The start of September saw a sudden lurch in hitherto gravity-defying US tech shares. Double digit declines in investor darlings like Amazon and Apple were just the latest in an infinite-seeming regression demonstrating how fast things can change in equities.
Why did US tech shares suddenly slip?
Perhaps we might ask why they rose so high in the first place? Given we don’t know that, either, how can we really say why they fell?
Now I know what you’re thinking:
- US tech shares rose because they are profiting from the Covid economy.
- They soared because they have balance sheets stuffed with billions of dollars in cash and so are safer than the average stock.
- Interest rates are down, which makes it easier to justify high price-to-earnings multiples and other kinds of pricey valuation metrics.
- Tech shares have risen because There Is No Alternative (TINA) for investors who can’t see a return on cash or bonds.
- It’s a momentum market, and hedge funds have been chasing winners.
- We’re in a market bubble driven by huge flows into passive funds that have inflated the valuations of the biggest companies (this makes no mathematical sense, but some of you are thinking it…)
- We’re in a private investor feeding frenzy, where free trading has enabled stuck-at-home gamblers to bet on share tickers instead of sports, inflating the price of the most popular firms.
- Apple and Tesla did big share splits, which sucked more buyers into a speculative mania that puffed up their peers, too.
I could go on and on and on.
Some combination – and more – of the above sent tech shares higher following the March lows. But if you’re sure how to divvy it up, you’re deluding yourself.
And given the impossibility of explaining a broad six-month move, best of luck determining what caused a two-day tantrum.
The Moody Blues
I worked out recently I’ve written over a million words for The Motley Fool.
And however much I intellectually know to be wary of paying too much heed to short-term jitters in the market, it’s impossible to write four or five reports and company updates a week – as well as regular trade alerts for our premium services – without become dangerously intimate with Mr. Market’s moods.
You even become familiar with everyone else’s take on what side of the bed Mr. Market got out of!
You might think this has made me an expert in divining which way shares will go in the next few days based on reading news and expert commentary.
Ha. Ha. Ha.
There’s a joke among lawyers that for every PhD expert witness, there’s an equal and opposite expert witness with a PhD.
In other words you can always find someone to tell the other side of the story.
That’s triply true in the stock market. Every day you can read one pundit saying something that flat out contradicts another.
These talking heads become popular partly because they sound convincing, and also because they get some calls right.
But they stay pundits – rather than billionaires on a private super yacht – because they only get some calls right.
They Might Be Giants
Of course, I say ‘they’…
…But I should write ‘we’.
Because I’ve written over a million words for the Fool, right? And my private billionaire island remains elusive.
I’d argue I’ve been different from most other market mavens in that I’ve tried to stress repeatedly the limits of such prognosis.
But perhaps we all say that?
I’m sure I’ve not sung my occasional lucky strikes too loudly from the rooftops.
Over the years for example I warned investors not to write off US shares as a lost cause (imagine that), stressed the small cap oil company boom looked like a bubble (to a chorus of boos at the time), and more recently urged Fools to see beyond the panic in early 2020 to stick to their long-term goals.
Write a million words, and you’re sure to get some calls right. I’ve refrained from positioning myself as a Mystic Meg on the back of them.
That said, I believe most of my judgements weren’t too far off. This might sound boastful, but it’s because I seldom gave a timescale.
And timing is everything if you want to profit from changing market conditions.
That’s what makes it all so hard.
The Rolling Stones
To return to where we started, I’m pretty confident US tech shares – dominant for a decade – will not be the best performing asset class over the next 10 years.
Everything changes, right?
But when will they flag? What is coming up on their heels?
Who knows?
But give me another million words and I’ll tell you how it turns out.
