Embracing the Bubble

There is no growth in the world.  When you see investors clamoring for Japanese stocks for their growth prospects, you realize there is global growth starvation.  When you see investors viewing moribund Europe as a hot sector, the desperation shows.

In this environment, big growth rates stand out.  The Elon Musk phenomena with TSLA and SCTY soaring in May opened trader's eyes to the profit potential of investing in these overvalued growth stocks.  Why toil away with all the others begging for a few percentage bounce in AAPL, when you can get 20% weekly returns in names like TSLA.

FB just injected nitro into this bubble with their earnings beat in the summer.  It is massively overvalued, but has the growth to fuel the imagination, which gives it 350 horsepower acceleration.  You don't get a 33 to 54 move, a 60% move in 3 months in an AAPL or even a GOOG or AMZN.  A big cap name like FB making that kind of move ignites the animal spirits.

Here is the thing.  The thing about bubbles is that the larger they get, the hardier they become.  Small bubbles fade away easily.  But the big bubbles have staying power.  Think 1998-2000 tech bubble.  Think 2006-2007 China stock bubble.  It is counterintuitive but there is a critical mass which gives bubbles staying power.  There has to be a certain level of acceptance among the institutional  community, otherwise the bubble never gets anywhere.  Retail is not a big enough part of the market these days to drive bubbles for long.  You need institutional support to a certain extent for a big, lasting bubble.  That is what is happening in social media/neo internet, Chinese internet, and the Musk stocks now.  But the institutional support is still not mainstream, which means the bubble is nowhere near saturation.

There just aren't enough institutional sized stocks in these specialized sectors to satiate the demand.  Off the top of my head, it is FB, LNKD, NFLX, YELP, P, BIDU, QIHU, SOHU, YOKU, YY, VIPS, TSLA, and SCTY.  That is 13 stocks, out of perhaps 5000 institutional sized companies worldwide, plus a few that I might have missed.  That is not even 0.3%.  In fact, I will start a portfolio with those 13 stocks and update their performance from October 18 close for the next couple of months.  I expect these stocks to massively outperform both S&P and Nasdaq.

Remember, bubbles usually do not end at the end of the year.  This is a seasonally ripe time for bubbles.  There will be no big dips till year end, the only way you will outperform is to ride the bubble.  Those who embrace it will prosper.  The cautious will just be left in the dust by those "lucky, haphazard, reckless" growth investors.