One of Australia’s greatest stock market players is worried about Bitcoin and stocks like Tesla and thinks they have “dotcom bust” written all over them.
The guy in question is Hamish Douglas, co-founder of Magellan Financial Group, which has been a pretty good stock market performer since 2004.
Here's what he has to say.
Magellan Financial Group (MFG)
A ride up from a 70 cents share price to $48 nowadays with an all-time high of around $67, shows Magellan has been a top class company to invest in. And it indicates that Hamish should be listened to when he’s a little worried about excessive valuations of the likes of Tesla and Bitcoin.
Of course, he could be wrong for a time before he’s proved right, but there’s an important lesson or two from his warnings for both inexperienced and experienced stock market players.
Before I share these lessons, don’t think Hamish and his Magellan team are anti-tech stocks as the company’s biggest holding is Microsoft (6.2 per cent) followed by Amazon (5.25 per cent) and then Google (Alphabet) 4.43 per cent, but it worries about non-profit makers with crazy valuations.
By implication he’s saying that when he invests in Starbucks that has been opening 600 plus stores a year in China and made profit of $15 billion last year, despite the pandemic lockdowns, that’s a company he wants to risk his clients’ money in. That’s what you call investing. Going long Bitcoin and Tesla is speculation and their share prices could blow up any time soon, or later, which could cause a 20 per cent correction to the overall market! That’s not my belief but it is Hamish’s, though he’s not expecting it soon.
That said, he doesn’t rule out a surprise trigger that could spook the stock market and cause a mad rush for the exits on Wall Street and global share markets.
A guy like Hamish sticks with great stocks but when he gets worried he builds up his cash compared to share holdings, so if there’s a share market correction (a drop of 10 per cent or more), he has dough to buy great companies such as Microsoft and Starbucks at market-scared prices.
As I said, that’s investing and contrasts mightily with those speculative plays that can be rewarding short term but can be money-killing in the long term.
And if you don’t believe me, look at these charts of Bitcoin and Tesla.
In 2017, Bitcoin hit US$14,000. By early 2019 it was US$3,500. There are experts tipping it goes to US$100,000 this year but that’s a guess that only speculators should believe.
And then there’s Tesla, which is a great car company but is it really more valuable than Toyota, Volkswagen and General Motors?
Early this year, the share prices of these companies gave us their market capitalisation. Tesla was valued at US$795.8 billion, Toyota US$ 207.5 billion, Volkswagen US$96 billion and GM US$71.3 billion.
In January, Tesla was a $US880 stock but by March it was a US$600 stock. Now it’s $762. That’s the price movement of a very risky stock, despite the fact I called it a good buy for speculators, especially if it went to $500.
It didn’t go to $500 so I missed out on the recent rise but if I hadn’t, I’d be a seller now. I’d keep some cash for a sell off and buy rock solid companies like Microsoft if stock prices went for a dive.
I’ll say it again: that’s investing.