[MrBlackhill]

We should define what's the criteria for a stock to be considered on a bubble.

I guess your criteria is just insane share price growth, no matter if it seems justified or not based on usual metrics.

For instance, is it a bubble when a stock rises +400% but is still trading at P/S below 1?

Is it a bubble when a stock rises +800% but is still trading at P/E below 10?

 

[MrBlackhill]

The best one on the Canadian side might be Acuity Ads (AT.TO).

52-week low : $0.72
52-week high : $22.44
That's 31x.

Its trailing 1-year is currently 11x.

Calgary_Girl has enjoyed that stock.

It was recommended on Motley Fool Hidden Gems when its price was $1.14 a few months ago. It's currently trading at $17.61.

 

[MrBlackhill]

You should buy them, Jimmy. As you've said before, why settle for index returns when with a bit of smarts and hard work, you can beat the index.

TSLA, NIO, FCEL, PLUG

@Jimmy only said the tech was a bit overvalued by ~15%, which should not qualify as a bubble.

Same thing as why do you @james4beach buy the overvalued US and Canadian stocks when they are some of the most expensive markets based on their CAPE ratios? Why don't you buy Russian stocks instead?

 

[MrBlackhill]

Well, I was wondering why you sarcastically answered to go and buy such hot stocks when he just said the tech sector is 15% overvalued, therefore not a big bubble.

There are stocks soaring into a bubble. There are stocks soaring justified by the growth of their financials. There are stocks soaring due to their disruptive innovation potential. And there are stocks soaring because they are undervalued.

Not every stock soaring is a bubble.

 

[MrBlackhill]

I want reactions, so let's post this.

Quiz question:

During the dot-com bubble of 2000, who had the biggest and the longest drawdown?

1. US Large Cap (aka S&P 500)
2. US Small Cap Growth
3. US Small Cap Value

The answer... drum roll... US Large Cap aka S&P 500! It took more than 4 years to recover from its -44% drawdown after more than 6 years underwater. Small Caps took only 9 months to recover from their -32% drop, after 2-3 years underwater.

Quiz question:

From 1995 to 2019 included, where was it best to invest $10,000 every year?

1. US Large Cap (aka S&P 500)
2. US Small Cap Growth
3. US Small Cap Value

The answer... drum roll... US Small Cap Growth with a final balance 18% higher than US Large Cap aka S&P 500! US Small Cap Value was also 12% higher than US Large Cap.

Who's better positioned to hedge a market bubble while outperforming? The one holding a S&P 500 ETF or the one stock-picking small caps?

 

[MrBlackhill]

And what was the QQQ drawdown?

What does QQQ hold? Large Cap.

 

[MrBlackhill]

Back then, it held one sector. It shows the danger of high concentration in a single sector.

No problem investing in some EVs / battery stocks, but all of these are basically one sector. If you diversify across more equity sectors, the danger of any one sector hitting you very hard is alleviated. That's the right way to put together a portfolio.

ARKK is not well diversified, by the way. It has a huge 10% weight in TSLA and also a lot of biotech. Very risky, could see huge drawdowns if things go badly.

Talking about diversification. First, large caps had bigger drawdowns than small caps during the tech bubble. How many small caps does SPY hold? How many small caps does ARKK hold? 15%. And also 35% medium caps.

You know that small caps have a long history of outperforming. Yet everybody into SPY is missing that exposure.

And that's without mentioning SPY's huge exposure to mega caps vs ARKK mega cap exposure being only 14%.

You may feel safe with SPY having 500 holdings, but its top 6 holdings accounts for most of its performance and about 20% of its market cap.

US healthcare has been the sector with the smallest drawdowns. See XLV. ARKK holds 35% healthcare. People fear tech drawdowns. How much tech does SPY hold? 27%. ARKK is at 29%.

 

[MrBlackhill]

Or is it because Tesla is considered disruptive technology that has great potential for the future?

Its valuation is based on the beliefs of the disruptive technology and current moat, which makes it hard to valuate. That's why it's a big debate.

 

[MrBlackhill]

@MrBlackhill : I see. Now that you mention the moat it does make a lot of sense. I saw an interview of Cathie wood recently talking about how tesla has the most self driving car information out of anyone else as well as other things.

What "disruptive technology" does Tesla have?

Everyone has electric cars, superchargers, over the air updates (if they want), self driving capabilities.

The Tesla moat is simply reputation and brand status, which while valuable, aren't a great moat.
Apple has has reputation and status, but as well the ecosystem lock in.

I've just stated what the general beliefs are for TSLA investors, not my own opinion.

Well, it's my interpretation of the beliefs of TSLA investors.

As for me, I just stand clueless about TSLA, so I decided not to invest based on my cluelessness.

 

[MrBlackhill]

Unless it's a crash recovery, if S&P500 value is 2.5x its value from 5 years ago, don't buy. That's about 20% CAGR for the trailing 5-year. SPY is currently at 15% CAGR.

If NASDAQ is getting over 3x it's value from 5 years ago, don't buy.

The market as a whole has never justified such a fast valuation growth, so it's certainly overvalued.

3x in 5 years is almost 25% CAGR.
QQQ trailing 5-year is currently 24% CAGR.

Unless you are momentum investing.

 

[MrBlackhill]

NIO

Interestingly, Ray Dalio's Bridgewater Associates portfolio holds NIO as part of its top 50 holdings.

Sure, that's less that 1% of the portfolio, but still, out of all the stocks that could've made the list of such a portfolio about diversification and reducing risk, NIO made is part of it.

If it's a bubble, I didn't know that Dalio would invest in a bubble. If it's a momentum play, I didn't know that Dalio would invest in a momentum play.

