In today’s Exponential Investor…
- What did we say?
- When a crash can be good news
- Why you need to sit up and pay attention
Did you bother to listen to our Exponential Investor podcast on Friday?
I hope you did. Kit and I covered exactly what happened in the US markets at the end of the week. More than that, we explained what can happen when such a concentrated market corrects, crashes, burns to the ground.
If you didn’t bother listening to it, you probably should now. It’s a forecast of what could be a lot more pain to come for US tech stocks.
If you did listen, great. Get used to our Friday musings, these will be a regular thing to recap the week and try and make sense of these weird, wild and woolly markets.
Speaking of paying attention, I also hope you managed to have a good read of last Tuesday’s Exponential Investor.
I believe the sentence was,
In fact one of the hardest things in the world as an investor is to go against the grain not when things are bad… but when things are flying.
Using Tesla as the example, it’s near a $500 billion company. It also has never made an annual profit. And it’s being outsold in a number of global markets by newer, more cost-effective and better-quality competitors.
If you’re looking at a company like that, ask yourself, is it a trillion-dollar company? Will its value double again from here? Or if you’re in the stock, ask yourself, has it been a good, lucrative ride and is it time to cash in the proverbial chips?
This was Tuesday don’t forget when Tesla was trading over US$500 with a market cap up around half-a-trillion dollars.
And in Friday morning pre-market trading, Tesla was down to US$391 with a market cap sinking down towards US$350 billion.
A little bit of perspective
Now I’m the first to admit I’ve been wrong about the direction of the Tesla stock price before. However, you’ve got to really look at things with some level of perspective when they balloon so high.
Like when I ran a rough calculation of the value of Apple and Amazon combined around Tuesday last week, they came out with a rough market capitalisation of US$4 trillion. That worked out a bit over £3 trillion.
As a point of comparison, the market capitalisation of all companies trading on the London Stock Exchange is about £3.2 trillion.
Two big US tech companies worth about as much as around 2,000 companies listed on the London Stock Exchange.
How’s that for perspective?
The point here is simple. If you’re an investor, you want to invest in stocks that are going to deliver some big gains.
No one invests in stocks to lose money. The time frames and the risks vary. The kinds of stocks to invest in varies.
But when you’re buying stocks you don’t want to invest in something that is going to lose you money or just eke out average returns. Those kinds of stocks are worthless to you.
That’s why I’m saying that Apple’s stock, Tesla’s stock, Amazon’s stock for now, is worthless.
Apple isn’t going to double again from here and become a US$4 trillion company.
Apple on its own, isn’t going to be worth as much as every single stock that trades on the London Stock Exchange. I’m talking big names like BHP, Rio Tinto, Barclays, Rolls-Royce, Unilever, HSBC (to name a few from the top 100).
To think that Apple stock now is worth buying I think is utter insanity.
I think that most of the big US tech stocks are utter insanity at the values they’re trading at. I don’t deny they are worth something – Apple is a massive company that makes a lot of great stuff that sells. But it’s not a US$4 trillion company. Not now, not any time soon. The market might finally be waking up to that fact.
Same for Tesla. This stock has traded on a whim and hope for too long. Reckoning is coming – what we saw last week is a glimpse of the damage that can have.
And what we saw across all the major tech stocks was a little sneak preview of what I see more pain to come for the US tech market.
A proverbial “punter’s paradise”
However… even if there’s a major US tech correction or a US tech crash, that’s going to create some of the ripest conditions ever to pick stocks for big upside potential.
The only thing is that it won’t be the US market that you’ll need to be picking the winners from, it’ll be the London Stock Exchange.
If the US market pairs off some of the absurd gains we’ve seen recently, it’ll drag on wider markets. No doubt.
I’m saying, however, that the UK markets will be somewhat insulated from that. Big tech doesn’t dominate here like the US. Here there’s more opportunity in companies across all industries, and even more opportunity in smaller-cap UK listed companies that fit into some of the big investment trends that will dominate the next decade.
A big old US tech realignment is overdue and likely about to kick off. If it does, the UK market, particularly UK-listed small-cap stocks, could become the proverbial “punter’s paradise”.
I’m hoping this is a scenario that plays out as I expect. Should that happen, stay tuned, strap in and get ready because it could become the single best chance for UK investors to mint a small fortune we’ve ever seen.
Editor, Exponential Investor