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Why David Einhorn is right about tech stocks

Escrito 25 Apr 14

Buenos días, os dejo un artículo del WSJ que me parece muy interesante sobre Einhorn. HAce unos días recibí el informe de Greenlight Capital y me sorprendió su particular visión sobre la nueva burbuja de los valores tecnológicos que ahora están de moda. Tengo el informe en PDF pero no sé como subirlo a la página. Un saludo. MC


David Einhorn, the hedge fund guru best known for shorting Lehman Brothers in 2007, is back at it, this time with tech stocks in his sights.

”There is a clear consensus that we are witnessing our second tech bubble in 15 years,” Einhorn’s $10.3 billion firm,  Greenlight Capital, told clients in a letter this week.

The correction in tech stocks so far is hardly a shock. Tiny companies with negligible earnings were priced at unhealthy levels.

Inevitably, inflated valuations fell back to earth as traders cashed out and plowed money into dividend-payers and slower-moving blue-chip stocks with actual revenues to report. That's just what happens when  our emotions drive our investments , rather than letting the ultimate goal — a steady, reliable return — dictate.

So why did investors put so much capital into unproven firms? That's the nature of the beast, as Jason Zweig explains in The Wall Street Journal . We want a quick hit, a runaway winner that absolves us of all of our portfolio sins.

Unfortunately, as Zweig notes, stocks that rise quickly also tend to disappoint just as fast. In a market trading at 21 times earnings, Internet stocks were trading at 158 times earnings, he points out. Only a flashing red light would have been more obvious, although likely equally unheeded.

People ignore such signals because they don't understand the math behind them. It's really easy, however, and an important point to consider: If you buy a business at 10 times earnings, you are agreeing to wait a decade for those earnings to pay back the original investment.

Ice cream economics

Imagine you plan to buy an ice cream shop. You know the store generates $50,000 a year, after subtracting rent, labor, cost of ice cream and so on. The seller wants $300,000 to buy her store.

If nothing changes, you will wait six years to turn a profit. Maybe it's worth the wait, or maybe you want to negotiate or even walk away. The point is, you know what you're getting into in terms of risk.

That Internet company trading at more than 100 times earnings will never, ever pay you back in a meaningful way. You won't live long enough, and the company itself will be overrun by competitors or go bust.

So what are you trying to buy here, exactly? Really, you're hoping a "greater fool" will come along and pay you now for the right to wait a century for those nonexistent earnings to appear.

Zweig goes on to build a case for momentum investing, and it's a fine argument to make — if you have 60 hours a week to trade the markets like David Einhorn. Most people saving for retirement barely have time to focus on career and family.

That's the unfortunate illusion peddled by Wall Street, that ordinary people can and should be traders. There's a commercial out now that shows doctors, waiters and tailors dancing around and singing about their great online trading service.

Does a doctor running from bedside to bedside have time to research and intelligently trade a single stock? A whole portfolio? Meanwhile, thousands of professional managers are working around the clock to do the same thing, gleefully waiting to trade against our busy doctor. It's laughable.

Chain of fools

And that's the reason Internet stocks blew up so radically. Wall Street marketing and the financial media are bent on creating herds of "greater fools" to buy into completely unrealistic stocks.

The result, naturally enough, is that people pressed for time don't do the homework, don't research the stocks they buy, don't even look at P/E multiples and instead hop on the name and notoriety of one or two hot issues in hopes that the chain of fools is long enough for them to hop back off undamaged.

Zweig does counsel diversification, that is, owning a variety of stocks to avoid amplifying the negative effects of one or two big losers. But he does so in the context of active management, something a portfolio manager might do at a professional level, handpicking value stocks to balance against a short-term flier on untested technology shares.

I'd go one step further. For the vast majority of retirement investors, the far better route is to own the whole market as part of a portfolio indexing strategy. Rebalancing — selling fast gainers as they climb to buy cheaper value stocks — happens painlessly at the index level.

I do love the idea of people dancing and singing about their investments, however. Emotions are great, so long as it's happiness from seeing your portfolio grow into the retirement you expect and deserve.


Comentarios (6)

Kaloxa CMO en Finect. Periodista financiero. Me encantan las finanzas del comportamiento

25 Apr 14

Manuelcu aquí tienes las instrucciones de cómo subir un documento a los artículos en Unience

xiscom Haz lo que puedas con lo que tengas.

25 Apr 14

Muchas gracias, Manuel. Es fácil incluir documentos: aquí traigo este artículo.

Icono Insertar/Editar Vínculo Cargar Seleccionar archivo Enviar al servidor.

xiscom Haz lo que puedas con lo que tengas.

25 Apr 14

Vaya, se me han adelantado. jeje

Bueno, incluyo la carta de Einhorn a sus partícipes recién publicada.

Kaloxa CMO en Finect. Periodista financiero. Me encantan las finanzas del comportamiento

25 Apr 14

Acabo de escribir este artículo sobre el tema de fondo en la toma de decisiones en las burbujas, espero que os guste.

Respecto al tema de las tecnológicas en concreto, creo que hay que discriminar. Por ejemplo, entre las redes sociales, creo que en Facebook no se están pagando unas expectativas tan desmesuradas. Sí altas, pero no desmesuradas. Ahora mismo cotiza a 42 veces los beneficios esperados para 2014. Por lo tanto, si sigue sorprendiendo al alza en los próximos años, este ratio deberá bajar hasta cerca de las 20 veces en 2015 o 2016.

En cambio, los niveles a los que se había llegado con Twitter y LinkedIn me parecían fuera de toda lógica. Aún habiendo caído casi un 40% desde máximos, Twitter cotiza a un per estimado de 2.575 veces, mientras Linkedin está cerca de las 110 veces.

25 Apr 14

Gracias a los tres por colgar tan buena información!

27 Apr 14

Si señor........cuando se pagaron 19 mil millones (creo) por whatsup........una compañía que no se atreve a cobrar un mísero dolar anual por su aplicación...sonaron todas las alarmas.

No olvidemos el burbujón que en 2000 llevó el Total market cap /GDP del mercado americano al 148.5%.......y lo que pasó después.

Y no olvidemos que en 1982 el TMC/GDP (el indicador de valoración de mercado más fiable según Buffett) estaba en 34.7%........mínimo histórico de los últimos 50 años.

Hoy estamos en 115.6% .

Si señor ,sobrevalorado,bastante valorado.De aquí para arriba va a costar....los márgenes empresariales están historicamente elevados y las QE no generaron la circulación de dinero esperada (pero si una monstruosa deuda).