Disclaimer: If you take a fully passive approach, this doesn’t apply to you. DCAing VOO/SPY/whatever index is the best low effort way to get rich over time.
Lately I’ve seen countless “it’s a bubble” posts everywhere. Are SPACs a bubble? Yes. Is green energy a bubble? Yes. Are EVs a bubble? 1000% yes. Same with other sectors like marijuana. Frankly, anyone buying longterm positions in a Tesla, Plug Power, Nio, or any of these other companies that had a 1000% run up will be in for a rude awakening on any multiples contraction or sentiment shift. I imagine I’ll get pushback on this, but a company like Nio is priced to perfection with a near $100B market cap while selling a few thousand cars. Interesting to me that people call these companies the future without realizing how much they’re actually paying for these holdings. All that being said, Tesla, Nio, etc could double again this year and I wouldn’t bet against it.
Naturally, there are comparisons to the dot com bubble. “When it pops, you’ll lose 90%!” For the Tesla cult, such as the guy who went viral for quitting his job and just living off of Tesla stock, yeah he’s probably screwed. However, most making the argument about the bubble popping conveniently leave out the people who rode the hype wave up and cashed out.
It took months for the dotcom bubble to fully crash, and investors had countless opportunities to cash out after a 5,10, and even 20% drawdown from the peak. 90% crashes don’t happen overnight, they take time. With 0 commission trading, it’s never been easier to hit the sell button, but people panic and hope that their holdings will rebound. Hopium is certainly dangerous. At some point, buyers will stop coming in, and Nio at $100B market cap will look ridiculous in hindsight.
But right now, there has been and continues to be a lot of money to be made. Talking heads on CNBC calling for reckless trading by the new gen investors are assuming that everyone is just buy and holding for the longterm.
People who have been riding momentum have made an absolute killing over the last year, while everyone screamed bubble! Valuations will ALWAYS matter in the longterm, but prices can become disconnected from reality for a long time as buyers chase them higher.
It’s easy to sit back and scream “Bubble!” But IF you actively manage your portfolio (again does not apply to DCA gang), I’d imagine you’re a bit salty for missing out on gains. When there’s money to be made, make it. Just don’t forget to sell.
The real issue is the group that thinks all these green energy or next gen companies will take over the world, and they’re buying for the longterm. News flash: if you read through their quarterly reports, most of these companies are overvalued, low margin businesses that are supported by people investing in an idea, not the reality of the company’s financials. Most of these hot sectors are fantastic for trading, but buyer beware for long holders.
Personally, I am fully aware that SPACs are in a bubble like state, but I have been determined to make as much $$$ as possible until market conditions change. Being cognizant of risk and market conditions is important, and I’ve had a fantastic year while keeping my eye on the exit.
In summary, people tend to scream “bubble” when they missed out on the ride. After all, no one would choose less money over more. Longterm investors in bubble sectors will be in for pain if they hold all the way down after a pop, but a ton of money is made on the way up. George Soros once said, “When I see a bubble, I rush in and buy.” Just an interesting thought. At the end of the day, we’re all trying to make money. Not a sin to ride the wave.
Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence or consult your financial professional before making any investment decision.