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investing in the Uk market. Welcome

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to many happy returns where we aim

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to make you a better investor. I'm

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Roman and I Michael Stock markets have

0:18

hit all time highs in recent weeks

0:20

with Bitcoin and Gold joining the party.

0:23

When assets rally this strongly, inevitably people

0:25

cry, it's a bubble but just because

0:27

you're paranoid, it doesn't mean they aren't

0:29

out to get you. I want to

0:32

know has been best. If we're worried,

0:34

markets are built on sand and in

0:36

today's dumb question of the week, what's

0:39

the difference between investing and speculation? All

0:42

right, let's get into it. whenever. We have

0:45

a bull market like this Roman. It doesn't take

0:47

long for the naysayers to show up, Does it?

0:49

Watch out for that bubble! This. Is

0:51

why we can't have nice things. But.

0:53

It's a danger because if people use this

0:55

as an excuse not to buy equity, I

0:57

think that could ultimately be a problem. You

1:00

could reduce their long term return. So.

1:02

I think this is more of a dismissive

1:04

an excuse not to buy rather than saying

1:06

oh my goodness, were in a bubble

1:08

and everyone should sell everything. I've never say

1:10

that. I've. Seen a lot of people worrying

1:13

that now is a bad time to enter the market.

1:15

You. See on the pension reforms people just so

1:17

wanting a bit of a pullback so they can

1:19

get in the pool. Yeah. I

1:22

think that's healthy and I think for

1:24

most people if they are just building

1:26

up their investments over time then you're

1:28

going to be investing a lot in

1:30

future. Anyway, it's for people who have

1:32

already allocated everything which I think crates

1:34

most nervousness because they're you haven't got

1:36

another bite of the cherry younger. Any

1:38

new capital to deploy. But. We've

1:40

said before that. The. Stock Market is

1:43

frequently a all time highs. As.

1:45

Markets drift upwards. So. Why

1:47

does it always cause as a bit of panic As

1:49

invest as I we can never have an easy life.

1:52

Family is either a market crash or map the in

1:54

despair or it's a big strong rally And will I?

1:56

Oh they must be a bubble. Of

1:58

in one thing is that people just thing

2:00

the com continue to thing is to goods

2:03

be true. you're looking at your portfolio in

2:05

your thinking. well that's a pretty good rise.

2:07

Surely. This commentary on. All.

2:09

For housekeeper, just risk averse. noticed more

2:12

scared as a soul. Than they

2:14

are as rallies. Or. Perhaps some people

2:16

have missed out on the rally Said as a quote

2:18

from Dominic for his which is a Bubble is just

2:20

a bull market in which you don't have a position.

2:24

To certify night. But

2:26

even those who have got a businessman i

2:28

know many of the people I speak to

2:30

on the one to on coaching session states

2:33

they have got a position and now nervous

2:35

and they say look as a big concentration

2:37

the U S valuations look high in the

2:39

U S. Maybe. I should just cut

2:41

back some of By Risk now. I

2:43

think it's also the speed of the rally,

2:45

especially in some parts of the market. So

2:48

for example, and videos gonna massively in in

2:50

just a few months and that scares people,

2:52

doesn't it? And. Another bellwether as

2:54

he four years courses crypto currency which

2:56

he mentioned in the opening and of

2:58

course that surged seeds made. Great.

3:01

For me because I finally got to cel

3:03

mai mai to strategy shares at again which

3:05

wrists a bit of his. I

3:07

just look to the shares went another oh my

3:10

god or above when he started. Dating

3:12

is we're that he just turned his company into

3:14

a proxy for bitcoin. Fum. Daddy did

3:16

because I can buy a bitcoin proxy

3:18

within an ice around thing in the

3:21

Uk, so that's the benefit. But.

3:23

I think what I'm probably do now is

3:25

wait until no one's interested in crypto currency

3:27

again and then Pilot but api in. And

3:29

of course I'm talking about my son Paul

3:31

phone years as much money, but that's what

3:33

people think about with stocks as well. I'll

3:35

wait for a pullback before I get into

3:37

the market. And. Maybe they won't be a

3:39

significant pull back and you'll be locked out. and

3:41

that could be trip bitcoin as well. But.

3:44

Maybe with the launch of these A T S

3:46

analysts lays there. They. Won't be a

3:48

be crass this time. who knows. Maybe

3:50

maybe they'll be money which is much more

3:53

sticky which leads to less outflows when it

3:55

falls but frankly I doubt it. It is

3:57

a speculative investment and I think is from

3:59

gonna come to again. But. From

4:01

a psychological biased point of you, don't you think

4:03

you've just hit the nail on the head? Or

4:05

you say I'll wait for a pullback All time.

4:08

The Market: Buzzing! In a

4:10

case you could currency, you haven't got

4:12

the upper drift used profits increase since

4:14

you got the housing and supply. The.

4:17

You don't get any kind of increase

4:19

in profits over time, so I you

4:21

know, whereas with equity you've got that

4:23

gradual to stop winters province increase. You.

4:25

Don't get that for cryptic Rnc so

4:28

I think you know you haven't got

4:30

that reassuring of would drift. And.

4:32

That worries me. Plus. You

4:34

got no idea. evaluation is all

4:37

euphoria. That's all it is is

4:39

purely euphoria and that eventually wayne's

4:41

as other things come a as

4:43

we saw breeze me. Say.

4:45

So we try to tease out in

4:47

the market as we record this how

4:49

much is built on fundamentals and him

4:51

talk about stuff so mostly and how

4:53

much as he floria. So.

