Blain’s Morning Porridge: Irrational is rational – The Property Chronicle
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Blain’s Morning Porridge: Irrational is rational

The Fund Manager

Piles of coins with seedlings growing out of the top of them

“I don’t love the idea of being a house cat, but what’s the solution?”

When you are looking for someone to blame remember this: The Market is not stupid. Participants are. 

When Fed heads and economists are warning of more pain still to come, when investors believe the US needs another $1 trillion stimulus, and the FTSE is worth less than Apple… you have to wonder what’s different? Perhaps the main reason stocks remain so insanely high is because there is absolutely nothing else worth chasing returns on… 

Usually markets correct because something happens – like funds stopping redemptions in 2007 triggering a cascade effect that culminated in the collapse of Lehman. Maybe this time it will be an outbreak of un-common sense?

The market is the summation of all the multiple views and perceptions of each and every participant. If these views are stupid, perceptions are false, or participants believe in unicorns and whatever else they desperately want to pin their hopes to – don’t blame what’s going to happen on Mr Market. He/She/It doesn’t care. It only exists to help you realise your mistakes, and turn bad ideas into tangible losses. 

A bubble market is one where the “whatever-you-want-to-believe” forces overcome well-grounded common sense, causing story stocks to head off on ballistic parabolas. (The clue to how it usually ends is in the words ballistic and parabola.) Even the few stocks that reach escape velocity and go into orbit – eventually see that orbit decay. That decays is due to the gravitational forces called obsolescence and competition. Practically no stock ever remains in the top 10 for more than a decade or two. Creative destruction ensures new firms are constantly emerging to meet consumer demand.

At some point even Apple will just be (once more), something that falls from a tree – although it does look like pent-up lockdown frustrations mean the new iPhone (perhaps later this month) will become the most eagerly desired product in consumer history! 

Some story stocks get a boost from events. The current market darling is Zoom – profits up by 3300% on the back of the pandemic. It’s achieved the remarkable accolade of becoming the verb for video-meetings – which gives it an incredible leg-up versus its many rival video-conferencing apps. Zoom was a cottage industry a year ago – making a $5mm profit. It made $186 mm in the last 3 months – and, yes, $186mm might seem a little insignificant to justify a $125 bln market cap – but relax… its Zoom. It’s so now… But I don’t know what it will be worth tomorrow. 

As far as I can make out the reason Zoom made any profit is companies signing off employee expenses to pay for the pro-version, which you need for a meeting longer than 45 mins. Being a thrifty Scotsman, I wondered about this – and since we already have Teams why pay for another similar video service.. Sure.. there were arguments about quality vs security, and Zoom is easy to use while Teams is frankly a pain in the bottom. 

The Fund Manager

About Bill Blain

Bill Blain

Bill Blain is Strategist for Shard Capital, a leading investment firm. Bill is a well known broadcaster and commentator, with over 30-years experience working for leading investment banks and brokerages at senior levels. He's been closely involved in the growth and development of the global fixed income markets, and pioneered complex financial products including capital, asset-backed securities and private placements. Increasingly, he's involved in the Real and Alternative Assets sector seeking to explain their complexity, how to generate decorrelated returns, and create liquidity in non-listed assets. Bill is a passionate sailor, talentless painter, plays guitar badly, is learning the bagpipes, and built a train-set in his attic.

Articles by Bill Blain

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