Everything is Overvalued

Have you missed the gravy train?

I hear a lot of people saying that they can’t bring themselves to invest in the market at the current price.

It’s easy to look at the current market valuation and assume everything is a bubble.

However, it’s important to remember that some of these exponential growth stories are warranted.

It’s easy to look at the likes of Zoom and see a company that has jumped nearly 200% over a 12 month period and apply an anchoring bias to last year’s price and just file it under ‘market hysteria,’ but that’s a shallow investment thesis.

ZOOM Communications 1 Year Performance

Zoom, saw year over year profits jump from just over 100 Million to 1 Billion this year— In just one year, Zoom has managed to increase revenue 4.3 times and grow profit 10X. A truly staggering achievement.

We saw similar stock price jumps in the e-commerce space.

The e-commerce industry represented 5% of the entire commerce market in 2009, growing to 16% in 2019. In Q1 2020, e-commerce’s portion of the overall pie jumped to 32% amidst the pandemic.

It seems quite plausible that we will see exponential growth stories emerge from an industry that has just seen 10 years’ worth of growth in one quarter.

Now don’t get me wrong; broadly speaking, valuations are lofty. I know this all too well. I spent seven years studying valuations metrics only for the rule book to be thrown out the window in recent months but let’s not paint all stocks with the same brush.

If you choose to ignore the monumental shifts created by the pandemic, then, of course, it’s easy to categorise everything as overvalued. But if you are willing to dig a little deeper and distinguish organic and fundamental growth from speculative growth, then I believe great long-term opportunities still exist for companies within rapidly changing industries.

My advice, stop trying to jump in on every opportunity. That’s an unsustainable investment approach. You will end up with 100’s of stocks and no clue what any of them actually do. Concentrate your efforts; focus on societal trends that you believe will grow over the coming years, and find the best companies operating within those sectors of the market.

The game isn’t over. It’s just getting a little harder.