4:56

In recent weeks, lots of stock

4:58

markets around the world have hit

5:00

new all time highs the Snp

5:02

five hundred obviously. The. Nikkei two

5:04

to five in Japan Finally after thirty

5:06

plus years as got back their. Stocks.

5:09

Six hundred and Europe is it all time

5:11

highs. And interesting, the the equal

5:14

wasted Smp five hundred is also hit an

5:16

all time high, which kind of implies that

5:18

the market has broadened now a bit. This

5:20

rally isn't say concentrated as it was. But.

5:23

I think always anchoring on prices

5:25

is unhealthy. It's not really have

5:27

any interest whatsoever. I think what's

5:29

most important is price relative to

5:31

profit. From. Price to earnings

5:33

ratio is much more important because

5:36

they are mean reverting unlike prices.

5:38

So. I think focusing on things which

5:40

for stop woods was cause it's can

5:42

be euthanized. As we said it's just

5:44

not particularly interesting makes a good headlines

5:46

as gonna say you could a a

5:48

headline my as i have a job.

5:52

For the other point is that. These a

5:55

nominal prices. They're not all time highs

5:57

in real sense. Yeah, people sell

5:59

them sing. The Markets that way Originally

6:01

put out a video talking about you

6:03

to housing market by the same that

6:06

it hasn't risen to twenty years in

6:08

real terms. And I had lots

6:10

of comment saying you're just wrong. And

6:12

I bought this house this much twenty years ago. Look

6:14

how much it's worth now. My. Anecdotes

6:17

Be your dates around

6:19

this. Gonna

6:22

run out to double check the numbers. Lloris

6:24

as a you sure and I had that

6:26

reaction as well. But then I remembered reading

6:28

a piece i dunno in like twenty nineteen

6:30

or something from the S T where they

6:32

looked at housing market around the country and

6:34

that it hasn't recovered from two thousand and

6:36

seven and a lot of places in real

6:38

terms and with inflation we just had a

6:40

doesn't really surprise me that we haven't had

6:42

a real terms rally. In. House prices.

6:45

Between. Two years. I mean, I was quite

6:47

shocked myself when I saw that. And that's why

6:49

double check the numbers. But it's true. So.

6:52

That's always a good way to think

6:54

about assets. Think about the inflation adjusted

6:56

valley. But. Also compared to the

6:58

profits to see how much it's worth

7:00

or how much you're paying for every

7:02

pound a profit. Well. As like

7:04

about them for the stock markets, this guy

7:06

to our old faithful. Price The Earnings ratio.

7:09

Forward priced earnings ratio. In fact, So.

7:11

This looks at the full cost profits

7:13

for the Snp: Five hundred aggregated up

7:15

from a single stocks that make up

7:17

the Sp. Five hundred. So.

7:19

The moment the sp five hundred

7:21

is it or forward price to

7:24

any multiple of twenty points for.

7:26

Now. That's not incredibly high, but

7:28

it is pretty high. The.

7:31

Median over decades in the past

7:33

would be something around sixteen times

7:35

for would earnings maybe that laugh.

7:38

So. The data scientist and she says. Stock.

7:41

Markets on evaluation basis or mean

7:43

reverting say we should expect to

7:45

go back to sixteen times thought

7:47

priced earnings ratio at some point.

7:49

Yeah. But. Because the problem is

7:51

that valuations very poor timing signal said

7:53

on Sunday when is going to pull

7:56

back and see some every time is

7:58

expensive. Act. Is not going to work. Back

8:00

tested it didn't work. And

8:02

is that because profits could growth to

8:05

make valuations like same doesn't necessarily have

8:07

to be. Stock. Price falls.

8:10

Yeah. He could be the profits grow

8:12

to meet where the prices are now and

8:14

prices don't rise as quickly so they haven't

8:16

found a slight slow down. his earnings catch

8:18

up or it could be the euphoria just

8:20

sticks around for a long period of time.

8:23

This is what we seen as a patent

8:25

recently in the Us and also in India

8:27

where valuations are high and they stayed hi.

8:30

Is it's raised Set in

8:32

American markets. The. Price to

8:34

earnings ratio has drifted up over

8:36

time. I know it had like

8:38

massive dips south to the financial

8:40

crisis. Were ready, got down to

8:42

single digits. But. Is it the

8:45

case that valuations should be higher now

8:47

than they were in the sixties? Yeah.

8:50

I'm in. There is a case to be

8:52

nice to be. Look at the Time series.

8:54

you can see that it has been high

8:56

for a while with a short hiatus during

8:58

the cozy Pandemic. How they

9:01

were a few wobbles to the coast,

9:03

it's hard to say once period of

9:05

time he should average over to be

9:07

to decade. Yeah, they've gone substantially higher.

9:10

And would one possible reason for that

9:12

be that it's just so much easier

9:14

to buy stocks now than it was

9:16

decades ago. You don't have to have

9:18

papers.certificates and store them in some folds

9:20

we can buy and like for Eclipse

9:22

often. Said. That expands access

9:24

to the market and therefore we

9:27

should expect valuations to be higher

9:29

and possibly. Each returns to be

9:31

lower. I've seen that case made.

9:33

That's one store out and as well and

9:36

I think he says that point as he

9:38

is true that is easier and that push

9:40

up prices. Not forever. They.

