The dangerous pack behavior of Nasdaq investors

W.When he looked at the American technology exchange Nasdaq in the past few weeks, it hardly occurred to him that the world is still struggling with the corona pandemic and the consequences of the resulting global lockdown. Regardless of this, the Nasdaq 100 index climbed to an all-time high and most recently managed to report ten record highs within twelve trading days.

But on Thursday, a drop in the technology-rich Nasdaq index by more than 5 percent surprised investors. This also pulled the Dax significantly down on Thursday, which opened on Friday with a minus of 0.7 percent and below the mark of 13,000 points.

The Nasdaq 100 stock market barometer, dominated by the tech giants Apple, Microsoft and Amazon, had at the beginning of September seamlessly followed up on the strong month of August. It was also the strongest month of August since 2000 – the year in which the dot-com bubble led to gigantic asset losses for many investors.

I do not want to attempt to make a comparison at this point, even if analysts have recently repeatedly warned against valuations that are too high, especially in the Internet, chip and software industries. The assessment that share prices are leaving the fundamental growth prospects of companies too far behind and threatening a bubble has been read by many analysts for some time. It’s also not that difficult to understand:

Apple and Amazon alone make up around a quarter of the total weight of all 100 companies in the Nasdaq 100 Index. The hype surrounding these papers, as well as the Google holding company Alphabet or Microsoft and Netflix are not so easy to understand for some older stockbrokers.

(Too) high evaluation level for tech values

Ultimately, they also harbor a certain danger. The gigantic valuation level of the big American tech stocks is due to the fact that every investor has been investing in these stocks for weeks and months in order to take part in the price rally. After all, nobody wants that “missed feeling”. This also creates a pack behavior that is not to be despised: a handful of shares are bought by a large number of investors, which in turn increases speculation and the risk of overvaluation.

Mikko Ripatti, Portfolio Manager at DNB Asset Management, goes even further and takes a clear stance on Apple shares: “Apple is an example of a stock that investors don’t currently need to have in their portfolios. The stock is up more than 70 percent this year, while earnings per share forecasts have just been raised by one percent. The operating result (EBIT) is at the same level as in 2015. “

In addition, according to the stock market expert, Apple is unlikely to add additional value in the app business because it was the perfect storm against the background of the Corona crisis. He adds: “At the same time, the 5G replacement cycle is overrated against the background of a market characterized by a high degree of saturation.”

Apple hit by trade war

Last but not least, Apple is very badly affected by the Sino-US trade war. But “despite the lack of fundamental added value, Apple shares are priced at a price-earnings ratio of 33 based on the earnings forecast for the coming year.”

So what does an investor do who has only bought a tech company like Apple in the past few weeks? Should he take the profits with him – even after the slump on Thursday? An investor like Warren Buffett, who joined the iPhone company much earlier, has it easier. The “Oracle of Omaha” sits on a billion dollar Apple share and has so far generated a terrific profit with this share.

In addition to Apple, Microsoft could also be cited as a good example of an increasing risk of overvaluation. Windows shares have also performed very well in recent months. But the paper has now reached a valuation level that makes it unattractive to some analysts compared to other stocks in the sector.

Deep assessment gap

Meanwhile, according to Thomas Böckelmann, market expert at Euroswitch, professionally acting investors would try to assess whether the historically largest valuation gap between growth and value stocks will continue or is about to end. “Growth stocks such as technology have never been more expensive, and at the same time cyclical sectors such as raw materials or energy have never been valued more favorably”, states Böckelmann.

In the end, every investor will have to think for himself how the personal stock portfolio should look like for long-term wealth accumulation. Ultimately, one thing should be avoided: Simply invest in stocks that are making headlines everywhere and are accordingly (too) highly valued.


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