This Week
Last week, we received a trading update from Focusrite and Exor released its results. You can find both of them below.
What to do today?
These days, people are mainly looking for quick buy tips, and not so much for the message of caution that I'm bringing. This discourse has already cost me clients. Yet I remain true to this message, because I am 100% convinced of it. I promised my readers that I am an investor first and foremost. This makes me a bad publisher, a task I didn't have before and, frankly, would happily leave to someone else.
I prefer not to be a doomsayer, and I don't believe in a total collapse of the financial system either. However, I do feel that the current valuations, especially of US large caps, are no longer sustainable. If they correct, they will likely drag the entire market down with them, and then Europe will also feel the blow. Cheap stocks can then become much cheaper.
It's clear that a significant correction or crash is coming at some point. Last week, we already saw how market expectations are too high due to AI, with the sudden rise of Oracle.
The sentiment is simply too euphoric. Investors want buy recommendations and are hunting for 100-baggers, stocks that can go up a hundredfold. Newsletters and services that promise these stocks sprang up like mushrooms after the COVID-19 pandemic. They now show off impressive results based on their five years of experience, but as I wrote before, anyone under 35 has not yet experienced a real crash or serious correction in their adult life.
The Generational Divide and Risk Perception
That makes those who experienced crashes in 2008 and even the dot-com bubble in 2000 the exceptions. I understand their enthusiasm and the fact that they see opportunities to buy everywhere. They are used to a growing economy with loose monetary policy and markets that only go up, with the occasional short dip. They see opportunities everywhere, but the risks are underestimated or misunderstood.
I don't share that enthusiasm. I see a heavily overvalued US stock market and here and there in Europe a small bubble (like in the defense sector). I do see the risks and am no longer in the phase where I want to get rich through the stock market. You get rich by working, starting a business, and saving. What you have left over can go to the stock market, which can make you even richer.
Realistic Goals and Capital Preservation
Are you looking for a 100-bagger? My reaction is: just go for it. Start by looking for a company that can double. Anything more than 3 to 5 years into the future is simply too uncertain to factor in. That doubling can come from business growth, or from a revaluation on the stock market because the stock is too heavily undervalued. Companies that have both characteristics are ideal.
The first task of investing is capital preservation, in other words: at least keeping up with inflation. Remember the two rules of Warren Buffett:
Don't lose money.
Don't forget rule number 1.
Everything you earn on top of that makes you richer. In your quest to get richer, you must be sure not to make big mistakes that make you irreparably poorer. If you want to invest in risky stocks, you need to diversify sufficiently and play the game where one winner can compensate for nine losers. It's doable, but a very difficult game to play.
The Market Has Been Expensive for Years
When I bring this message, I invariably get the response: "The market has been expensive for years; if I had gotten out, I would have missed out on xx% return. So why would it be different now?"