9:42

Valuations, Would rise to accommodate that

9:45

change and then. Possibly. Stay

9:47

at a high level on average. Yeah,

9:49

and I think it's useful to look at

9:51

the training, five year and tenure averages. And

9:53

of course, the Snp Five hundred and a

9:55

moment is about both of those. So depending

9:57

on how far back you look as normal.

10:00

When. It's still looking expensive

10:02

not agree to say, but pretty

10:04

expensive. So. The find your

10:06

average to the forward multiple he's nineteen

10:09

times and the ten your average is

10:11

seventeen point seven. And currently

10:13

by twenty points. Sex. So. Pretty

10:16

high above those averages. It

10:18

is not all about the U S, is it tempting

10:20

as it is when we talk about stocks. The

10:23

other markets like is expensive so I

10:25

can see that Japan for example is

10:27

a sixteen point three times multiple according

10:29

to Ya Dany. Which. Is a

10:32

lot higher than it was. But. Not

10:34

as expensive as the Us. And

10:36

as usual, Europe is in the doldrums. So

10:38

Germany's at twelve point one times. you case

10:40

at eleven point one. France. Fourteen

10:43

Point Six A that's pretty high relatives

10:45

as a rest of Europe anyway. Now.

10:47

Compared to the but compared to Europe. I.

10:50

Mean if we look at the world

10:52

as a whole, the Old Country World

10:54

Index is a valuation of seventeen point

10:56

seven. Pay. For strip out the

10:58

U S, it falls to thirteen point seven.

11:00

So the U S in as a huge

11:02

part global markets and it's during a lot

11:04

of heavy lifting when it comes to those

11:07

elevator valuations. And generally emerging markets

11:09

and isn't cheap. So China is that

11:11

nine point two times. Korea,

11:13

Which is treated as he and

11:15

by and sci friendly is eleven point

11:17

three. Thirty Four Point

11:20

Seven. The. One with really

11:22

stands out. As expensive as India which

11:24

is a twenty one point seven. so

11:26

it's looking as expensive as America. In

11:28

fact, bit more expensive. I. Think

11:30

it would be hard to diagnose a global

11:33

bubble in stocks or even in the Us

11:35

from the committee's valuation. A mistake that potentially

11:37

high but they're not a level you look

11:39

at encode seat as I'm going to sell

11:41

my stocks to. This is going to end

11:43

in tears. The sure. Valuations,

11:46

Are certainly significantly below where they were

11:48

in the immediate aftermath of the pandemic.

11:50

And Twenty Twenty And Twenty Twenty One.

11:53

But. I think it's useful to look at other

11:55

measures. for example, the k Pressure which looks back

11:58

at earnings over the previous decade south County. Very

12:00

high, so that's and thirty seven

12:02

times. Historic. An exam the

12:04

last decade. And what would be a

12:07

more normal level for that? So. The

12:09

Media since eighty seventy has been

12:11

much lower. Sixteen Point Four. So.

12:13

It's been cheap and ninety eight percent

12:15

of the time since. Eighty seventy. You

12:18

know that suggests to me. Is. That

12:20

maybe we don't have a bubble

12:23

in valuation. Maybe the bubble is

12:25

in fundamentals as in the for

12:27

P ratios. Doesn't look so bad

12:29

necessarily because the mosque it's pricing

12:31

in a lot of earnings growth.

12:34

but looking backwards in the cake

12:36

measure, That. Looks really expensive

12:38

because we've had this rally in

12:40

profits and in margins. Maybe that's

12:43

the unsustainable bit. Of

12:45

human Suffering Point and I think the mountains

12:47

been this high in the Us is unusual.

12:50

So. There's a question about whether there's

12:52

any kind of social justice in having

12:54

such high margins. But. From the

12:56

point of view of the Sheldon Spew could say that

12:58

they've never had it's and goods. Sign.

13:00

If you focus on. The Stocks

13:03

a really driving the rally let's say

13:05

and video. They've. Seen

13:07

phenomenal sales guys. They've

13:09

got incredible operating margins of over

13:11

fifty percent. And. The

13:14

markets pricing in. Phase. Margins

13:16

to stick around and sales and

13:18

profits to keep growing fast. At.

13:20

Any given take much disappointment to take the window.

13:22

The sales of a stuff like that. Know.

13:25

I agree. And if you look at

13:27

Tesla for example, you seen it's share price for I

13:29

think it's about thirty percent year to date. It

13:32

still is to fifty times forward

13:34

earnings multiple so I think there's

13:36

a loss of you forfeit still

13:38

in some of these stocks because

13:40

people have some weird expectations about

13:42

what it's gonna do with Tessler.

13:45

It's a story about becoming a

13:47

software company about hiring out your

13:49

Tesla has a autonomous he tries

13:51

to service clients across your neighborhood.

13:54

To. I think all of that is

13:56

potentially gonna happen but it shouldn't really

13:58

be priced in with site. That case

14:00

we've got now. So. I

14:02

think you're right. It's the I narrative

14:04

starts to crumble. And people

14:06

just assume is can be built into products.

14:09

and we start to get a bit bored

14:11

of the stories about fancy images been generated

14:13

or teens. Then. I think

14:15

ultimately the valuations will come down again.

14:18

There. Was a really interesting grass and

14:20

Bloomberg which looked at the ratio of

14:23

the Snp five hundred momentum Index. So

14:25

this is focused on. Stocks.

14:27

Were that price gains have been really

14:29

strong recently. And comparing they

14:32

stopped to the broad Smp five hundred.

14:35

And the momentum index. Is.

