Over valued high flying tech stocks

2 July 2017

Dear Fellow Investor,

On 9 June 2017 Goldman Sachs issued a warning about over valued high flying tech stocks. Since then many of these stocks as represented in the FDN, (an ETF focusing on shares such as Google, Facebook, Amazon and Netflix) have seen their uptrends broken.  

Machine traders have offloaded millions of high growth tech shares in high PE companies and switched to  lower PE value stocks such as banks and  REITS.

It is a switch from high growth, high PE to low PE value and income shares.

Technology shares in Malaysia and Singapore are not as much effected as they are trading at much lower multiples compared to their US counterparts.

FDN, the internet ETF traded in the NYSE. Notice the extreme volatility after a big run up. This is a sign of a potential top.

As a value investor, I am not interested in the hot story, the dream and the hype. An exception was  Apple but when I did my analysis the valuations were reasonable and there was not much interest. 

As the crowd jumped in and valuations expanded , I took profit too soon but a profit never the less.

I still like Apple and I will buy again when the crowd loses interest and the price offers good value.  I like it because of their eco system, increasing revenue, cash flow and solid management

Money printing world wide will continue to counter low growth and fuel asset markets.

As investors we have the wind at our back but we must be prudent and vigilant and avoid popular crowd chasing shares.

Charge of the Royal Scots brigade in the Battle of Waterloo

This famous painting is a metaphor for a bull market – hard charging horses and fearless warriors but at some point the horses will lose momentum when they meet the enemy. In this case the machine traders   

Some of you are concerned with the strengthening Ringgit and how that might effect the shares we hold. I am not and I found a quote from Mr Tong of the Edge newspaper which reflects my views.

“We must stress that windfalls (and losses) from forex movements – and any competitive advantage gained – are almost always transitory. Enduring comparative advantages must come from the management, innovation and productivity gains. Therefore, it’s always the underlying fundamentals that count over the longer-term.”

Invest well and grow your wealth
Bill

A snapping turtle which can be found in Zoo Negara. Some turtles can live up to 300 years.