Opinion: Pandemic Risks, Why Tech Is Raising And Value Stocks Are Dying

[Singuy]

Was going back and forth with value investors on a different medium and I have came to this prediction.

I don't think value stocks with low P/E that pays a dividend will be roaring back to their original price point even after Covid 19. I do believe that these stocks will be paying a higher dividend (meaning stock price will be lower vs before) even if their profits return to pre-Covid levels.

My reasoning is that due to Covid 19, global pandemic is now a NEW RISK introduced to the market. This risk attacks specific sectors extremely hard, like travel, entertainment, energy, and dining. Prior to Covid, those stocks were considered bread and butter value stocks with low P/E and low risk. Tech however were always considered to be riskier but with more upside than value stocks.

This pandemic however flipped the script. We can see that the only thing pandemic has done is for tech companies to make even MORE money than before. This means going forward, the newly introduced risk of potential future global pandemics has reduced risk for tech and INCREASED risk for value companies. A lot of people think the transition to tech is temporary but in my opinion the transition is just reassessing risk in equities. The thing about this is that because techs usually have higher multiplier for reward, any small reduction in risk amplifies asset prices to keep up with the potential reward, hence we see bubble like transitions. The flip side is also true, because value stocks's life line is low risk, any increased amount of risk amplifies down in its value proposition.

What do you guys think?

[disneysteve]

A lot of people think the transition to tech is temporary

I don't think that's true at all. I think we've steadily been moving toward a more tech-focused economy and the pandemic greatly accelerated that transition, probably speeding up the curve by 5-10 years.

Companies and employees now see that yes, they can be productive and effective without everyone gathering in a shared office space every day, commuting long distances to get there. Deals and training and collaboration can happen without flying all around the country and the world to be sitting next to each other when doing it.

It is no longer necessary for everyone working for a company or on a particular project to be in the same room or even the same city. One person might be in midtown Manhattan while another might be at the Jersey shore and a third might be currently living in an RV traveling across the country. As long as there is stable internet access, everything is fine.

You need to hire a new employee? You are no longer limited to those who live within an hour of you. Your search can be national or even international since the person will be working remotely anyway.

From a consumer standpoint, a great many people have fallen in love with online shopping and curbside pickup. No longer do you need to waste your time physically going into a store gathering items and standing in line to purchase them. You can shop from the comfort of your home and either have the items delivered for a small fee or just drive over and have someone plop your bags into your trunk without you ever unbuckling your seatbelt. As an added bonus, people are spending a lot less overall because impulse purchases are greatly reduced this way.

[~bs]

Techs are running for the reason I mentioned in the other thread. I do think there will be somewhat of a correction once we do start emerging from this with value recovering somewhat. The crisis just hastened a transition that's already been happening pre-covid.

[Singuy]

Techs are running for the reason I mentioned in the other thread. I do think there will be somewhat of a correction once we do start emerging from this with value recovering somewhat. The crisis just hastened a transition that's already been happening pre-covid.

Don't forget there are loads of money sitting on the sideline. Many big whale investors are uncomfortable with large P/E ratios and wouldn't touch tech. They only understand value. Warren is one of them. So as the economy and those companies recover, big money may buy in vs a transition from tech.

The newly added risk for Value is crazy tho. Can you think of any other major event besides a world war that can take down Apple or Google, cutting their earnings by 80-90% just from 1 quarter worth of time? Because if this pandemic was slightly deadlier, a company like DISNEY would be in danger.

[~bs]

Don't forget there are loads of money sitting on the sideline. Many big whale investors are uncomfortable with large P/E ratios and wouldn't touch tech. They only understand value. Warren is one of them. So as the economy and those companies recover, big money may buy in vs a transition from tech.

The newly added risk for Value is crazy tho. Can you think of any other major event besides a world war that can take down Apple or Google, cutting their earnings by 80-90% just from 1 quarter worth of time? Because if this pandemic was slightly deadlier, a company like DISNEY would be in danger.

True story, I guess the thing is value stocks have been so hammered that once things recover, there will be more "value" in buying these than high flying techs. Value includes things like financials, utilities, energy, airlines, etc etc that may entice some to make the purchase.

[JBinKC]

Most older tech investors with a major value bent remember the impact of the Y2K bubble and have been negatively influenced by it and some don't understand tech. Back in the 90s it was more of a hardware play whose businesses became commoditized and almost all firms with the exception of AAPL floundered.

Most of my success over they years has been using a Graham style of a contrarian value investor and generally concentrate on commodity cycles in most cases with very low priced stocks or low floats and that style works for me but my turnover rate is higher because cycles end. One thing that rings certain for both methods you better be very competent in the niche you primarily invest.

I also do some market timing by keeping more liquidity when the Fed reduces its balance sheet.

Singuy for one I totally respect your investing method especially after a major market correction. But in most cases I have been burned by FOMO investing and reject it. The monetary conditions and background are right for long term appreciation with the right stocks.

