The Motley Fool

Neil Woodford says we’re in an investment bubble

When expert portfolio managers such as Neil Woodford speak, it’s worth listening. And his latest update is definitely worth a read if you have a spare five minutes. The UK’s most famous portfolio manager has a warning for investors – we are in a bubble.

Lights flashing red

In an article released earlier this week, Woodford explains that a decade on from the Global Financial Crisis, the “biggest monetary policy experiment in history” has resulted in “inflated asset prices and inflated valuations.” He says investors have forgotten about risk.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Woodford points to Bitcoin trading above $10,000, the low levels of volatility in the market, and the large inflows into smart beta ETFs, commenting: “There are so many lights flashing red I am losing count.”

The stretch between value stocks and growth stocks is also of significant concern to the fund manager. He believes the difference between the performance of value stocks and growth stocks today, is “greater than at any stage in stock market history.”

Woodford points out that a consistent feature of bubbles is that there is always an area of the market which falls out of favour. He believes that domestically-focused UK stocks are a good example of this at present, and that his funds are well positioned to capitalise when the bubble bursts, which it “inevitably will.”

Is Woodford right?

While Woodford’s performance this year has been poor, the fund manager has a track record of getting big investment calls right. He avoided the dotcom boom, preferring to invest in unloved ‘old economy’ stocks such as the tobacco giants at the time. He outperformed the market when that bubble burst. Similarly, he avoided banks in the lead up to the GFC.

I believe his latest concerns are valid. While UK equities don’t look excessively overvalued in my view, many other asset classes do.

For example, looking at US equities, the FAANG stocks (, Facebook etc) have all surged considerably higher this year. Many are trading at eye-watering multiples. Meanwhile, top-tier executives such as Mark Zuckerberg and Jeff Bezos are offloading stock like no tomorrow. Executives don’t sell at the bottom of the market. A correction may not be far off.

Cryptocurrencies such as Bitcoin also look to be in a bubble, in my opinion. I wrote about Bitcoin last week when it was trading at $10,000. Now, it’s at $12,000. That kind of fast-paced gain just reaffirms my view.

What should investors do?

In the current environment, there are several things you can do to protect yourself. The key is to act now, before it’s too late.

First, examine your portfolio. Have big gains affected your asset allocation? Do certain stocks or assets now make up a significant proportion of your wealth? If the answer is yes, consider rebalancing your portfolio.

Second, think about taking some profits. Are you sitting on large paper profits from investments that have performed well? If yes, don’t be afraid to bank a little profit. As they say, “no one ever went broke taking a profit.”

Lastly, be prepared for market volatility. This means having some cash on the sidelines ready to deploy if markets experience a correction. Market volatility is only a bad thing if you’re unprepared. If you have capital in reserve when share prices are falling, it can present fantastic investment opportunities. 

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

Edward Sheldon has no position in any shares mentioned. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Amazon and Facebook. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.