Are you a bull or a bear? Part 1: Reasons to be bearish
If you’re unsure whether to feel positive or negative about equity markets right now, you’re not alone. Investors are strongly divided on whether markets are fair value, or too expensive and about to collapse – and there are compelling reasons for both positions. Let’s look at the reasons to be bearish. In my next blog, I’ll look at reasons to be bullish.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
Cameron Hawkins
:
Part of the market is terrifyingly expensive, other parts are at fair value or even good value. Is the fear that if the high priced stocks go pop the rest of the market with be caught in the shockwave and fall precipitously?
Assuming that big tech is overvalued, but noting prior posts which indicate some fundamental support for elevated P/Es, what is the catalyst for bursting the tech bubble? It seems that many of the fears about the market have not been realised, and that is not to say that a known or unknown issue may arise, but in the meantime good investment/profit making opportunities may have been foregone.
Is it simply possible that an orderly rotation from big tech to cyclicals and value stocks will occur if/when vaccines and/or effective treatments are found, or the world simply accepts that the virus must be lived with and that economies can’t be shuttered forever?
Roger Montgomery
:
Hi Cameron, In terms of your first and third questions, yes that is a well trodden path that markets have taken in the past. This time however could simply see the leadership change. In terms of the second query, the belief that a catalyst must exist to trigger a bursting of a bubble is probably false. Many reversals have occurred on a change in sentiment that was only articulated post facto. And you are right, even during a period where the market is declining, there are catalysts that can always cause individual companies to surge. For that reason one should always focus on the individual businesses, remembering good things tend to happen to good companies.
Luke Joseph
:
I’ve never understood the comparison of companies’ market caps to countries’ GDP/GNP. Surely that’s an apples to oranges comparison. One measures price/value and the other annual output/revenue. Would it not be more accurate to compare revenues to GDP instead of market caps?
Roger Montgomery
:
You are on the right path I think Luke. And when a company generates, for example, 50% of its revenue overseas, why should its market cap have any relationship to domestic GDP? When Buffett proposed this ratio many of the companies that made up the index generated the vast majority of revenues and income from their local market.