When Price Rules

Heard a comment on a business news channel yesterday

“Nobody cares about valuations these days so no point talking about”.

In 1999 at the peak of the Dotcom frenzy, there were 457 IPO’s of which 117 doubled on the listing day.

Technical and momentum ruled the roost at the cost of fundamentals of the stock.

FOMO send Nasdaq to a record high of 5132.52 by March, 2000.

However just after the peak, markets started to get sold off and by Oct, 2002, Nasdaq had lost 78% from the peak amidst the realisation that billions of dollar market cap without any earnings is not justifiable.

It took Nasdaq 15 years to get back to its highs of 2000.

The frenzy was such that if you just added Dotcom to your name, share prices would jump up-Computer literacy inc changed its name to fatbrain.com and stock went up 33% the next day.

When Appnet System decided to IPO under stock symbol APPN, stock of an inactive company Appian tech started getting demand.

Retail investors dominated the market and business news papers were even recommending leaving job and starting day trading.

News Channel used to present stock news like reading a mystery novel.

Today after over 20 years, retail investors are again ruling the roost;

70% of all trading in June-21 was by retail investors in India. Last time such retails participation was seen in June-2006.

While in the US 40% of all retail investors made their 1st investment during 1996-2000, In India over 1 crore (10 Mn) investors bought their first stock in 2020.

Of-course now a lot more people are aware of looking at management quality, growth or at-least think that they are looking at it.

However how many people are just buying the name, price and the headline and many are there so they don’t miss out.

As they say-“History doesn’t repeat but it does Rhyme

Every tech company looks like a winner;

Every chemical & pharma company is a winner;

Undervalued stocks are being chased.

The true objective of investing is to grow your wealth to meet your Goals.

However in times like these after a good ride, the objective becomes “to be in the GAME”.

As one Investor told me-

“I need some excitement”

and another one said

“This investment is not exciting enough”

It is now like being on a “Roulette”.

As it is said

If you don’t know who you are, this is the wrong place to find”

I have a simple message for those who are adopting this style

Calculate your XIRR for the last 3 or 5 years on your stock portfolio and just find out if you have done dramatically better than a Fund or even a portfolio of names that are commonly known instead of the names that are a “Fad Today” and then decide if this Game is for you and if the stress is worth it.

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