14:37

It's highest relative level since

14:39

the.com bubble. Now. This isn't

14:41

mean reverting this one so there's no

14:43

reason why the ratio does. momentum index

14:45

relatives guess they should have a mean

14:47

that. But. The fact that is

14:50

going up tells me that people are buying

14:52

into the trend which is consistent. Which.

14:54

In this case is growing. I

14:56

stopped making sat on stocks cuckoo

14:59

just piling into that at every

15:01

opportunity. In. As a risk of

15:03

periods but they're quite Greece and then people

15:05

just go back to what worked. In

15:07

the post Pandemic rally. And

15:09

I think that's worked very well. And.

15:12

It'll continue to work while the narrative

15:14

to say small people carry on doing

15:16

that. So many this is driven by

15:19

behavior. Human. Behavior in Psychology.

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annual subscription required. Other charges may

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apply. I

17:16

guess the question that the heart of all of this. Is

17:18

are we letting I kind of rational

17:21

optimism here. Or is

17:23

it irrational exuberance? Or.

17:25

What the ratio between those two things as a was

17:27

of advice isn't their. Blessing. The

17:30

fact that the earnings multiples

17:32

haven't searched upwards and that

17:34

profits has suggested a large

17:36

proportion this rally is used

17:38

to fundamental. And I guess

17:40

you put it nicely. We just say that

17:42

as a a bubble and profits of the

17:44

moment. And that might not be

17:47

sustainable. But. Ultimately that

17:49

will turn over to long term

17:51

trend probably because of it's do

17:53

that. They do current A and

17:55

write. Something. Like six percent

17:57

real since the Second World War for us.

18:00

I remember. And. And stocks of

18:02

course keep pace with that. I

18:04

feel that we can't do an episode

18:07

on potential bubbles of without mentioning Jeremy

18:09

Grantham? Did you see his recent if

18:11

mates see, were you surprised he was

18:13

calling a bubble. Not. Room know.

18:15

I mean look the guys Gray I love

18:18

what he says and I love the way

18:20

he he bitches presents is no very rational

18:22

way any make set fact based spurts. Maybe

18:25

he's being a bit selected for the facts.

18:27

So. The he mentions other a cape ratio

18:30

of thirty four as of the first

18:32

of March is in the top one

18:34

percent of history. Here. Is referring

18:36

to the Snp Five Hundred. And. He says

18:38

and I quote. There. Has never

18:40

been a sustained rally starting from

18:42

as thirty four caped ratio. The.

18:45

Only bull markets to continued up from

18:47

levels like this with the last eighteen

18:49

months in Japan until Nineteen Eighty Nine.

18:52

And the Us Tech bubble of Ninety

18:54

Ninety Eight And Nine Ninety Nine. And

18:56

we know how those ended. This

18:59

reminds me of law passed. you know, the

19:01

novel. There's. A guy he calls out

19:03

the plague and nobody wants to hear it. Is

19:07

like that. Easy Cassandras on think that like

19:09

to hear it because if you see your

19:11

boyfriend you doing well. You're. Not

19:13

gonna like the guy he sang the

19:15

in his old and went and you're

19:17

gonna have valuation coming down. I

19:19

think the thing with Grantham as people don't like

19:21

to hear it every year from his. Face.

19:25

Gonna be right one as I. Don't

19:27

remember previously. His case was that

19:30

what you should die is low

19:32

valuation stocks in he and. I.

19:34

Don't know how well that's performed, but

19:37

that was his idea. That. The

19:39

Us is overvalued and the should look

19:41

for value elsewhere, preferably in emerging markets.

19:44

And. The what you think about his point they they're. Using

19:46

this backward listen tape measure. As

19:48

we've said, markets are very expensive.

19:51

And that from that level of valuation,

19:53

there's never been a rally higher or

19:56

least only on two occasions and end

19:58

in disaster. But. The thing. If

20:00

you gonna compared with two thousand is it

20:02

That bubble was driven by pretty much vapor?

20:04

It was all about narrative and there was

20:06

very little profit. Growth is any and many

20:09

the companies will last making. Five.

20:11

In this revolution if you want to call

20:13

it that, D companies behind

20:15

it a profitable and video very

20:17

profitable and a lot of the

20:19

other a I typed companies which

20:21

is used a I or in

20:23

developing yet are also very profitable.

20:26

So. That's why I think this when a sustainable

20:28

and I think in order to pop this

20:30

bubble this is can ask to be widespread

20:32

disappointment in a profit grace. Because that's

20:34

what really people are expecting now. Interest.

20:37

In the grandson does believe the hype

20:39

on a I at least and sense

20:41

of it's technological and social impacts. And

20:44

it's impact on markets Long ten, He just

20:46

thinks. It's already priced in

20:48

and more to current stock prices.

20:51

And he says is mountains in multiples

20:53

of both record levels of the same

20:55

time. It really is double counting and

20:58

double jeopardy. It. Does amplify the

21:00

risk of met because he the margins could follow.

21:02

Multiples could for either will get you into a

21:04

crash scenario. And if margins full

21:06

or that multiples with to say i

21:09

see what he sang and if things

21:11

do center and then it could be

21:13

very unpleasant and it could be very

21:15

sharp the south. While. We're

21:17

being devil's advocate and making the bad case.

21:20

I saw an interesting quote from He and

21:22

Harness of Absolute Strategy Resets where he said.

