In the 1987 film Wall Street, Hal Holbrook’s moral character Lou Manheim takes on Charlie Sheen’s flamboyant young Bud Fox.
Stick to the basics,” he tells Gordon Gecko’s disciple.
“That’s how IBM and Hilton were built. Good things sometimes take time.”
There will be more than a few investors leaning on this type of knowledge after the week of tech stocks.
They have crashed. Apple, Google, Microsoft, Tesla and Amazon have all lost between €120bn and €200bn in market value.
Others, like Zoom (down two-thirds) and Netflix (down three-quarters), are even worse.
What the hell is going on? Are we all suddenly re-evaluating what we think these tech companies are worth? Or is there some other reason these valuations are declining?
In Ireland, there is a growing number of people who do not even trade stocks that will be affected – pension contributors and multinational workers.
If part of your compensation is tied to an option sharing in one of the tech giants, you may have to withhold that Atari conversion.
Similarly, you may want to check what part of your pension goes to ‘high-growth’ stocks.
But those with more direct investments in broader tech portfolios have another, more fundamental question: Is Apple – down 15pc in the last month alone – a bad bet now?
For day-traders, the answer may be that it is. But using the logic of Hal Holbrook, the analysis has to be done a little differently.
What’s happening appears to be a revaluation of those high-growth stocks based on slightly more attractive options for conservative investors.
In simple English, bonds become more attractive as interest rates rise.
This means large investors were more than happy to risk a little less institutional money in such stocks because of the much lower returns from things like bonds.
So it’s not like the market thinks the iPhone is somehow overrated. It’s that the safe-as-homes option is going to look a little nicer, given that demand for Apple shares has eased a bit.
This is certainly not the case for all tech-adjacent properties. Crypto – and NFTs in particular – is crashing at the kind of rate that wipes out people.
Luna, a so called ‘stablecoin’, was trading at $85 10 days ago. Until the latter stages of last week, it stood at 3 cents.
Bitcoin, the most held crypto asset by Irish casual investors via apps like Revolut, is down 19 pc for the week, 24 pc for the month and 51 pc in the past six months.
Ethereum, the other major crypto asset held by the Irish dabbler, is even worse – 27 pc for the week and 53 pc in the past six months.
Both are down over 40 pc for the year, making it the first time crypto has fallen over a medium-term investment period.
In typical crypto-world fashion, responses to it have jumped wildly from ‘this is the opportunity of a lifetime’ to ‘I was duped and will never touch this garbage again’.
I don’t have a strong view as to whether crypto, in any form, represents any worthy asset-class investment.
But just as it is important to point out the overwhelming absence of regulatory oversight, transparency, safety nets and basic controls, it is also worth noting that there are a lot of medium-to-long-term institutional investments in crypto and crypto-adjacent. system
It is not a guarantee of any kind of viability. But it is a sign that the underlying technology is being taken seriously by entities other than hype-traders. It may also suggest that there are emerging baselines for crypto and blockchain that have gained institutional acceptance.
But in the short term, will the current dive in tech and crypto stock values continue?
Or is the market now priced at attractiveness relative to low-growth options – the kind of tech companies Hal Holbrook was referring to. wall Street“Fundamental” ones?
If so, some stocks seem comparatively cheap for long-term investors. Being three-quarters down from its peak is a harsh decision on Netflix fundamentals, unless you consider that the streaming market is now saturated or that competitors — notably Disney, but also Apple and Amazon — are strong. Gone – Now its lunch is ready to eat.
Likewise, there’s no sign that Google (down 12 percent over the past month and 25 percent over the past six months) is losing any major appeal or dominance in its strongest markets. or apple. Or Microsoft, or Amazon, or even Tesla.
So while it’s been a brutal period for those looking to own shares in these companies, it doesn’t look like any of them are really in any significant danger.
That doesn’t mean you should buy tech stocks. Or, if you hold them now, you should not sell them in the interest of drawing a line under your risk of equity bloodbath.
But it’s a fair bet that most of today’s tech firms will still be there with new products in a few years.