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Staying Away from Bubbles and Fads


Staying Away from Bubbles and Fads

Here is a story that has been floating around for years: Once upon a time in a village, a man appeared and announced he would buy monkeys for $100 each. The villagers, seeing that there were vast amounts of monkeys around, went into the forest and started catching them. The man bought thousands of monkeys at $100 and as supply started to wane, the villagers stopped their efforts.

The man announced that he now would buy at $200, so the villagers redoubled their efforts and went back to capturing monkeys. Soon the supply diminished even further and people in the village started returning home. The offer then increased to $250 and the supply of monkeys became so scarce, it was an effort to even spot a monkey let alone catch it. Finally, the man announced that he would buy monkeys at $500. But he had to go to the city for business and his assistant would buy them on his behalf.

While the man was out, the assistant told the villager; “Look at all of these monkeys in the cages the man has collected. I will sell them to you for $350 and when the man returns you can sell them to him for $500 each.” The villagers rounded up all their savings and bought all of the monkeys. Then the assistant left, and they never saw him or the man ever again, only monkeys everywhere.

This could be an allegory for the current ‘monkey business’ with meme stocks and a host of other “hot” items. The modern-day “man” has been selling his goods to all the villagers sitting home during the pandemic. A shortlist of today’s “monkeys” could include:

Cryptocurrency – last March, bitcoin was trading just above $5,000, today it is around $56,000. Even more exciting: the dogecoin, a crypto that is based on a meme, has risen over 1,000% this year.

SPACs – AKA Blank-check companies. Of the 302 IPOs this year, 80% have been via SPAC. This is an area that’s starting to look “bubbly.”

NFTs – Non-fungible tokens. These monkeys utilize the blockchain to prove ownership of original pieces of internet “art.” The piece by Beeple below sold for $69 million (he never sold a piece of art for more than $100). And Jack Dorsey’s first Tweet went for $2.5 million.

Meme Stocks – AMC just announced they intend to offer an additional 500 million shares of stock, while GameStop intends to offer 3.5 million shares. Not sure if the villagers will be around for the man this time.

The ‘villagers’ – AKA retail investors – seem to be going back to their farms and slowly walking away from the monkey business. NYSE volumes are at 80% of the 30-day average while the Nasdaq is at 90%, while GameStop is far off their January high. The pandemic cleared calendars, boosted savings, and led many to the stock, crypto, sneaker, and baseball card markets.

The US equity market posted positive returns for the quarter, outperforming the developed international markets as well as emerging markets. Market participants cheered on the push for higher levels of vaccination as well as the government’s printing press.

With the vaccines coming on strong, market participants are eyeing companies that would benefit, including value stocks such as industrials, materials, travel, and banks. There was a heavy rotation out of growth stocks to value. Value stocks outperformed growth stocks across large and small-cap stocks in the last quarter, and small caps outperformed large caps. Most of that was the “opening up trade.” The top searches on Google are now for “airlines” and “hotels,” not GameStop, Bitcoin, or NFTs. Boredom may be over; calendars are filling up and money will be spent.

The rotation out of the high-flying stocks and sectors into companies with actual earnings and are not on the brink of bankruptcy is a welcome sight. Bubbles and fads have always been around, but they don’t last.


Morgan Christen, CEO and Chief Investment Officer of Spinnaker Investment Group, has more than 28 years of investment management experience. He earned a Bachelor of Science in Business Finance from the University of Southern California and an MBA from Pepperdine University. In addition, he is a Chartered Financial Analyst (CFA), Certified Financial Planner (CFP) and Certified Divorce Financial Analyst (CDFA) and serves on the board of directors for the Pepperdine Graziadio Business School.