• 토요일, 10월 24일
토요일, 10월 24일

[Opinion] Are markets dominated by speculators these days?

[Opinion] Are markets dominated by speculators these days?

Picture=Wikipedia

[Newsphopick=Kingsley Lim] Few things would catch my attention these days. Retail investors seem a happy lot. Having made some money in the stock market recently, many gloat over the misfortunes of other investors. Take the example of one Gary Evans, the founder of Barstool Sports.

He said “"Buffett is an idiot! All I do is make money, this game is easy.  Literally the easiest game I've ever played.  All I do is print money. I should be up a billion dollars.”

When I read about things such as this, I get the feeling that irrationality has pervaded the world of finance. In fact, it has always been that way but with social media and attention-gathering folks such as Gary Evans, it makes these times a little more dangerous that the global financial crisis in 2008.

Without a doubt, I would advise against doing what Evans did in his attention-grabbing video over Twitter. While Buffett was actively selling airline stocks, the coronavirus had just hit and there was a 30 percent fall in the general indices. Of course, Buffett saw the entire picture, not as a singular event but an event which may be perpetuated for a long time to come.

Air travel and tourism were likely going to be one of the hardest hit sectors in the world and Buffett knew that. While reading an annual report on Cathay Pacific, even the CEO Patrick Healy was not confident of a recovery in 2021 and offered us something to ponder about – he thinks the Cathay will not see a recovery till 2024 and that is more than 2 years away. With a highly competitive industry such as airlines, it is likely that there will be high levels of cash burn in the next 2 years or more.

In a sense, Buffett was right but Evans was betting on a recovery in prices. It is a classic ‘buy the dip’ sort of thinking which has been prevalent in today’s markets made up of more speculators than investors. So far Evans was right in his call to buy airlines, but it was not based on a fundamental ideas. It was based on pure speculation and to think he even had the gall to brag about his profits speak volumes about today’s market speculators.

Profits come and go in the stock market and there will be winners and losses. The best investors in the world know this and remain humble in spite of victory. All great investors have had a poor call at some point in time. 

The other thing about investing is that you must survive the very game in order to thrive. Speculators which ignore rationality are really doing themselves a disservice. A half-year overall return with 5 years of losses will not do a portfolio any good. Rather a portfolio with 7 out of 10 years of compounding will really increase one’s wealth.

Recently, I wrote an article on the absurdity of Tesla’s valuation in the markets. I asked the question: Is Tesla’s Bubble About to Burst? . As I shared the article on Facebook, I have to say that I received a lot of attention. But the attention was not positive. Instead, it was negative to the point of pure ridicule. One commenter sarcastically said “You must have missed out on Tesla’s run!” Another participant in the Facebook group said “Of course not!” as he suggested that Tesla was still undervalued.

The interesting thing is that with all these comments, they all came from a single group of individuals. It was a ‘Robinhood’ group comprising of millennials who are new to the game of investing. Very often, they share ‘tips’ with one another and buy into the same stocks. If that is not herd mentality, then I do not know what is.

If this group is representative of today’s markets, then I think we have huge trouble when the markets are due for a correction because many of them will act in harmony to drive the markets down. Is the world getting crazy?

In a perfect world of course, rationality will prevail but we are living in a less than perfect world and these are times reminiscent of the dotcom bubble. Another investor who returned more than 4100% while betting on black swan events such as the coronavirus crisis also cautioned that today’s levels are overvalued.

“Stock market crashes happen as a direct result of overvaluation. I don’t think there are many people around right now that would argue against the fact markets are quite overvalued,” said Mark Spitznagel of Universa Investments.

He added “Maybe they’ll get more overvalued. I think that’s the argument for being long today is that …continued overvaluation and [they can] get even more so. But they’re overvalued and this is the setup up for left tail events in stock markets,” he cautioned.  

Would you agree with Mark? That is ultimately your call.

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