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Veteran investor Rob Arnott indicates that America’s biggest tech stocks FANMAG are in a bubble and Bitcoin as well.
Veteran United States investor, writer, and Entrepreneur Rob Arnott has come out in favor of the American major technology stocks again as being in a bubble even as he lashes out at Bitcoin. He made his thoughts known to the Financial Times in an exclusive while defending the position of including Microsoft in the popular acronym FANMAG which he says is the new direction of technology stocks rather than FAANG.
FAANG which is a play on technology companies Facebook, Apple, Amazon, Netflix and Alphabet Inc’s Google, has been Arnott’s focus before now. That approach has changed however as he now advocates the inclusion of Microsoft into the mix hence the FANMAG acronym.
According to Arnott, the six technology companies that he identified had a combined valuation of about $4.2 trillion. The founder of Research Affiliates and one of the biggest proponents of the smart beta investment strategy, Arnott’s firm handles about $148 Billion in assets for clients.
Arnott also indicated that the FANMAG stocks rather than the FAANG which is the more traditionally accepted technology stock pics in American investment circles represent about “15% of the total $30 Trillion market capitalization for all US stocks” he indicated.
He expressed skepticism as to the ability of the organizations to maintain their momentum that will match the market capitalization so far. He said:
“Will these stocks produce such impressive growth that they will justify their current market cap, or are these implausible growth expectations? We do not have a crystal ball, of course, but we would recommend not betting on the momentum continuing.”
“The US financial sector is larger, at $5.2tn, but US tech, excluding these stocks, is smaller,” added he.
This is, of course, indicative of his skepticism in the big technology companies growing faster than normal, It also shows his mindset on American technology stocks being in a “perpetual bubble” rather than in phases of exponential organic growth now that the American technology market has matured and is taking global dimensions.
Arnott didn’t stop there though. He continued to assess the Bitcoin market and also indicated that it is in a bubble upon its return from crypto winter. He explained:
“If bitcoin truly becomes an accepted currency, no valuation model for it exists, other than what the public chooses to believe it is worth. It bears mention that this is much the same as for the dollar or any other fiat currency. Predicting near-term price direction is a fool’s errand, but any expectation of a higher price rests solely on the hope of selling to a future buyer at a higher price…..”
This, of course, indicates his model which may work well in the shorter term but has its problems in the longer term. The surrounding issues of innovation may agree to the “bubble-like” nature of technology markets but because innovation is never-ending as long as the FAMANG companies continue to innovate they will remain at the top of the food chain anti-trust regulations or not.
Secondly, as for Bitcoin and the cryptocurrencies, this is the first time we are seeing a truly digital asset at work in real-time on a global scale. After some point of critical mass in terms of adoption, it will not be possible to exactly pinpoint methods of evaluation. All securities and assets are only worth the value that people give it.
So, while Rob’s strategies work most of the time, there should always be room for error no matter how small that margin of error is.