Blain’s Morning Porridge – March 26 2021: Trading and Investing In “Trend Stocks”
“I can only show you the door. You’re the one that has to walk through it.”
This morning – As Q1 wends to a close the threat of global recovery and higher rates overhang markets! Meanwhile, the market has spawned a whole new class of stocks: Trend Stocks – based on what we collectively believes about the future. Non Fungible Tokens (NFTs) look set to benefit from Trend Stock status!
And what an interesting week that was… Imminent vaccine wars, the “threat” post-pandemic economic recovery triggers rate rises thus undoing unsustainable P/E stock price multiples, and regulators seeking to regulate the vim out of the big dogs of Big Tech. Money is flowing back into cyclicals and fundamental stocks – but it seems based largely on what looks cheap to today’s already grossly inflated market. If it all looks like the ingredients for a corrective burst – well who knows?
There are a couple of victims out there. I feel most sorry for AstraZeneca and Oxford University – despite all their good intentions to produce a fast vaccine at zero profit and get it out there, they are on everyone’s solids list. The Europeans are using them as the sacrificial lamb for their botched rollout, and the Americans are being all high & mighty about numbers – although the good Dr Fauci did say “It’s still a very good vaccine.” I got the AZ jab and I ain’t dead yet. Good on them!
Pity the pilot and captain of the container ship Ever Given. How embarrassing. How dangerous to the global economy?
Next week will be slow ahead of the Easter Break and quarter-end. There is a deal of account balancing underway, so we may yet see some moves. It might be an opportunity to take stock of where markets are.
What’s going to happen in Q2?
Clearly the theme of vaccine rollout and recovery will lead, putting more pressure on rates and stock returns, and upping the ante on investors to find returns. That’s unlikely to be in bond markets – meaning the focus will be on already over-priced stocks and, as ever, finding the next new new thing.
The new new things become increasingly confusing the older we get. Its difficult to perceive new opportunities when they flip around all our existing experiences – especially when you are an aged old market hack like myself. Much of the stuff I look at surprises me because it just sounds so unlikely. I often take the view the market must be delusional to think some of the stuff will ever be adopted.
Much of what I see today I really don’t understand. I look at a stock at some insane valuation, compare its visions and promises to its competitive threats, the barriers to adoption and everything else and think; “this is daft.” But then I panic. I am not especially clever, so if it’s so obvious to me this is a delusional price then why aren’t smarter people also seeing it? Fear takes over. Fear is the mind-killer and investment paralyser.
The reality is often what I think is delusional today is someone else’s transformational vision of the market tomorrow, raising new opportunities and futures. Fortunately, I am surrounded by younger and smarter colleagues who take the time out to explain how things are changing, developing and finding adoption in the Tech sectors that are completely beyond my ability to catch up on, let alone comprehend.
For many of us over a certain age, it does feel like the speed of change, rollover and invention across the Tech sector is way-ahead-of-itself. Many of my clients agree it feels a bit like 1999 – with the dot.com bubble about to burst. Maybe it will – but there is a whole lot of new “stuff” that is going to occur!
Therefore, I am inventing a new category to follow: Trend Stocks
The emerging theory of Trend Stocks (invented this morning as I walked into the office) is based on two factors:
The first is the Trading aspect to Trend Stocks: This is the art of being able to read the behaviour of crowds and be indifferent to the crowd’s ability to differentiate between delusion versus adoption probabilities. The trick is to understand what the market believes it to be – following the Trend. There is absolutely nothing wrong with exploiting the phycology of crowds to play these “Trend Stocks”. The trend is your friend. Trend Stock Trading is all about trading the Zeitgeist…
The second is the Investment aspect of Trend Stocks – the art of looking past the 80 to infinity times earnings stocks and picking the long-term winners – is the difficult part. Trying to pick winners from what new new thing Tech stocks are emerging is art – where it helps to have a healthy imagination.
Let’s take the latest market Trend Stock Trend : Non-Fungible Tokens.
When I read about someone selling a digital photo as a Non-Fungible Token for $69 mln I literally snorted. Oh, the foolishness of the rich. But I was intrigued in respect to ownership in the digital economy.
There is an article in the Times this morning on Spotify: Pressure is growing on Spotify to change its tune on paying artists. It confirms what we all know; despite the success of streaming and the simplicity of having every track available on download, most artists receive a pittance in earnings for streaming. One area of the digital economy that could innovate NFTs is music. Imagine if music fans would go back in time, and actually own the music their favourite artists produce?
There was a time when I owned literally thousands of vinyl albums. Foolishly, and unaware of the future, I gave most away in the 80s swapping them for CDs, and then dumping those for downloads and then streaming. I am now trying to rebuild my collection. Every time I buy a new pressing of an old album, it usually comes with a code to enable me to download an uncompressed Hi-Res version of the album.
Will NFTs become a basis for selling music as an alternative to streaming? If bands can sell an album giving blockchain registered owners unlimited rights to listen, that’s much more profitable for them. But it makes the assumption owning a digital asset gives the same pleasure and customer utility as owning a physical piece of Vinyl.
I will continue to spend my pocket money scouring second hand record stores and buying new pressings. I get a real buzz handling the new 180 gramme pressings. They send a shiver down my spine. But will I buy an album in NFT form? It will be same quality as hi-res streaming and I won’t get that same buzz of tangible ownership and the joy of vinyl. I want to own physical music. I like owning racks of records. And I also have racks of CDs…
We were debating this in the virtual office y’day and I was utterly surprised as younger colleagues disagreed and said they’d rather own the digital rather than hard asset. That argument developed through the afternoon as I learnt about luxury brands selling digital goods. I countered with my killer argument:
“So, what would be the point in owning a digital Aston Martin?”
Quick as flash young Richard quipped back “More reliable and fewer repairs!”
But the reality is the growing digital community actually is buying expensive digital smeakers, handbags, and even, (wait for it) digital digital watches! NFTs are their proof for digital ownership. There is a Trend underway: This week US stock Hall of Fame Resort and Entertainment (HOFV) announced a tie-up allowing it to sell NFT products linked to professional football and sports stars. The stock doubled. If you think that’s daft how about virtual sneakers – $10k for a virtual shoe you can’t wear.
Much to my initial disbelief, the NFT markets might be digital only, but they are increasingly real. Therefore, I’m putting NFT stocks into my Trend Stock follow list.
5 years from now you and I are going to have a meeting to discuss an investment idea. I am going to show up at your office in my perfectly purring Aston, ostentatiously checking the time on my Patek Phillipe, and there will be no problems parking. I’ll be 40 kilos lighter, my hair will be back and curly again, and my new tailored suit will fit perfectly. You will meet me on the forecourt and whisk me straight to the meeting in your perfect office adorned with original Banksys with no need for security checks.
Of course.. we will actually both still be at home using the latest virtual reality sets. Heck, I won’t even be there, having programmed my Bill Blain slim-line avatars to be even better Bill Blains than this one..
Five Things To Read This Morning:
Thunderer – EV Start-up Arrival sparks record valuation
Out of time, back to day job, and have a great weekend.