Hopelessly Devoted To Technology Stocks

One of our kid’s favorite movies was Grease. They probably watched it dozens of times. Today’s stock market looks like the love affair between Danny and Sandy at Rydell High. Sandy is “hopelessly devoted” to Danny, even though he is the leader of a Los Angeles high school gang. Investors are just as devoted to tech stocks as Sandy was to Danny. It could be the beginning of stock market failure.

Guess mine is not the first heart broken
My eyes are not the first to cry
I’m not the first to know
There’s just no getting over you
I know I’m just a fool who’s willing
To sit around and wait for you
But baby, can’t you see there’s nothing else for me to do?
I’m hopelessly devoted to you

We wrote a few months ago that the addition of Tesla to the S&P 500 Index at a 1.6% position was a maneuver that would justify the firing of an active manager. In the meantime, momentum chasing investors have drowned momentum-based tech stock ownership vehicles both passive and active in capital. Theirs will “not be the first hearts broken!” and their “eyes will not be the first to cry!” Financial euphoria episodes are well documented going back to the Tulip Mania of 1636, the South Seas Bubble in the 1720s, the Roaring 1920s, the “Nifty Fifty” growth stocks of 1972, and the Dotcom Bubble of 1999.

The big problem is that the people trapped in these revenue growth stories and other assorted tech-woogie chicanery are “not the first to know” about the bright futures which could possibly justify today’s prices in 10 to 20 years. In our opinion, what the next two years should show is “there is no getting over” the love affair with these ultra-speculative securities which made people mega-wealthy almost overnight. The “Pied Pipers” of tech are likely to dig in their heels and call this new bear market in tech stocks a correction.

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Disclosure: This article contains information and opinions based on data obtained from reliable sources, which is current as of the publication date, and does not constitute a recommendation ...

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