Something I do four times a year is pore through something known as “13Fs”. A 13F is a quarterly report that institutional investment managers with over $100 million in assets must file with the US Securities and Exchange Commission. And whilst these filings are submitted around 45 days after the quarter ends (e.g. August 15 deadline for June 30 quarter end) – they offer us insight into how the “smart money” is thinking about certain assets. Some names I follow include (not limited to) Warren Buffett, Bill Ackman, David Tepper, Howard Marks, Stan Druckenmiller and Seth Klarman. Now there was a consistent trend during Q2 – where large cap tech exposure was being reduced.
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The Three Stages of a Bull Market
Charlie Munger once warned us when wishful thinking takes hold – investors tend to believe that good times will be followed by more good times. This mentality feeds on itself – driving momentum – pushing prices higher. It’s what fuels the final stages of a bull market. Attributes such as independent thought, logic, rationale and objectivity give way to herd behavior. That’s when your internal alarm bells start ringing… and you start thinking differently from the crowd. Very few people have the ability to do that… but it’s what’s required.
The Big Tech Unwind
Can the market let the air out of the bubble without consequence? The answer relates to my post on economic cycles. That is, panics and busts only occur after booms and bubbles. But what a minute – are you saying this is a bubble? My answer to that is look at where we are in relation to the long-term mean. That’s your litmus test. For example, if we simply take the S&P 500 – it trades at ~22x forward earnings (on the assumption earnings growth this year is 12%). The 10-year average forward PE for the S&P 500 is ~18x (mostly as a function of long-term yields trading near zero). And the 100-year forward PE average is closer to 15.5x. And if we look at tech specifically – valuations are even more extreme.