No Hands
The recent rotation out of growth stocks and into small-cap stocks continued, at least for a few more days. For the week, the S&P 500 was down 1.97%, and the Nasdaq was down 3.65%. In contrast, the Russell 2000 was up 1.68%.
In his 2000 Letter to Shareholders, Warren Buffett wrote:
The line separating investment and speculation, which is never bright and clear, becomes blurred still further when most market participants have recently enjoyed triumphs. Nothing sedates rationality like large doses of effortless money. After a heady experience of that kind, normally sensible people drift into behavior akin to that of Cinderella at the ball. They know that overstaying the festivities — that is, continuing to speculate in companies that have gigantic valuations relative to the cash they are likely to generate in the future — will eventually bring on pumpkins and mice. But they nevertheless hate to miss a single minute of what is one helluva party. Therefore, the giddy participants all plan to leave just seconds before midnight. There’s a problem, though: They are dancing in a room in which the clocks have no hands.
Investing in “big tech” has been “one helluva party” for several years. Whether what we’ve seen during the last couple of weeks or so is a sign of more to come is anyone’s guess. But, as Mr. Buffett mentioned in the quote above, speculators dance in rooms with clocks that have no hands. And midnight comes at some point.
Tweets of the Week
In Case You Missed it…
The Folly of Certainty - by Howard Marks
Value After Hours S06 E25: Luca Dellanna on his books Winning Long-Term Games and Ergodicity (video)
Michael Green: The Stock Market Is Now A Giant Ponzi Scheme (video)
Behind the Balance Sheet Podcast: #37 The Analyst
The Meb Faber Show Podcast: Ian Cassel on The Art of Microcap Investing
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