Bridgewater Associates Portfolio | Largest Holdings & Trades

Heatmaps of the top 20 holdings and a list of the largest trades made by Bridgewater Associates, the hedge fund managed by Ray Dalio.

hedgefollow.com

 

[MrBlackhill]

I'm looking at NASDAQ and I'm 95% sure that it will drop by -30% at some point in the next 5 years, hopefully sooner than later, otherwise we're repeating the dot-com bubble and the crash will be more than -30%. I hope the correction will happen before the end of 2022.

I wish I was good at riding momentum, but I'm not, so I'm just getting ready to buy NASDAQ once it drops. It will affect S&P 500, but not as much.

NASDAQ has -10% to -15% corrections pretty often, but now it's due for a -30%, or at the very least a -20% to -25%.

Meanwhile, I don't hold cash, but when the crash will happen, I'll use all of my margin (at the bank) to buy the cheap stocks.

I'm bullish on tech, but NASDAQ is going too far.

 

[MrBlackhill]

I own a sliver of BABA, don't like a lot about them, but they're desperately trying to be the Chinese Amazon.

I'm not expert, but when I look at their fundamentals and financials compared to AMZN, they've been growing much faster and at higher profit margin with lower debt. And yet they also have a lower P/E. But their return on equity is lower.

 

[MrBlackhill]

FaceDrive has interesting multiples.

 

[MrBlackhill]

I still find it funny as I recall Musk saying in May 2020 that Tesla was overvalued. Then, he just sh*t up and enjoyed the ride to the first position as the wealthiest on Earth, laughing out loud as the stock is now 6x its May 2020 price. He can play with us fools as much as he wants and still make 6x in a few months. Think about it, Tesla's CEO told publicly that the stock was overvalued. That kind of statement from a CEO should usually be harmful for the stock. It went down the day after, yet it's now at 6x. Let just the market valuate TSLA as high as they wish.

See the case with Blackberry doing a press release because it can't justify their stock's 150% soar in a month. It makes no sense that companies must now tell "investors" to calm down.

The distinction between "disruptive" and "speculative" is very thin. At some point, the rise of a so called "disruptive" stock will enter the "speculative" zone once the valuation gets higher and higher.

Look at Acuity Ads. When will the potentially disruptive Illumin enter the speculative zone? That stock has been soaring more than +1300% in a year.

If we have no means to valuate disruptive stocks, then does that make them speculative?

Cathie Wood may be convincing about how bullish she his on Tesla, but her job is also to sell us her ARK ETFs. My spouse saw one of her video where Cathie Wood talks with a genomics expert and she told me that Cathie's questions and comments show that she's totally clueless about genomics. How clueless is she about other industries, like Tesla? You know, when you're good at marketing and selling, when someone starts getting excited about something, you just continue reinforcing their beliefs as much as you can, you manipulate the momentum of his emotions.

It's not because the bet Cathie made in 2019 about Tesla turned out well that it'll continue in the future. That's like the bearish people saying the market will crash until the market truly crashes and then saying "told ya". It's not because it happened once that it's now a hero.

Also, why do you think Cathie is opening a space ETF? She's all-in with Musk's influence.

ARKK has been there since 2014 and it's been a hero only in 2017 and 2020. But those years were so great that it made ARKK a good investment choice, even though the performance is inconsistent. Let's just say it's the volatility of disruptive innovation and as long as there's more upside volatility, it's a good option.

That being said, I'd buy ARKK, but I'm aware of these risks.

Though I wouldn't buy TSLA at this point. I'd let it cool off from its amazing year and see if it stabilizes. Earnings in 1 day.

 

[MrBlackhill]

Investing 101, easy money for the ultra-wealthy:

1. Buy a stock
2. Send a Tweet "I love this stock"
3. Stock soars
4. Sell the stock or send another Tweet
5. Repeat

 

[MrBlackhill]

GameStop (GME), or how to become a millionaire within 6 months.

Up +90% so far for today only.
Up +3575% in 6 months. That's nearly 37x.

When you think the bubble is about to burst, but then the stock goes +90% the next day...

 

[MrBlackhill]

Yes, incredible move today.

So here's the question. Why would you bother with any dumb old index based investing technique, even TQQQ which will only make you a few percent a year.

Why bother with any of that when you can just buy GameStop and make all your profits in one day?

Stock market lottery. Catch the rocket while it's rising before it starts dropping back into the ocean.

I don't have the experience yet to catch those epic momentum trades. Maybe small ones, but not those one. When I see a stock soaring +500% in 6 months, I'm tempted but then I tell myself "it can't go any higher, you'll buy and it'll start dropping, too much downside". And then it goes to +800%. Then +1100%. Then +1500%. Then...

 

[MrBlackhill]

I believe there are no technical indicators to help... Or is there? GME's RSI is at 96, almost topping the upper limit of that indicator.

 

[MrBlackhill]

I realize @MrBlackhill you said somewhere earlier (I think) that your focus isn't long term investment but short term

I'm long term, but if I can make money fast I'll be able to retire soon so it'll be short term. (I'm just joking...)

I plan (or hope) to keep most of my stocks on the long term. I currently have only two stocks I know I'll dump after I feel I'm done with their recovery. Also, since I have a lot of exposure to small caps, I'll certainly dump some losers from time to time.

If ever I feel comfortable with some momentum plays, I may try my skills on stocks I'd hold for only a few months, but I don't think I'll have enough free time to work on that strategy, so I just plan to go long and reassess every few months that everything is still on the right track.

Or maybe I should sell my whole portfolio, buy GME and retire in 6 months? Seems like a good retirement plan! (Joking)