Price Changes Sentiment

Price has a massive impact on sentiment. People begin to believe things that they otherwise wouldn’t have when prices were lower. From 2001 to 2019, most investors said the late 1990s was a crazy moment in market history which they probably wouldn’t participate in if it happened again. Now, we are seeing the late 1990s used as justification for current valuations. Furthermore, investors are supporting their current optimism by saying 1990s traders were right because the internet ended up being a massive thing that transformed society forever.

Some Future Industries Don’t Last

Of course, it’s not that simple. Many of the expensive internet companies that were successful had their stocks languish for years until they recovered. The unsuccessful ones never recovered. Then there was the hype around telecom which had terrible unit economics and was a major flub. The graphic below is from Tren Griffin’s article.

As you can see CELCs didn’t work so they ended up going away. This could end up being a preview to fuel cell technology which is in its infancy. That’s a nice way of saying the energy is uneconomical unless there is massive help from the government.

Growth areas like genomics, electric vehicles, and sustainable meat are seen as long-term trends that can’t be stopped similar to the internet in the late 1990s. Speculators have tunnel vision; they see the success of the internet and think they can survive any volatility because they survived the volatility in March. The decline in March was a few weeks where there was an instant snapback. The bear market in the early 2000s was a couple of years and much deeper.

More importantly, it was a secular shift away from growth stocks and towards value stocks. This entire year has just been an extension of the trend in the past few years where anything with growth does well. New growth investors have no idea what it would be like if markets shifted towards value. Growth bulls can’t even see why someone would want to invest in what they see as dying industries (banks & fossil fuels). However, it’s possible some of the trends they see as inevitable aren’t.

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