Has the market run too hard?

16072020_Market run too hard

Has the market run too hard?

Who would have thought that, just four months after the market’s March nadir, many stocks would not only have recovered but be at new all-time highs? Or that businesses like Afterpay, which has still to turn a profit, would be trading at such lofty prices?  The big question is: how long can this unbridled enthusiasm continue?


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Roger is the Founder and Chief Investment Officer of Montgomery Investment Management. Roger brings more than two decades of investment and financial market experience, knowledge and relationships to bear in his role as Chief Investment Officer. 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.

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  1. ‘This time it is different’ are dangerous words indeed but these circumstances are different to anything seen before although I suspect the ultimate outcome will end up the same. Never before have we seen such low interest rates virtually forcing older Australians to the sharemarket to get a ‘liveable’ return. Never before have we seen such Government largesse to younger Australians with this ‘free’ money being used to play the sharemarket to strike it rich. For the younger people it is like being given money to go to the casino to gamble with no consequences.

    I know it will end when governments run out of money. But the big question is ‘What will make this happen?’ Governments seem quite willing to keep piling up the debt and/or printing money. The probable end game is truly terrifying for not only us older retired investors but for society generally.

  2. Thank you, Roger. Apparently now, however, government spending no longer needs to be funded via taxation and debt issuance and in fact taxation is merely a tool to control inflation (the ‘insights’ of “Modern Monetary Theory”). I seem to recall declarations of a new paradigm during the dot.com boom that dismissed profitability and even meaningful revenue and focused instead on the cash burn rate.

    Nevertheless, Roger, surely you wouldn’t be human if you didn’t begin to question yourself at least a little when you see the stock price continue to rise and rise? I know I have a general rule of thumb that when I’m finally tempted to join the speculative frenzy that the end is almost certainly nigh, but the fear of missing out remains a formidable adversary.

    • Yes Alistair, My personal investing experience before, during and after ‘new paradigms’ of the past suggests there’s an element of irrational exuberance here. On the other hand, some of the leading technology companies have all the elements of a quality business (high return in incremental capital driven by sustainable competitive advantages and low debt) that Warren Buffett has always advocated. The scarcity of these monopolies makes them extremely valuable, especially when rates are low. I just bring myself to believe that current multiples are sustainable. With respect to questioning ourselves, the answer is yes, every day. That is part of the job of an analyst to be open to seeing the inverse.

  3. Hi Roger

    Your comments make sense.

    The upcoming reporting season could be the trigger for the next substantial selloff. At the end of the day it’s EPS growth and Free Cash Flow that counts when determining the fair value of any Business, but it appears the Market is currently ignoring that. There is too much cheap money on the hunt for Investment opportunities and that forces prices up – commonsense and wisdom should tell us all to be cautious in the current uncertain environment , but many participants treat the Sharemarket like a casino and I don’t see that changing.

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