21:25

Us. Tech earnings already account the

21:27

twenty three percent of Us earnings

21:29

as a hole. In the

21:31

past is the is only energy in

21:34

Nineteen eighty. Health. Care in

21:36

Nineteen Ninety Two. And. Consumer discretionary

21:38

stocks in Nineteen Seventy Eight, and

21:40

Twenty seventeen of briefly managed to

21:43

sustain. Twenty percent plus says

21:45

of us earnings. Once. A

21:47

sector which is this scale the

21:49

issue is where and how can

21:52

you generate incremental earnings growth? I.

21:54

Say I guess way saying is. Text

21:56

already so big and that's where

21:59

people expect. Grace to come from. I

22:01

guess the question is always, who's paying for

22:04

the tank? Is it consumers? Who.

22:06

Is it other companies? and at

22:08

a certain point the other companies

22:10

are paying for those tech solutions

22:12

with their own profits? So.

22:14

There is a case to be made that

22:16

they when carrying on paying for those things

22:18

for as. And paying an

22:20

incremental amount of their profits into the

22:23

one sec to this cannibalizing the rest.

22:25

You. Know I thought when I read Disquiet, Is

22:28

that? The. Sec the classification seal.

22:30

So our states and me I

22:32

technology the One thousand Caps are

22:34

all the technology companies. Amazon.

22:37

Is not a technology company according to the Sex or

22:39

Break down. google. Isn't either.

22:42

Say maybe the to accept as even bigger

22:44

and this makes it look. Or

22:46

maybe is the case that. Every.

22:48

Company's the technology company to some degree,

22:50

or it's going that way. You.

22:52

Can't be a company without having some

22:55

technology. As I know can be have

22:57

to pay for a website and all of the

22:59

governs the guys with it. But. You

23:01

know, I mean like diagnosing. Market.

23:03

Concentration based on sectors seems a little

23:06

strange to me these days. Is.

23:08

Kind of like electronics companies in

23:10

the nineteen forties. All

23:12

companies use electronics. it's you know,

23:15

the devices that are in our

23:17

house and then cosmetics and classifications

23:19

changed to reflect that. Fighting.

23:22

To write tech changes over time, to

23:24

classifications change every time. He.

23:26

Seems to me that the stories changed over

23:28

the last year. By. Stop started

23:30

rallying. Can everyone said this is because

23:33

market Francis Bacon rate cuts and at

23:35

one point the market was pricing and

23:37

six or seven. Twenty five

23:39

basis points cuts from the said. This.

23:42

Year. And. That's now fallen, sir.

23:44

An expectation of two or three cats.

23:47

And. Yet stocks have kept rallying. Which.

23:49

Is good because I think market to come

23:51

round to what the fence guidance is told

23:53

them is likely to happen which is inflation

23:55

sticky and they're not gonna be aggressively touching

23:58

rates. While that remains the case. So.

24:00

They were be shot down the line.

24:02

That's the good news about that capitulation.

24:05

I guess the bad news about

24:07

interest rates potentially staying higher than

24:09

previously expected. Is they could

24:11

depress grace and therefore earnings. Canisters.

24:14

Not been priced in at all so I think

24:16

that's who aren't. And this could

24:18

just be fatigued. Markets is just getting bored

24:21

as this relationship and saying that every time

24:23

is gonna be an increase in interest rates

24:25

is gonna make growth times. And

24:27

to rates full than it's gonna

24:29

make friends search. Rises.

24:31

Seems as if these profits are like

24:34

a juggernaut. Fi just can't divert. Ultimately,

24:36

I think will will derail. this will be

24:39

when those profits stop growing so quickly. And.

24:41

Eighty and be so much my interest right? Mm.

24:44

He talks a lot about the back case and the fact

24:46

that I could be for yeah. But. On

24:48

the other hand, what's the evidence? that there isn't

24:51

so much euphoria and markets are just. Fairly

24:53

priced me and expectations. But.

24:55

If we compare the price to any

24:58

multiples with previous peaks, this isn't as

25:00

p T as the.com Bubble for example,

25:03

A. Many the Magnificent Seven a trading

25:05

pretty much close to their average price

25:07

to earnings multiples over the last decade

25:09

or so. Yeah. They're trading

25:11

around an average of thirty. As

25:14

a P ratio. Whereas. In

25:16

twenty twenty, they go up to almost

25:18

forty five times earnings. And.

25:21

The other thing is the Magnificent Seven stocks,

25:23

as we've mentioned before, has kind of diverged

25:25

from each other. He mentioned Tesla has been

25:27

falling significantly down more than thirty percent I

25:30

think this year. Whereas. Invidious. Been

25:32

reading massively and the others are so spread out

25:34

in a fan between their. To. Me that's

25:36

encouraging to says the markets actually doing it's

25:38

job and looking at the relative performance of

25:40

the companies is not the case. The oh

25:43

they're in the Magnificent Seven, bye bye bye

25:45

all of them. Yeah, if you just go

25:47

back a couple of years you can see

25:49

that Tesla on they serving food price to

25:51

any grass simply goes off the top of

25:53

the graphic. goes beyond a hundred and forty

25:55

times. So we are coming out as a

25:57

frothy barriers to something which is more fundamentally

25:59

driven. Which I think he health. And

26:02

when a company does disappoint like

26:04

Apple for example, with it's profits

26:06

in China looking like the under

26:08

pressure. Then. We do see

26:10

the share price being punished rather than

26:12

completely ignoring the bad news which is

26:15

also healthy I think. Yeah. That's

26:17

the difference I think between now. And

26:20

that crazy rally after the pandemic.

