We can approach this market in two ways. We can charge into the battleground stocks, the short squeeze, the rebellions, the storming of the GameStop (GME) and Tilray (TLRY) gates, the latest SPAC attack.
Or we can look around, observe, dig in and make money.
One of the great things about the Robinhood revolution or whatever you want to call it, where some 20 million new investors flocked to all sorts of stocks is that many of these people had uncanny instincts. There's data from all the major brokers that show these youthful investors ran toward the Covid abyss and found it to be a land full of surprising milk and honey.
Unlike the reckless swarm that jumped the precipice of junk when the dotcoms collapsed, many of these new investors shocked a top-dog panel I ran for the fantastic Robin Hood charity here in New York with their tireless research before they pulled the trigger on anything.
In a true throwback to a style pioneered by a manager so few people now seem to remember, the amazing Peter Lynch, who ran the Magellan Fund for Fidelity, my mainstay investment for my whole life. Mr. Lynch consistently doubled the S&P 500 averaging a 29% annual return from 1977 to 1990, a truly staggering number. He did it by observing great ideas around him, researching them, discovering if they were well-run and could stand the test of time and then buying them. All of it is documented in the seminal investing text my era, One Up On Wall Street, a book by the way, that has inspired my entire career.
It went out of fashion for a long time as lots of self-interested people decided that you couldn't do what Peter Lynch did and others said forget it just by low-cost index funds, a mixture of good and bad and with diversity you won't hurt yourself and you can make some money.
The merrymen ended that chapter by observing and reading up just like Lynch did, aided by their incredible and innate ability to do research on the web.
Then something happened. They discovered a steroidal way to make money - call it the GameStop interregnum -and suddenly everything's been ripped asunder.
That, to me as I said last night, smacks of frothiness and I think that means that there are parts of this market that are in the danger zone. I long to get back to the halcyon research revolution and show you how it works so you don't just play with Matches (MTCH) , or maybe Bumbles (BMBL), although that's okay, too.
Let's start with the powerful observation you may have gotten on Saturday Night Live about how Zillow (Z) has replaced prurient methods of behavior because millennials want to search houses. Now Zillow's always been known as house porn in the industry and it's always been heavily searched for in an aspirational way. But here, in its 15th year, its gone to a whole new level.
The skit is hilarious but if you were using the Peter Lynch model you may have been able to capitalize on this trend ahead of what was one of the biggest blowout quarters of the year.
What would you have discovered? It's all in the public documents. Because of what Zillow called "the great reshuffling", the exit from urban areas because of Covid, Zillow has become the Amazon (AMZN) of housing. They have come up with methods where you literally can sell your house to Zillow for one click and they fix it up and sell it themselves.
I know it's not as sexy as the SNL skit, but listen to what the Zillow CEO said last night on the call because it captures the entire zeitgeist of the moment and will help you find the real next Amazon. Listen to what Richard Barton said on the call: "Customers want simplicity in one click. When it is something they don't care a ton about, they just need to get it done." That's Amazon way and it can apply to a house which people just want to get into forget all of the rest of the stuff. " By and large", he says, "having it all behind one-click and with Prime delivery on Amazon works really well, and that same kind of idea certainly holds true, we think, in real estate. What people want to do is get into their new house, everything else is an obstacle." Like Amazon, Zillow tries to bring the price low. But the real observation here is that, in what may be the hottest housing market in history, "the prime thing we want to do is integrate this, make it super easy and convenient and maybe ever joyful at some point so that people can just get to a better place. "
Bingo, one click buying.
Now you could say, wait a second, there so many things that can go wrong. They buy your house, the fix it up, they sell it? What if housing goes down as it did in 2007 to 2009. What if interest rates go up suddenly? Aren't they taking quite a risk in your one stop selling of your house to them? And the answer is there is always risk when you have this model but when housing is appreciating double digits, and the Fed telling you it is going to keep rates low to get job growth, owning the Amazon of housing seems like a pretty good deal to me.
Isolated? No, the opposite. The great reshuffling produces fabulous ideas each day. When you are in a hybrid model of work, some days in the office most days out, you can make your home into a heck of a lot more fun place if you wire it with Sonos (SONO) , room to room, so you can get the music you want as you work. Is there more to the Sonos story? Of course. You can't just go buy a stock because you like a product. You would have found ahead though what turned out to be a "Grammy Worthy Quarter", as star Morgan Stanley analyst Katy Huberty called it. Record results, increased outlook, record gross margins, record earnings, record revenue, hmm does sound like a Grammy winner.
Sure some of the ideas are more obscure. You know I have been pounding the drum that we have to have a 50 year bond to build what could be a job creators dream, giant semiconductor foundries to insure our nation never gets caught short semis again as we are now. That's going to lead to endless buying of Lam (LRCX) and KLA Tencor (KLAC) and Applied Materials (AMAT) because we are going to get this done.
Tougher to find and you have to believe.
But what really matters is that the 20 million go back to their revolutionary roots of upending those who want to keep you only in your index fund chains. That, and trust in the institutions you buy stocks from, that's what the revolution is about. Not short busting, not running the pot stock or celebrity SPAC.
So go back to keeping your eyes open, millennials, and beating the arrogant, self-interested profiteers who want to make money off you by making this more complex than it really is. Yes, by all means, use the app, but use it wisely and hope that the people behind the app demonstrate better trust and the money train revolution will keep rolling on, not derailed by rancor, hostility and some made-up bizarre class struggle that's a smokescreen for risky, daredevil trading.