Quick Update
I don’t have much new to say, but thought I’d jot down a quick update, if only to emphasize that nothing much has changed on my end, and to commit my predictions down for future humbling.
The valuations of most stocks, at least based on historically reliable levels, appear to be completely divorced from reality. The median stock on my watchlist is priced at 180% of my estimate of fair value. This means that stocks would have to fall about 44% just to be fairly priced, much less cheap or undervalued.
My valuations likely have a more conservative bias than most, but this is, by far, the most overvalued stocks have seemed to me. Even when the S&P 500 was recently down 20%, most stocks still appeared to be extremely expensive, and in any other period would have been considered in bubble territory.
Analysts are still projecting record high operating margins going forward, which I don’t find probable, even before Trump was intent on dictating profit margins by tweet and manufacturing a trade war that lacks any discernible strategy. We are also in a notably different era for interest rates, which have been a large driver of profit margin growth over the past decade.
Big tech companies, which contributed 52% of total net earnings growth in 2024, continue their enshittification of the web for short term gain: Amazon is mostly paid ads, Google and Apple engage in monopolistic practices, and AI continues to be hyped and marketed far beyond reality.
The apotheosis of this dystopian tech future is cryptocurrency, most of which has little practical, legal use, and which is the ultimate vehicle for speculation and grift. This corruption extends (emanates?) from the top: Trump openly auctions off political access, pardons convicted criminals who donate to his campaign, and stops prosecuting those who buy his transparently worthless memecoin.
People are so polarized that it’s hard to say we inhabit the same realities. Good luck convincing a Tesla shareholder that self-driving Cybercabs aren’t around the corner (despite Musk making similar promises for over a decade), telling a MAGA adherent that Trump isn’t a business and negotiating genius who has their best interests at heart (despite overwhelming evidence to the contrary), or explaining to a crypto-bro that there is no fundamental reason BTC should be worth $1.5MM just because a money manager who has lost more money for investors than anyone in the past decade declares it must be so.
This cultish behavior extends to retail investors, who buy every dip in the stock market with the blind faith that stocks can only go up, no matter what their starting valuations.
For now, I’m mostly trying to occupy myself with activities other than investing. I’m forcing myself to look at at least one company a day, but there is very little that seems interesting, especially in US markets.
Current portfolio:
Cash (80%+)
Fever-Tree Drinks (FEVR.L)
Kakaku (2371.JP)
WingArc1st (4432.JP)
Plus Alpha Consulting (4071.JP)
Softcreate (3371.JP)
My $.02, which is probably worth at least a nickel, is that you are right. This looks a lot more like end of `1999 or the beginning of 2000. There are a bunch of AI companies raising money, the majority of which will end up like Pets.com. In 2000, 10-year TIPs bonds had nearly 4% coupon, so they were a much better option than today's TIPs with <2% yield. But compared to "return free risk (Buffett's description of bonds circa 2015) bonds are least paying a positive real return.
AI will eventually change everything, but techie always overestimate technology adoption so I think a 10-30 years adoption is more likely than 3-10 years people are talking about.
The combo of very old bull market, an insane president, excessive US debt, and aging world, means that future returns are far likely to be much poorer in the next decade than the last 25 years. Vanguard is projects equity returns in 4-6.5% rate over the next decade. Good time to be cautious.