Maybe the money just got too big.
I've been stuck on this concept because I have been trying to figure out the disconnect between when brilliant, truly brilliant managers come on air and give you chilling views of "the market" and the real attempts, particularly by younger people, to make money in stocks.
If you really parse the warnings -- some would say jeremiads -- of the biggest money managers out there, you will hear specific language about overall stocks. They rarely call out any individual stocks. Perhaps they will mention FANG, or FANGMAN as I am now hearing -- Facebook (FB) , Amazon (AMZN) , Netflix (NFLX) , Google/Alphabet (GOOGL) , Microsoft (MSFT) , Apple (AAPL) and Nvidia (NVDA) . (All but NFLX are holdings of my Action Alerts PLUS charitable trust.) But they will almost never discuss the merits of individual stocks.
Meanwhile the individuals I interact with are intensely interested in finding stocks that, over time, can make them money. They want to invest in companies they have heard of that have compelling concepts, but they want them to be run by good people and have sustainable goals and not be too expensive versus their growth rates, if they have growth rates.
In other words, we are talking apples and oranges and it's a major disconnect. The average new investors, as typified by the 13 million strong Robinhood contingent, have seen fortunes made not in the indices but in individual stocks, and these stocks, like the Purloined Letter, are right in front of them.
They bought nothing but Apple products. They are on Instagram every day, maybe for as much as 50 minutes at a time. They don't go to the store. They go to Amazon. Microsoft dominates their office software. They cut the cord because of Netflix. They look up something many times an hour on Google.
And they are supposed to own index funds? They are supposed to get their castor oil of Exxon Mobil (XOM) with their helping of Nvidia? They need to balance out a winner like Adobe (ADBE) with a loser chosen by a group of anonymous people who anoint 500 stocks and didn't even chose Tesla (TSLA) for some unfathomable, closed-door reason?
They don't want to be told the market is scary or that it is dangerous and a bubble. They want to find the next Nvidia.
And who can blame them? Nvidia is the perfect "bubble" stock that's not a bubble. Nvidia is spectacularly expensive on this year earnings, that's for certain. At 82x what this company is going to make it seems a little crazy to buy it. But if you actually do what people say, think of the long term, it might be worth it.
Two years ago Nvidia was selling at an outrageous multiple to future earnings, but the estimates turned out to be dramatically low and you were getting not a relative but a real bargain: 20x earnings for the great semiconductor marvel of our generation. Yes, at the end of 2018 this gem sold for just 20x the current earnings.
So why do these managers not give you the next Nvidia? Why do they always talk about the market being expensive?
First, they run too much money. They are so big and their megaphone so powerful that they can move anything they want. If they move it too much they are too tempted to sell it. That's called pumping and dumping. Much easier just to talk about the market.
Second, they manage so much money that there are only a handful of stocks even big enough for them to make a difference. They would end up owning huge positions per stock. Much better to swing around the derivatives markets, not help to the newbie Nvidia prospectors.
But it's true. In fact, many of them say they can't even discuss stocks. Well, wait a second. How worthless is that for most people now investing? Worse, they denigrate the whole process by talking about how there is too much single-stock risk. Trust me, there's too little multi-stock reward.
I long for the old days when the hedge funds didn't run tens of billions of dollars and they had ideas, ideas that they picked, not the analysts who work at their nameplate. The big trigger pullers and the smaller young investors are now at cross-purposes. Instead of educating them or helping them identify opportunities, they say there are none. They have become as valueless as politicians, maybe even greedier.
If you are looking for opportunity you don't need to hit the mute button. But you need to recognize that these people aren't even talking their stock book anymore, they are just talking some binary like-or-hate, sit-or-start positioning about bond and stock indices that are big enough to handle their money. You want to find the best fantasy players -- they want to bet the team. Or own it.
They are too big, and individual stocks got too small for them... not you.