26:22

Is. That then there was a lot

26:24

of rallying and non profitable tech companies

26:27

and that's what Dr. Art Taste performance

26:29

higher. I it was all these companies

26:31

which were promising returns in five, ten,

26:33

fifteen years or is now companies are

26:36

having to deliver strong earnings. Or.

26:38

The markets not buying it. And

26:40

is one of the signs that nature's

26:42

healing If you look at Goldman Sachs

26:44

is non profitable tech Index which was

26:46

the one that ran a few see

26:49

during that pandemonium rally. Bass.

26:51

Been falling fairly steadily since the beginning of

26:53

Twenty Twenty Four. Meanwhile. The

26:56

Nasdaq's been rallying say destroy mention

26:58

that a divergence between. Good.

27:00

Tech she like and speculative tech.

27:03

As there has to be when interest rates

27:05

are about five percent, you have to deliver

27:07

actual money to shareholders. Another

27:09

bellwether for Euphoria is a number

27:11

of Akio Caesar initial public offering

27:13

says new companies get list is

27:15

on the exchange and that surged

27:17

in Twenty Twenty one and over

27:19

thousands of years. And this is

27:22

where Us Stock Market. And then

27:24

it crashed in Twenty Twenty two, two

27:26

hundred Ninety One, and then fell further.

27:28

two hundred and Fifty four. And so

27:31

far in Twenty Twenty Four even have

27:33

Thirty Three Ip owes. So this is

27:35

not a good market to launch a

27:37

new company. Yeah. Because inevitably companies

27:39

want to go public and as a lot

27:42

of money sloshing around, investors are willing to

27:44

throw it at new companies. Which.

27:46

Is obviously the case and twenty twenty One and

27:48

is less the case Now. Although.

27:50

There are signs that I might pick up. For

27:52

example read it is planning to go public and

27:54

but as the big one of stripe boys in

27:56

the background is that going to a public. But.

27:59

If you here. The B C market is well

28:01

that's also dried up. Says you're a tech

28:03

company looking to expand on the have the

28:06

my clients are V, C, C, E O's

28:08

or and the see sweeter than a tech

28:10

company. They tell me that is very very

28:12

difficult to get additional capital now compared to

28:14

the way you study. By. People just

28:17

to money as you. Please.

28:19

The hard ones: A cold weather. This is

28:21

really fundamentally driven or euphoria driven. There's evidence

28:23

on both sides, as that always is, hence

28:25

why it's very hard to diagnose a bubble

28:27

in real time. But. What You

28:29

think? What if you come down on

28:31

the camp of yes this is a

28:34

bubble potentially house that affects your behavior

28:36

is an investor. Will. You know

28:38

what I'm going to say, You shouldn't affect his a tool. For

28:40

me, undies gonna carry on investing in equities

28:42

much as I can for as long as

28:44

I can. And pretty much

28:47

ignore everything that I hear

28:49

about valuation or anything else.

28:52

You. Know color. Listen to this podcast back Best! Policy

28:58

for most people as probably the best thing to

29:00

do The points about valuations that it doesn't tell

29:02

you when to sell. And. It doesn't

29:04

tell us to sell because Sting states

29:06

fences and that's been the case for

29:08

a long time now. Yeah.

29:11

That's definitely, but. I

29:13

think now might be a good time

29:16

to check that you're happy with your

29:18

portfolio. Did you never want to

29:20

sell in a crass with every know in a crash,

29:22

right? We're all time highs so maybe it's a good

29:24

selected set that the level of risk you have in

29:27

your portfolio is what you actually won. It.

29:29

Might be the time to rebalance. If.

29:31

Some of your holdings have done really well

29:33

and some palin. So. Laura for

29:35

example has cut back on her and

29:37

video holding. So. She had

29:39

one hundred percent increase so she

29:41

decided to take some profit and

29:44

movies into other investments. And

29:46

I think that sensible and I think the

29:48

way to do this might be to say,

29:50

well, maximizing that we get a thirty percent

29:52

pullback, how would I feel about it. And

29:55

just visualize what you pull funny would look

29:57

like if that happens. How much cash

29:59

would you have left? And. How damage

30:01

you feel? That. If you're not

30:03

comfortable with it, then maybe consider the risking

30:05

slightly olds who just kind of movie allocation

30:07

away from the stuff that's done well. As

30:10

Michael says, Certain. If you

30:12

think we are in a bubble. And

30:14

you're just doing the good behavior is

30:16

said and sticking with it. Not

30:19

making any changes, I think

30:21

as you say it markets to grass you

30:23

will kick his. I was a I didn't

30:25

I knew it was a bubble says she's

30:27

gonna try and minimize your threat, probably psychologically

30:29

to stop yourself doing the bad behavior. If

30:31

we digress, Others were rebalancing

30:33

the good discipline this is. If you

30:36

do that, he's winners and it makes

30:38

sense to reallocated a certain point. For.

30:40

Not too often, and once years.

30:42

Probably enough. But then he went

30:44

to nursing Such laws Lawson's potentially as if

30:47

there is a pullback. And the

30:49

other situation some people find themselves in is

30:51

that they get a big lump sum. From.

