The acronym, “FOMO”, or “Fear Of Missing Out”, accurately describes the current irrationality by so-called “little people”, buying into the likes of Tesla, Afterpay and Bitcoin, all entities without a scintilla of justification for their booming share-prices. FOMOists are today’s equivalent to the 1929 fabled shoe-shine boys.
New floats of sometimes questionable merit, are characterised by their creators cashing in large chunks, but that doesn’t stop the mug public buying in.
For example, respected share analyst Brian Gaynor, writing in his Businessweek website of the My Food Bag flotation currently being flogged, asked the all-important questions.
Specifically, if the company’s prospects are so good, why are the existing shareholders selling 75% of their shareholding into this float? And of the $342 million being raised, only $38m will actually go to the company after flotation costs and the rest into the selling directors’ pockets.
If that’s not alarming enough Gaynor also raises the critical point why the circa $17m flotation costs are being met 100% by MFB when three quarters of the proceeds are going to the directors?
A final valid Gaynor concern is departure of all the long standing directors with but one exception, and their replacement by new chums.
All of these factors says volumes about the company’s prospects. But I have no doubt the float will succeed and the share price will temporarily soar before ultimately reality strikes. Why? FOMO again.
In the case of Elon Musk buying into Bitcoin, given his form I suspect he’s having a laugh. He went public about buying in but it’s odds on he’ll only go public about jumping out after the event, and jumping out in due course will be inevitable.
As with all speculative fevers there will be winners and losers, the winners on the way up and the losers when the inevitable happens and the music stops as it always does and sanity is restored.
The amusing Game Stop saga which captured the news as a David and Goliath tale of how the little blokes killed off the short sellers “big boys” is a telling story.
For the little blokes could only win when they realised on their punt. They learnt this the hard way for by all piling in and achieving a massively over-valued U.S.$483 share-price, then all trying to capture this gain, in the space of a week they drove the price down to a 10th of that with considerable losses for them.
There’s one golden rule applying to this situation.
That’s the age-old adage arising with every irrational sharemarket boom, namely that this time, contrary to the faithful’s trusting belief, it isn’t different. In other words, sensible rules of earnings, risk and return etc. etc. remain valid. Speculative booms ignore those and are based on the bigger fool principle, namely the religious like faith of others climbing on board behind and continue driving up the price.
Whenever anything is based solely on faith, in other words with no rational justification, then ultimate failure is inevitable. The single exception is religion but that offers no tangible outcome, rather it’s selling an unprovable product you will supposedly only find out about when you’re dead.
Yes Sir Bob. Couldn’t agree more that the current US Stockmarket is a bubble of epic proportions that must surely be close to popping. Perhaps the Biden stimulus package will serve to delay the inevitable meltdown but it is going to be spectacular. Worth listening to Jeremy Grantham’s views from GMO for those wanting to hear a sensible take on what is about to come.
The Ends song says “History never repeats … ”
but everyone knows that is BS. And any with more than a single brain cell has seen this unfold with a hyped share market multiple times.
Property on the other hand doesn’t go anywhere and generally provides a solid return (unless the Govt interferes).
Easy to predict a crash it’s the timing that is the secret. The signs are flashing red.
Some good old fashioned market wisdom, Sir Bob, and perhaps some of the readers of this blog will
appreciate that,particularly the readily observable fact of directors bailing out during,or immediately after
the public float of trendy,highflying unicorns.
However,wether it’s just another example of the decline in the broader standards of journalism,or for other
darker reasons, the financial media,with few exceptions,is complicit in all the hype,nonsense and wilful misleading of the public, particularly the ” mums and dads”.
My food bag float ie resistible. It’s not quite a pyramid scheme but close. Caveat Emptor
Well history does repeat when it comes to Bitcoin, about every 4 years to be exact. With the halving event reducing the new supply by 50% every 4 years, this causes a supply shock which leads to a massive run up in prices. Before becoming over valued for that time and “crashing” back down, But still making a new Higher low every year.
Even though the chart is a bit outdated, you get the idea
And then there is JOMO…
Creating durable value? That’s business. Over time, the stock market rewards it Hence, the value stock. Seeking a hit by playing the stock market? That’s not economics, that’s roulette. There’s little connection between the two.
Think you might find FOMO is driving the current house prices.
Its crazy stuff; but we are a nation full of sheep. There’s no way the 2% mortgage rates don’t represent the forward risk.
The only conclusion I can come up with is without the 2% mortgage rates, there would be allot of foreclosures and the banks would be in the gun also. Self interest, at the expense of most others. What a license to have!!
Beware the bursting bubble.
The elephant in the room is interest rates and the bright spark who can come up with a credible scenario for an imminent and sharp increase in these will also predict the crash…
There are so called experts on CNBC predicting a correction mind you also the other way. The NZ economy is a mere nano second blip. I’m not so sure the interest rates are the main cause. It’s also sentiment. We have a free spending govt, the printing presses are on heat, but the banks are being watchful. The elephants in the room are the pollies and RB. Without some surgery and without and an anaesthetic nothing much will be done. It’s supply and demand….Paul Samuelson. 101
When your talking the housing market you have to remember demand is incredibly elastic. Most people find somewhere to sleep at night even if they dont own their own home.
Once you become a home owner the only really significants risks you face are rising interest rates and unemployment. And either of these is capable triggering a crash.