FOBU Overrides FOMO
By
Murray Leith CFA, Executive Vice President & Director, Investment Research
Monday, January 25, 2021
What is FOBU? According to Urban Dictionary, it’s the Fear of Breaking Up. With respect to investing, I use it to stand for the Fear of Blowing Up! Think of it as an antidote to FOMO, the Fear of Missing Out, which is a potential ego-crushing, wealth-destroying syndrome that seems to be spreading in financial markets.
There is a lot of debate about bubbles and the sustainability of the bull market in stocks. There are five links below to articles and essays that we believe help frame the debate and provide some good perspective.
We are not worried about the stock market in general. Yes, it’s expensive by a lot of measures, but it’s cheap relative to the bond market. Bond yields need to go up a ton to create meaningful long-term competition for the stock market.
While we don’t think there is a general stock market bubble, we do think there is a bubble in speculation.
What worries us and where our FOBU instincts are on high alert is with the “hot” and popular stocks, sectors and themes: Tesla, clean energy, bitcoin, IPOs that double on their first day in the market, etc. Much like the technology mania in the late 1990s, today’s best-performing stocks have a lot of future potential but little or no current earnings. We are not saying there aren’t exciting businesses and powerful and new secular trends. There absolutely are. But the level of speculation in the market is getting a little crazy. Perhaps a lot crazy. John Mauldin’s article below points to the record high reading of Citi Research’s Euphoria/Panic Index as a sign of rampant speculation.
If history is a guide, the hot and popular stocks and themes will remain hot for some time, perhaps much longer than we think. But in the fullness of time, the odds are not good that the popular and pricey bunch will provide decent returns.
Jeremy Grantham: Waiting For The Last Dance
Howard Marks: Something of Value
John Mauldin's Forecast 2021: The Stock Market
The Brooklyn Investor: Happy New Year! Bubble Yet?
CNBC: Stock Market At or Near Most Expensive Levels Ever