Switzer TV – Can this current bull market rally end up being a bear market again?
Roger joined Peter Switzer and Rhett Kessler on Switzer TV to discuss whether we will see another sell-off in the market. Any further volatility would be associated with more clarity around the economic impacts and how companies will emerge post pandemic. Roger also briefly discussed how our funds are positioned and which companies we believe have long term tailwinds and are leveraged to a recovery. You can hear Roger’s thoughts from the 10:20 mark.
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.
Chris
:
“Have millennials created the stockmarket boom ?”
Roger, yes they have. Take a look at the AFR article “Meet the sharemarket’s corona generation” on 12 June 2020, RobinHood and such Reddit forums as ASX_bets and WallStreet Bets.
This current crop of “investors” (cough, speculators) in these forums think that they are utterly bulletproof and are unknowingly being lulled by a false sense of security (sic) from so-called ‘easy money’ that they all very aggressively claiming to be making right now on stocks (or as they say, “stonks”) such as NVX, AT1, APT, FXL, SWF and SMP.
Outlandish claims about particular trades “going to the moon” are made, but disagreeing or questioning is just asking to get shot down in flames.
I can’t wait to see them get wiped out.
Roger Montgomery
:
Hey Chris,
The combination of millions ensconced at home during the Coronavirus lockdowns along with the suspension of major sporting events and the closure of casinos, meant the only avenue for the huge pent demand to gamble was the stock market. People generally like action and activity, with a little bit of danger, which is why gambling has so much appeal.
Consequently, the number of accounts at online brokers, especially those offering zero commission (they widen the spread on trades to make their money) skyrocketed.
The evidence of a bubble can be seen in the frenzied selection of stocks that have materially diminished intrinsic values and cash flow prospects. Travel stocks such as Carnival Cruises jumped from US$8.00 to almost US$25.00, despite the fact the company is unlikely to see passenger volumes return to anything approximating pre-Covid levels for many years. Stocks in the worthless equity of bankrupt companies, such as JC Penny and Hertz also surged, simultaneously highlighting the improbability of a return on capital while revealing the mindless nature of the choices being made by the inexperienced.
Quality, prospects and value is of course of little concern if someone is likely to pay even more, for the widget upon which a bet is laid, tomorrow, next week or in the next hour.
All my analysis and experience of past bubbles confirms that, for a relatively short time, the whole contagion becomes self-fulfilling. Gains beget gains and wins beget confidence.
Unfortunately, early and undeserved success usually ‘sedates rationality’ and this was the phenomenon we saw during the dot-com boom of 1999 and early 2000. Indeed, at that time Warren Buffett observed; “Nothing sedates rationality like large doses of effortless money,” adding “Normally sensible people drift into behaviour akin to that of Cinderella at the ball…They know that overstaying the festivities – that is, continuing to speculate in companies that have gigantic valuations relative to the cash they are likely to generate in the future – will eventually bring on pumpkins and mice…But they nevertheless hate to miss a single minute of what is one helluva party”.
Of course, as I have observed myself, this is a party where the clocks have no hands; as Buffett once quipped, “a pin lies in wait for every bubble”.
Inevitably, a new generation of traders will learn a bunch of old generation lessons and their poorly performing trades will become long-term investments. Perhaps very long-term investments; ‘if only the stock would return to the price paid’.