Bearish investors who sat on the sidelines, holding cash while the stock market soared into the stratosphere this year are, no doubt, having second thoughts. But how about those who were invested, but who avoided the frothiest, most overvalued investment opportunities? They may be feeling regrets of their own, especially after reading an article in Bloomberg.
While the S&P 500 Index (SPX) has gained nearly 16% for the year-to-date, a hypothetical “Bubblicious” portfolio, packed with overpriced assets that many experts expected to crater long ago, is up by more than 120%. Among these are shares of Tesla Inc. (TSLA
) and Netflix Inc. (NFLX), which represent one of seven equal-weighted elements in this theoretic portfolio.
Of course, the rub with bubbles is that they are great to buy into if you are presciently, or luckily, get out before they burst. Few investors have such foresight or good fortune, however. Such was the case with the Dutch tulip mania of the 17th century, as well as the South Sea Company Bubble and the Mississippi Company Bubble in the 18th century. These investment crazes were memorably described by Charles MacKay in his classic 1841 work, “Extraordinary Popular Delusions and the Madness of Crowds,” required reading in many classes on the markets and investing.
Closer to our own time, there have been the stock market crash of 1929 and the dotcom bubble of the late 1990s, among others. In all these cases, speculators made fantastic sums as these bubbles inflated, but most stayed too long and lost most, if not everything, when the air was let out.
Tesla and Netflix
Despite recent woes regarding the rollout of its mass-market Model 3 electric car, Tesla shares are up about 42% year-to-date. Impressive for a company with growing quarterly losses and a reputation for outsized forecasts and slipped deadlines. Netflix is up about 59%, with the good news being that it…