Stock Market Chart of the Day – Value vs. Growth
Value vs Growth doesn’t seem to be much of a fair fight these days.
I can tell you as a value investor, that I run filters of undervalued stocks and it’s extremely hard to find many attractive stocks. This was an issue before the Corona Virus hit and is even worse now.
See: Big Short Investor sees 5 undervalued stocks worth buying
The stock market is awash in money from the Federal Reserve and low (negative interest rates). And it makes even unattractive companies attractive to private equity or investors willing to take on more risk.
Big cap tech stocks like Apple have been outperforming so much that FOMO (Fear of Missing Out) has created a self fulfilling prophecy where gains beget more gains.
All of these are factors.
Stock market capitalization now exceeds GDP which is one of many warning signs for this market. It happens to be one of Warren Buffett’s favorite stock market gauges.
Warren Buffett’s favorite stock-market gauge has spiked to a record 170%, underscoring the stark divide between sky-high US stock prices and the pandemic-hit economy.
The “Buffett indicator” divides the combined market capitalization of publicly traded US companies by quarterly GDP.
“It is probably the best single measure of where valuations stand at any given moment,” Buffett wrote in a Fortune magazine article in 2001.
Another Warning Sign is the shift towards less experienced investors who see the stock market and day trading as a fun new form of gambling. This is reminiscent of the shoe shine boys of the 1920’s who began giving out stock tips.
CNBC: Young investors pile into stocks, seeing ‘generational-buying moment’ instead of risk
The major online brokers — Charles Schwab, TD Ameritrade, Etrade and Robinhood — saw new accounts grow as much as 170% in the first quarter, when stocks experienced the fastest bear market and the worst first quarter in history.
‘Monumental volumes’
The major online brokers saw a major jump in new users during the coronavirus sell-off, bolstered by zero commissions and fractional trades.
Charles Schwab CEO Walt Bettinger said in an earnings release the broker saw “monumental volumes” of trading from the 609,000 new broker accounts added in the first quarter, with over 280,000 in March alone.
The quarter included 27 of the 30 highest volume days in Schwab’s history.
Robinhood users soar
Robinhood — millennial favored stock trading app — saw a mind-blowing 3 million new accounts in the first quarter, despite glitches and crashes on heavy trading volume days.
“The access to trading, there are no barriers to entry anymore, its on your phone, you can buy whatever you want, fractional shares are available so if you can’t pony up $1,400 to buy one shares of Google you can still own the FANG [Facebook, Apple, Netflix, Google] stocks,” Welsh added.
The warning signs are there. If you know where to look.
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Great information easy to see why Buffet invests the way he does. Market capitalization to GDP data great intel.