Trillions on the Table Now — New Investment Trends Forming

Trillions on the Table Now — New Investment Trends Forming

Today’s Daily Reckoning Australia can’t help but draw attention to the fact US stocks look primed to end their mighty run sometime very soon.

All the classic signs of a top forming are there. They’re only coasting on liquidity now.

Data out of Wall Street says that margin debt — money borrowed to buy stocks — is up 15% since January. That’s about US$20 billion less than the previous peak in May 2018.

But that’s not all…

Another indicator of a market peak is a record Initial Public Offering. After all, what better time to unload shares on the public than when the market is red hot?

Last week the mysterious company Palantir listed on the New York Stock Exchange with around a whopping US$22 billion valuation.

I don’t know enough about it to say whether that figure is reasonable in the context of its projected future cash flows. But I do wonder if anyone on Wall Street really does either.

Palantir is certainly not alone in coming to market. The quarter just gone in the US was the busiest for IPOs since the year 2000 — the peak of the dotcom boom. The dollar figure raised — US$30 billion — is nearly triple the same time last year.

Another feature of the dotcom boom of 2000 is that technology stocks kept roaring along while the rest of the market began to lag. That occurred as early as 1998 — yet the peak of the Nasdaq happened much later in March 2000.

Timing these peaks and troughs is the tough part. That’s if you’re trying to time them. A less complicated approach is to find a trend that is so big, and so powerful, that you’re prepared to ride along with it and damn the wider market.

No doubt you’ve read of the many investors that Warren Buffett turned into multimillionaires through investing in his firm, especially in his early years.

But don’t forget they had to hold on the entire time! That’s not easy to do. He certainly did not carry the same reputation as he does now.

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A New Investment Trend Forming

Why does this matter today? One massive trend is the shift away from fossil fuels to new forms of energy and infrastructure. That is obvious. What is not is how it all plays out before we get to this future.

Perhaps the easiest to see right now is who is losing, such as oil and coal firms, plus traditional utilities. The winners are less obvious because they are unlikely to come from existing firms and the existing framework.

In 10 years, it’s likely to become apparent that the firms that triumph might not even be operational or conceived yet. Take Afterpay, in a different context. It was around $1 in 2016. Today it’s over $70.

That’s the kind of potential a new business and paradigm can bring to your investment portfolio. But it won’t be from traditional companies based off standard metrics.

This is why it’s important to start thinking about the markets, and the world, with this clean energy trend in mind. You could make a motza if you managed to buy right and just hold on.

I remember once I was going over some old emails between myself and a friend of mine. He traded the stock realestate.com.au back in 2001 when it was about $1 something. He got a quick win out of it — a nice trade.

But 20 years later REA is over $100 and gushing dividends every year. Was it so hard to imagine a future of real estate viewings over the internet over the very long term in 2001? I wasn’t watching then so I can’t tell you.

But these are the kinds of decisions that the markets demand. I, for one, don’t believe most stocks should be held for the long term.

Many companies have some time in the sun then fade away. But there are some themes and companies where I’m prepared to back them come what may…if the upside is worth it.

The oil market is worth trillions every year. That’s huge revenues that are now up for grabs in either new business or savings for consumers. Who wins?

Best wishes,

Callum Newman Signature

Callum Newman,
Editor, The Daily Reckoning Australia

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