I have been in the US stock market since 2003. And I observe majority of average investors don’t like volatility. They chase the hot stocks, and they catch the falling knife, and then they sell during panic. And occasionally they watch Jim Cramer’s Mad Money show on CNBC “watching TV and making money”. In other words, they usually buy high and sell low – using the late Charlie Munger’s words a little blunt, please note, “if (many) people are not stupid, how can we make money”.
This is obviously not a winning strategy. And yesterday’s market action is a perfect example. The direct reason for yesterday’s stock drop was due to the below report. I do understand the selling pressure on software stocks from the AI disruption has been there for a while now. Disclosure: I do own some software stocks, and the largest position is the good old MSFT. I joked that I was Bill Gates’ slave 20 years ago. Also – I am an average investor too and I put most of my money into S&P 500 index fund – I told my wife to do that too – if something happens to me.
The mentioned report is below. I suggest read at your leisure time.
But we need to keep in mind the software (SaaS) stocks have been trading at high valuations for at least 20 years. This may be a healthy adjustment of valuation – somewhat like an obese person losing some weight so that he/she can put less stress on his/her body.
Software benefits from larger trend such as the shift to cloud computing, pandemic (working from home), for the users there are usually higher cost of switching (think Oracle DB, or Electronic Medical Records vendor such as Epic, and Cerner now a part of Oracle), and so on. But nothing lasts forever, the recent AI revolution appears (or will likely) causing disruption to the industry. As I also worked in this industry (software and IT) for last 25+ years, and I can see that seismic shift coming. Nothing or no trends last forever.
Back to stocks, below is the S&P 500 compared to some of the popular stocks or assets.
Also the stocks hit 52 week low yesterday. Many are software or tech stocks. The saas apocalypse is real.
Btw, just bumped into my own writing on stocks etc. here, and noticed I wrote it almost 6 years ago. I can see both my kids grew significantly in last 6 years, and I am getting older – hopefully wiser too.
Last but not least, regarding the asset price, JPM’s Jamie Dimon said something yesterday – Jamie Dimon says ‘watch out’ as lofty asset prices add to economic risks: ‘My anxiety is high’ (CNBC).