[Singuy]

Most older tech investors with a major value bent remember the impact of the Y2K bubble and have been negatively influenced by it and some don't understand tech. Back in the 90s it was more of a hardware play whose businesses became commoditized and almost all firms with the exception of AAPL floundered.

Most of my success over they years has been using a Graham style of a contrarian value investor and generally concentrate on commodity cycles in most cases with very low priced stocks or low floats and that style works for me but my turnover rate is higher because cycles end. One thing that rings certain for both methods you better be very competent in the niche you primarily invest.

I also do some market timing by keeping more liquidity when the Fed reduces its balance sheet.

Singuy for one I totally respect your investing method especially after a major market correction. But in most cases I have been burned by FOMO investing and reject it. The monetary conditions and background are right for long term appreciation with the right stocks.

FOMO has two meaning. FOMO returns or FOMO on a good company? FOMO returns are the worst. All these co-workers are asking me about Tsla right now and that's just scary. I have advice all of them to stay away. Until someone can prove themselves to be level headed about potential loss and have some basic understanding of the current valuation, they shouldn't touch any of my stocks with a 10ft pole. Prior to any break outs like Fiverr at 30s, AMD at 10, and Tsla at 200-300s, I had more confidence. Today the risk is most likely not worth it as I can't see something like AMD being 10X returns(or even 5x) in any kind of sane models. So there's no reason to FOMO into the stocks. When it was 10 bucks, the 10X proposition was real and you can FOMO all you want.

[Scallywag]

True story. I bought TSLA at 209 & sold it at 918. Then jumped back in at the 1000s, some more in the 1300s and an additional dozen shares finally at 1602. I think i overpaid even at that point, and won't be buying any more TSLA.

At split, I should have a few hundred shares that I think will be overpriced. I believe a major sell off could happen and the stock could go into free fall, esp is Trump loses. Scary proposition given how small our nest egg is, to begin with.

I think tech is the future while commercial real estate is likely screwed.

[~bs]

True story. I bought TSLA at 209 & sold it at 918. Then jumped back in at the 1000s, some more in the 1300s and an additional dozen shares finally at 1602. I think i overpaid even at that point, and won't be buying any more TSLA.

At split, I should have a few hundred shares that I think will be overpriced. I believe a major sell off could happen and the stock could go into free fall, esp is Trump loses. Scary proposition given how small our nest egg is, to begin with.

I think tech is the future while commercial real estate is likely screwed.

I was rather late to the tesla game and only bought maybe 2 or 3 weeks ago? When it dropped into the 1300s. Crazy run for holding such a short period of time.

If trump loses, the stock market almost assuredly will drop. As it gets closer and it appears he's either going to win or lose, the market should move accordingly. As was said previously, the market moves on future expectations. Biden already indicated his intention to restore corporate tax rates, which affects net earnings, which affects share valuation. I'd guess that such volatility might hit in the september- october time frame.

[Scallywag]

I was rather late to the tesla game and only bought maybe 2 or 3 weeks ago? When it dropped into the 1300s. Crazy run for holding such a short period of time.

If trump loses, the stock market almost assuredly will drop. As it gets closer and it appears he's either going to win or lose, the market should move accordingly. As was said previously, the market moves on future expectations. Biden already indicated his intention to restore corporate tax rates, which affects net earnings, which affects share valuation. I'd guess that such volatility might hit in the september- october time frame.

Who do you think is likely to win?

[~bs]

Who do you think is likely to win?

It's really hard to say. Polls point biden... but 4 years ago, polls pointed to clinton by landslide. I say biden win popular vote easily, electorial college is more of a toss up. trump is pretty crazy, but historically, it's very difficult for an incumbent to lose, and especially not if the stock market is cranking the way it is. The covid situation and trumps (mis)handling of it swings odds in biden's favor.

[Singuy]

Corporate tax rate will go up but sanity may get restored without so many trade wars. So I think it's a wash. Biden is pretty moderate and the market priced in his potential win already. A win for Tesla if Biden gets it so we can continue to be aggressive on climate change, meaning a real phase out of ICE by x time frame. This is the determining factor of why people think EVs are the future, because it's forced to by law in China and Europe.

[Scallywag]

It's really hard to say. Polls point biden... but 4 years ago, polls pointed to clinton by landslide. I say biden win popular vote easily, electorial college is more of a toss up. trump is pretty crazy, but historically, it's very difficult for an incumbent to lose, and especially not if the stock market is cranking the way it is. The covid situation and trumps (mis)handling of it swings odds in biden's favor.

Just watched the Dallas Fed Chief interview on CNBC this morning where he warned that the Feds will not support the market "forever", esp the corporate bond market. The market though isn't seeming to pay attention. But I expect major volatility beginning in Sept and all the way until Jan / Feb of next year (and even into 2021, if Biden does win).

As for COVID, would have happened even if the Democrats were in the White House.