"Price is what you pay , Value is what you get" (Benjamin Graham)So August draws to a close and we reach the last third of 2018. The US markets continue to be the place to make the most of your hard earned cash...as the data suggests:
Dow Jones +2.2% +5.0%
Nasdaq +5.7% +17.5%
FTSE -4.1% -3.3%
Nikkei +0.9% +0.4%
SSE -5.3% -17.6%
Dax -3.4% -4.3%
And as with the rampaging bull market in the States, the USD dollar continues to strengthen in most areas, the Aussie dollar being the stand out loser last month... stats being:
GBP +1.2% +2.5%
EUR +0.7% +3.3%
JP -0.8% -1.6%
AUD +3.2% +8.6%
CNY +0.3% +5.0%
So the month of August took us into the longest US bull market in history in terms of time , surpassing the run between October 1990 and March 2000 (The Great Expansion), although the S&P 500 gains remain almost 100% lower during this run when compared to it's predecessor (324% vs 418%)
The run of the 1990s was brought to an end by the dot com bubble. So are in in the same boat now? Valuations are high there's no denying that, but a bubble I don't think so....
Or even a shift , market correction? Bears would of course point out the stretched valuations. One commentator on CNBC recently referred to three factors which can cause a shift from a bull market to a bear market.
1. High valutions
2. Fall in Earnings (or earning expectations)
3. Raising Interest rate environment
Point 1 taken, Amazon which looks set to follow Apple in the next week and become the World's second public company to have a market cap of over US$1 Trillion trades at 159 times earnings for example.
Point 2 is not happening. Company's are increasing their bottom line. Growth is here especially amongst worldwide players. Occasionally, like with Facebook recently a share may fall simply because the market got carried away with its earning expectations, but Facebook is still growing, will have more users tomorrow than today...so this in itself tells a story
Point 3 can be argued on both sides. Yes we are in an apparent era of interest rate rises (of course with them being rock bottom for best part of a decade they could only go one way), but this is being managed by the Fed.
As one chap on CNBC put it recently the boxer doesn't get hurt when he knows where the punch is coming from. Also we have a long long way to go before earning money by putting it in the bank can come close to equities.
So for me we still have a good way to go. The Nasdaq is the stand out market again this year, up 17.5% already. Had you put US$50k into a tracker here shorty after the Financial crisis, that would be worth a cool $265k today. It's also worth noting that even if you had invested before the Financial crisis, you would still have trippled your money in just over 10 years.
There is no bubble in tech like there was in 2001. We live in a very different world, far more globally connected world than we did 17 years ago. Ironically this is due to tech.
I mentioned before that Amazon trades at 159 times earnings, back in 2001 the bubble was due to this type of valuation but the predicted growth was clearly over stated with no foundation. You may say that Amazon already has 50% of the US E- commerce retail market or you may (as I am sure Bezos would say) Amazon still has another 50% of the E commerce market to capture).
Where there is more opportunity is that E Commerce still only represents 13% of retail - so room. Perhaps with Amazon the potential danger is the government and regulators stepping in as it becomes too powerful and literally a "victim of its own success"
Although Facebook's valuation was bought down a peg or three recently, the growth potential still remains enormous and therefore valuations not silly. I had conversations with 2 or 3 people this week who (a bit like myself) are not huge fans of the platform but if you want to compete in business utilising it is essential. Especially in South East Asia, where in many businesses all of their advertising is through Facebook and the lion's share of their method of communication is on Messenger.
As I have spoke about on numerous occasions, its the developing economies driving this growth and thats why its realistic in 2018 unlike it was in 2001.
I'm not suggesting that you put all your spare cash in the Nasdaq right now and in 10 years time you will have the same (6x ) return on your money as you would have 10 years ago. You need to be a bit smarter, have it managed properly as there are opportunities on the short side as well.
Also geographically, the US which is home to most global players continues to appear to be rosy picture, but what about Europe, UK and most noticeably China, all of which are down this year. This is why having the right asset allocation is crucial.
The farce which is Brexit is affecting both Europe and the UK both in terms of their markets and currencies. And China is down 17.5% and in bear market territory.
There are always opportunities and there are always pitfalls when it comes to investing, having the right advice to navigate you through is key....