’s market, then it can be a little dicey.

You see while it might appear that “up the numbers go” applies across the board, that’s not completely true at the moment.

In fact, you can run through some of the apparent market “darlings” over the last two years to find they’re all at pretty hefty discounts to all-time highs.

Here’s a list of some of the “hottest” stocks from the last two years and their 52-week highs (also their all-time highs):

  • Zoom Video Communications $486
  • Peloton $171
  • Virgin Galactic $62
  • Roku $490
  • Robinhood $85
  • Palantir $45
  • Beyond Meat $221
  • Zillow $212
  • Nikola $37

Most of these stocks hit these all-time highs earlier this year, around February.

Here’s the same list, with the current prices and the drop from the highs to now:

  • Zoom Video Communications $242, down 50%
  • Peloton $44, down 74%
  • Virgin Galactic $17, down 72%
  • Roku $230, down 53%
  • Robinhood $27, down 66%
  • Palantir $20, down 55%
  • Beyond Meat $75, down 66%
  • Zillow $54, down 74%
  • Nikola $11, down 70%

Well, it seems that number doesn’t always go up.

Looking at this list these are still big companies. Palantir is still a $40 billion company: Robinhood, $20 billion; Roku $30 billion; and Zoom $70 billion!

So, is this fall from grace systemic, or a buying opportunity?

When we look at Beyond Meat down 66%, does that make it one to keep avoiding or one to consider for the long term? It’s the same with Zillow: is it a flash in the pan, or is this price weakness actually an opportunity to buy a great long-term stock?

Will any of them still be around in 20 years? Will the market for their products be bigger, smaller, can they grow and hit those highs again and more… or will they be one of the great market casualties from the “Covid-stock boom”?

Similar questions can be levelled at them all. I would add that this list isn’t extensive: there are dozens more stocks that peaked in February and that are down 50%, 60%, 70% and more from those highs.

This is how I look at the market now. I look at these stocks (and more) and wonder if this is the ultimate shopping list for 20-year timeframe stocks. Or, is it a list of losers?

I tend to think a few of these “fallen angels” have the potential to be great again, and then some. Which ones? Well only time will tell…

But I can see a number of stocks in the market now that have been smashed that I would want in my portfolio, my kids’ portfolios and the kind that you might want to consider for yours too.

Now isn’t the time to be fearful, now is the time to go shopping.

Until next time…

Sam Volkering
Editor, Exponential Investor