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I have a confession to make.
These days, I’ve never made such easy money.
I know, I know – what a controversial thing to say The Frugal Samurai!
At the risk of sounding like a douchebag, please… hear me out.
Mind you, I’m not talking as if I am rollin’ in the Benjamins.
More like a few thou here or a few thou there.
You see, in the last couple of months, I have shifted a small allocation of our net wealth into the stock market… or rather into stonks.
Now, as a traditional value investor – I had always felt buying stocks was about understanding the value of a business based on its cash-flows derived from it’s revenues and earnings.
The less debt it had the better, oh and make sure there’s a good management team to boot.
But recently, as a kind of social experiment – I have been dabbling (gambling speculating) in the “growth” sector.
You know, the Teslas and AirBnBs of the world.
Where it’s less fundamentals and more story-telling.
And boy o boy, has it been rewarding.
The problem though, is that it feels too EASY.
And this is what’s making me uneasy.
The chart above is from Goldman Sachs.
It’s the rise in value of companies in the US in ‘innovative’ industries that are losing money. That is, they’re not profitable.
You can see there’s been tremendous growth from mid-March 2020 in these er, growth stocks.
Stocks which are tipped to one day be major players and become ludicrously profitable.
The most famous proponent of this strategy of course, is Amazon.
Which was loss-making for decades before turning green.
But do you notice the dates in that chart?
Doesn’t it seem awfully close to the depths of COVID?
Gosh, the future must be supernovic! COVID’s behind us, all system go, MOONROCKET HERE WE COME.
Unfortunately the world is no way a 10x better place to be doing business now than back in March 2020.
A key benefactor of this recent boom, is the richest man in the world – Elon Musk.
Courtesy of course, from the valuation of his company Tesla.
Now, before you think TheFrugalSamurai is a hater of Elon – please, I have no qualms with Elon.
I think he is one of those once-in-a-generation kind of geniuses who actually makes a difference to mankind and the history books.
A recent chart had me thinking and scratching my scruffy yet still darkened locks.
Yes that’s right, as of a couple of weeks ago, the market was valuing Tesla’s vehicles at $1.4m EACH.
That’s because Tesla sold 500,000 vehicles in the whole of 2020, whereas Toyota and VW sold over 10 million with GM at 7m and Ford at 5m.
Which somehow makes Tesla’s market valuation greater than all other car manufacturers COMBINED.
Now I don’t know if Tesla’s cars are intrinsically worth $1.4m each – they might one day.
But I’m going to say for the moment, probably not.
And this leads me to another event which occurred recently, that of GameStop and the infamous short squeeze.
For those uninitiated, Gamestop is kinda like EB Games here in Australia, and for years has been dying a slow death (like most retailers).
But in the last few days, something extraordinary happened, as follows:
- Gamestop shares was one of the most shorted stocks on the US market (shorting is profiting from a fall in stock price).
- r/WallStreetBets, the infamous reddit chain – started up a short squeeze (buying enough shares to increase the share price, thereby forcing short sellers to “cover” or buy-back their positions and further increasing the share price).
- The share price went from $40 to just under $150 in a few days.
- As the share price rose, notable Tweeters such as Chamath Palihapitiya and… Elon got involved, which pushed the share price higher.
- The share price basically doubled today, and has well… picture tells a thousand words.
Stories like these are uncommon, but not that uncommon if you know where to look.
The last couple of years has minted a whole new generation of retail stock millionaires, same goes with those lucky enough to have speculated on cryptocurrency.
In fact, one of my friends remarked recently, “what’s the big deal about making 20%+ a year??? That’s the MINIMUM”.
Messers Buffett and Munger eat your heart out.
Slowly rubs my nose and adjusts my eye glasses.
Everything I was taught in uni and grown up believing in the world of investing and finance seems to be turned upside down these days.
I really don’t know what to think or who to believe in anymore.
Will there be a crash? Yes! No! I don’t know!
All I know, is that when the music is playing, you just have to stand up and dance.
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Ummm… excuse me… u misquoted me in your financial blog… i said minimum is 120%…
If u made only 20% returns last year you need to find a new financial advisor
The Frugal Samurai