30:53

Selling a business or inheritance or

30:55

a loss? Are you in whatever

30:57

it might be and you get

30:59

the inevitable question? Should I stick

31:01

a all strange rockets or should

31:03

I drip feed it Dollar cost

31:05

averaging over time and especially when

31:07

markets look expensive. People. Get nervous

31:10

think they. Don't. That's what I've been

31:12

hearing a lot recently. And. I can see

31:14

why people say it and often they end

31:16

up concluding that they will drip feed. You

31:19

just a question of how long the

31:21

drip feed gonna be and whether they

31:23

actually going to accelerate it. If market

31:25

stiefel that's missing You promise himself. But.

31:27

Shouldn't you just sticky all and if we're

31:29

same valuations on a timing. We talked before

31:31

about how Vanguard did a study and lump

31:33

sum as and just. Playing. It will

31:36

into stocks stray away beats the dollar

31:38

cost averaging. Sixty. Six percent of

31:40

the time. Yeah. And that was

31:42

two or three markets a look that Australia,

31:44

the Us and the Uk which is interesting

31:47

but it's true cross on the market. For

31:50

rationally yes most of the funny, but after

31:52

splitting it straight in. By. As

31:54

we know, a big part of investing in

31:56

psychology and really what you're comfortable with and

31:58

a pool for you can. When. Fucking.

32:01

There, it's important to consider how you

32:03

feel I think is marketed for. Now

32:06

just suck it all. A rational stating

32:08

is whether the your life the mass

32:10

murder be and I always on touchy

32:13

feely certainly affects yeah but it's also

32:15

based on the other data which is

32:17

that usually you're better off just putting

32:20

money in and this is based on

32:22

have accessed i did myself which is

32:24

showed that if you hold money back

32:27

when valuations i just doesn't work mostly

32:29

time. Whatever. It takes to get

32:31

you to buy some stuff is good way. To.

32:37

Test. Waiting

32:39

and. Requested.

32:43

A couple devaluation measures, zoom coups and

32:45

podcast and is a member of Tension

32:47

Criminals To see. Go for a premium

32:49

website membership. You can access to those

32:52

track. it's so if you want to

32:54

join our membership just get a Pentecostal

32:56

comes to their know. Okay,

32:59

today's dumb question of the week

33:01

is why is the difference between

33:03

investing and speculation? For. Me:

33:06

I think the differences excitement is no

33:08

getting excited when he trade than is

33:10

probably a sign that is speculation. It

33:13

should be kind of like do a

33:15

snapple Sir John the dishwasher when you

33:18

buy songs. He should be something which

33:20

is exciting. Because gambling.

33:22

It's all about that exciting feedback,

33:24

the thrill of losing money or

33:26

making lots of money. And.

33:29

A low probability hi pales. That's

33:31

what really marks out gambling, I

33:33

think. Yeah, insisting. I

33:36

think there is a subtle difference between

33:38

speculation and gambling. Which. Is

33:40

that speculation? You are going into it

33:43

with the expectation of a positive return,

33:45

even if it's a. Low. Probability:

33:47

High pay off Event: Whereas.

33:49

Gambling. You're going in knowing that the

33:51

house always wins when you're playing roulette.

33:53

If you play roulette forever, he'll lose

33:55

all your money. Where. His job

33:57

market speculators who a good at their job.

34:00

In the futures market. Might

34:02

be profitable even though they're playing

34:04

a low probability game. But.

34:06

Isn't that the psychological difference between gamblers?

34:08

Non gamblers. A non gambler. Well, we

34:10

think as the House always wins the

34:13

gambler. Thanks For most people, the House

34:15

always wins. But for me, It's

34:17

different. Yeah, I guess that

34:19

is a psychological difference for me. The

34:21

difference between investing in speculation. Is

34:23

a few things it's like. The. Holding

34:26

period for me and investment should

34:28

be something I did. You could

34:30

hold for as like a by

34:32

abroad stock market index and literally

34:34

hold that forever. Whereas. Speculation

34:36

is going in expecting a short

34:38

time rise and then you can

34:40

sell it. Divisions. And

34:42

long term one is another good huma.

34:45

a single so of speculation. The

34:47

other thing I was thinking is that. Investing.

34:50

Is perhaps more when you

34:52

buy something which inherently generates

34:54

cashflows whether it's a stock.

34:57

That. Selling things to customers and is

34:59

able to pay dividends even if they're

35:01

delayed until the future. Or

35:03

bombs were a government is boring money

35:05

in investing in economy. Taking.

35:08

And money in taxes and then is able to

35:10

pay you interest on the phone says generating money

35:12

for a speculation is maybe and things that are

35:14

more like. Gold. Or Bitcoin were

35:17

to a large extent your reliant

35:19

on. Maybe. A greater fool down

35:21

the road buying it from you. High price

35:23

to make money. Is not going

35:25

to make money on it's own. How.

35:27

I feel that different city zero

35:30

sum game for a speculative investment

35:32

like the crypto currency. Whereas

35:34

from something like buying a stock

35:37

of a company that makes products

35:39

people like him love, your kind

35:41

of engaging with that company and

35:43

helping it. This. Is the kind

35:45

of feel good part of capitalism? I think. Yeah.

35:48

You're giving Capital Gun is going to

35:50

do something great with a stalker. A

35:52

bond is actually gonna make a products

35:54

or build a bridge or something whereas

35:56

if you buy some goals. To. Goals

35:58

And and sit there. If

36:01

a cast of guns at best new a the go before.

36:03

But. I guess there is some markets. That

36:06

we need. Commodities. Markets

36:08

Futures Markets. Where

36:11

you need speculators? Maybe.

