By Jim Mellon (Master Investor)
We are about one month out from the Master Investor Show, where I am looking forward to seeing many regular readers of my irregular newsletters.
I’m going to be doing a fireside chat (why on earth are they called that?) with Victor Hill, whose views deserve a main stage airing. We will be covering lots of stuff, but most pertinently will the subject of what to invest in today.
Value over growth
Touting value over growth last year was a great move for us all, and particularly if investments included energy companies and some old school industries such as banks and building supplies.
Although there has been a heck of a bounce in the tech sector in the past six weeks, the tech wreck has further to run, in my opinion, and this might be the last chance saloon for those clinging on to the old FANG names, as most of them are going ex-growth and are still priced too highly.
Yes, the old favourites like Tesla, Amazon, Meta and Alphabet are not through fighting the bear, but merely enjoying a brief ceasefire.
Over owned by passive funds
All of them remain over owned, especially by passive funds, and all of them have fundamental threats looming to their tired business models. Tesla is facing increasing competition from old school and new EV companies, such as BYD in China, Korea’s Kia, as well as GM and Ford, and frankly, Tesla’s cars are in urgent need of an upgrade/remodel. Yet the company is still on 40x (optimistic) earnings for 2025.
Meta faces cost pressures, and regulatory scrutiny, as well as a slowdown in digital advertising, and Alphabet has the same to contend with plus the real threat from Chat GPT and Microsoft’s sudden reboot of Bing.
Amazon’s days of milking its cloud business AWS to sub vent its lousy retail business are coming to an end, and so on, and so on for so many darlings of the tech boom .
This doesn’t mean that tech (which is a such a broad term as to be almost useless, as just about everything employs tech these days) is over as a stock market hero, but that we need to ride the wave of cyclical stocks, such as miners, material suppliers, banks and so forth for a bit longer.
Avoid the previous darlings
In the meantime, my advice is to avoid the previous darlings of the tech boom, including crypto (told you!) and to add some new “avoid“ names , such as Apple which is crazily priced.
You probably remember the somewhat sanctimonious comments from the likes of Nick Train and Terry Smith about how they hold good companies for, ultra-long periods , almost without regards to valuation. Well, Apple at 20x earnings, is the elephant in the room in that regard now. Unless it comes up with some miracle new technology, which I doubt, given the deceleration of the Moore’s Law effect in its key businesses, I think it is a blazing sell.
And speaking of Terry Smith and Nick Train, you might consider that they just got too big and that was a likely reason for their recent relatively dire performances. I think that might be the bottom line for Smith, who is clearly a brilliant investor but now an elephant in a crowded field. Nick Train is, in my opinion, more cerebral about his failings and therefore the one to back now.
In my pension fund, I have been buying his funds, which I think will do well over the years. He is younger and still lives and breathes markets- and continues to enjoy the UK’s temperate climes!
We’ll be covering some of these topics in more details plus welcoming some fantastic companies, brilliant speakers and many private investors to the Master Investor Show on the 18th of March, so book your ticket now using the code ‘ARMCHAIR’ to get your free ticket.
