Lamenting
“Most investors think quality, as opposed to price, is the determinant of whether something’s risky. But high quality assets can be risky, and low quality assets can be safe. It’s just a matter of the price paid for them.... Elevated popular opinion, then, isn’t just the source of low return potential, but also of high risk.” —Howard Marks
Stock markets once again had a positive week, with the S&P 500 hitting the 4,300 mark on Friday for the first time since last August, before closing just shy of that mark.
As we said last week, the current market feels a little like the market we had in late 2020 and throughout much of 2021. Technology has led the way this year. Tesla is once again getting plenty of attention as it closed the week on an 11-day winning streak. And new stories are driving big companies to the heights of valuation we’ve rarely, if ever, seen before.
In an interview this week, Stanley Druckenmiller lamented that he’s still a bear. He seems to do well in all markets, but valuations combined with a lot of liquidity scheduled to leave the market in the second half of this year have him not liking the odds of being long the market.
There is always hype somewhere—from stay-at-home stocks, to meme stocks, to crypto, and now to AI—and there is always value somewhere.
In the short run, hype and stories can make fortunes for those lucky enough to get in and get out early. And fortunes can be lost by those who are late.
In the long run, the value you get for the price you pay eventually wins out. If you’re playing that game, you can ignore the hype.
But whether you choose to participate in the excitement of today or take a longer-term focus, it’s important to know which game you’re playing. Speculating when one thinks they are investing is one of the quickest ways to lose money.
“Price is my due diligence.” —Warren Buffett
“What is smart at one price is dumb at another.” —Warren Buffett
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