36:13

They help find the price of what the

36:16

underlying commodity should be. Yeah. For

36:18

example, in the futures markets, you have

36:20

to say what kind of traded you

36:22

are when you're into that market. Are

36:25

you a hedger and other with someone who

36:27

actually trades in the underlying commodity and is

36:29

just laying off their risk? So.

36:32

With that, be someone like. I'm.

36:34

A farmer growing crops, And.

36:36

I. Buying. A fetus contracts

36:38

to heads the movement in the price

36:40

of grain. Here. Just ensuring that

36:42

you gonna get a good price at some

36:45

point in the future see locking the price

36:47

and that takes away all uncertainty you might

36:49

still leaves out if the markets actually surgeon

36:51

price you're going to not participate in that

36:53

births good as a hedge. The whole crop

36:56

he does had some of it. Or.

36:58

I'm an airline hatching my on

37:00

exposure. Yep, For. A jeweler which

37:03

buys gold you don't want the price

37:05

to surgeons increase your input costs. Are

37:08

many have speculated which easy companies

37:10

which are investment companies hedge funds

37:12

for example. Where. They just speculating

37:14

on the price movement one way or another.

37:17

And they often taking the other side of the

37:20

trade from the hatches. Yeah. Because

37:22

the hedges will almost always be long.

37:24

The market though by long futures contract

37:26

and somebody's got to take the other

37:29

position. Otherwise market where work. And.

37:31

The futures market for every long

37:33

the has to be short. So

37:35

that's why to structure the market

37:37

completely depends on speculators to take

37:39

the other side. I. Don't like

37:41

the idea of being a had to or a speculator?

37:43

Is there something else I can be? And.

37:45

Arbitrager sounds cool. Yeah,

37:48

that's much better. But. They're You're

37:50

looking at the difference between the two

37:52

market since hoping the prices converge. To.

37:55

Albatrosses are trying to make money risk

37:57

free is the theory. I'm sure

37:59

if I tried if I find a way to lose money. Zone

38:03

Defense of Speculators. Sweet said the in some

38:05

markets at least you need them because they're

38:08

taking the other side of the trades and

38:10

providing liquidity and helping find the price which

38:12

is all. A good thing. And

38:14

if I were my favorite, stories about one

38:17

of the first few gyms trying to feel

38:19

like which is a story of college. And

38:22

this is related by Aristotle, a

38:24

philosopher. And it was an

38:26

answer to the question of okay, you're

38:28

so clever, Want you rich. People

38:31

often slagged off philosophers at the time, because,

38:34

you know, What? Was the point to

38:36

be a philosopher? Offended many wealthy. And

38:38

we miss Dell saying that mouse is se

38:40

as a as fast paced to lose great

38:43

story he says according to the story he

38:45

knew by skill in the stars this is

38:47

tall eight why it was yet winter. The.

38:50

That would be great harvest of all it's

38:52

in the coming year for having a little

38:54

money. He gave deposits for the use of

38:56

all on his presses and she'll send the

38:59

lessons with Jihad is a low price because

39:01

no one does against him. So he's cornering

39:03

the marketed as Point. When the

39:05

how a son came and many we want it

39:07

all at once and of a sudden he let

39:10

them out. at any rate which he pleased and

39:12

made a quantity of money. Does he

39:14

showed the world that philosophers can easily be

39:16

which is a like but the their ambitions

39:18

of another salt. Basically. Red

39:21

sky at night. Saw Mr. Life is why

39:23

same. Have any signs of monopolies?

39:25

Yeah minutes. Great story. Why?

39:27

To speculate as get such a bad

39:29

rap them if we need them. I

39:31

often when there's a real volatile market

39:33

people start blaming speculators right? Sale.

39:35

The time. Yes, Is it something

39:38

like a food marketing particular there? He

39:40

could say that the speculators bidding at

39:42

the price except in the fact that

39:45

they use you go short pass the

39:47

yes saw in the argument. But.

39:49

then if they will suspect he likes

39:51

his hedge funds buying future so game

39:53

long. And yeah, you could argue

39:56

that that was gonna push up the price

39:58

and make the more expensive that. The

40:00

inflationary. Phone. Calls food is

40:02

a political issue because for poor people.

40:05

Food. Makes up a large proportion of

40:07

their consumption basket. For. Literally, you're

40:09

taking food as people's mouths if you push

40:11

up prices. My. Guess is

40:13

a fine line between speculation and

40:15

market manipulation. Are. You aware

40:18

of the nineteen Fifty eight Onion

40:20

Futures act in the States I

40:22

sat? There are advantages Stay there

40:24

a band the trading of futures

40:27

contracts on onions because to onion

40:29

traders Sam Siegel and Vincent Kosuke.

40:32

Cornered. The Onion Futures Market on

40:34

the Chicago Mercantile Exchange and I

40:36

believe the same act also banned.

40:38

Teaches. Contracts on motion Picture

40:40

box office receipts speculate on

40:43

they see that as. Such

40:46

a specific set of markets on the that.

40:49

Ultimately, markets are like an onion.

40:52

Doesn't mean I think that it will end it as. Thank

40:57

you for joining us for many happy

40:59

returns To send us your questions no

41:01

matter how job at the email address

41:04

Mh Jobs at Pension craft.com I do

41:06

remember. Com

41:08

fool the information about some

41:10

membership and investment options. Many

41:12

happy returns His attention Crop

41:14

Production posted an executive produced

41:16

by Roaming the Chiesa on

41:18

my full keep. Costs is

41:20

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41:22

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41:24

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41:26

any decision. To buy, sell, or hold

41:28

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