You likely are sensing a bit of a theme with recent articles discussing what I believe to be a pretty substantial equity bubble, centered on the Megacap stocks dominating the market.  To be clear, I think there is still value in some of them, and we actually own some of them, although our exposures are hedged in most cases.  I saw a good post from @patientinvestt on Twitter that showed the performance of the six leading stocks in 2000 and how long it took them to get back to breakeven, which I think is quite relevant based on current conditions.


Company   Price on March 30, 2000   Percent Decline   Years to Break Even

Cisco          $73.63                                 -88.32%                Never

Microsoft     $51.68                                 -70.45%                15 years 7 months

Intel              $63.50                                -79.18%                19 years 9 months

IBM              $117.35                               -55.69%                9 years 7 months

Oracle          $39.22                                -81.34%                 14 years

Qualcomm   $72.62                                 -82.79%                 13 years 8 months


These stocks were expensive because market participants were rightfully euphoric about the business potential of the internet.  It’s not like the internet disappointed, but the stocks performed horribly for a decade because they were vastly too expensively valued.  Many investors looked like geniuses buying the stocks at greatly inflated prices only to see their fortunes blown to bits when the bubble burst.  


Recent economic data has shown the U.S. economy has been more resilient than most expected.  Jobs data has showed strength and it has resulted in expectations for the Federal Reserve to increases interest rates another time or two this year.  We’ll see how things play out, but the higher rates go, the more opportunity cost there is to pay 70 or 80x earnings based on expectations for future earnings growth on some of these glamour stocks.  I think the recent rise in rates offers another good opportunity to add to our fixed income portfolio and lock-in extremely attractive yields that are well-in-excess of inflation.  


Another area that is offering attractive value is in small caps, which have lagged materially this year.  The Russell 2000 small cap index is the cheapest relative to the S&P 500 that it has been in 20 years, as you can see by the chart in the image at the top of this email.  Small caps have outperformed over the long-term, so the valuation gap could very well be an attractive long-term opportunity that we will look to take advantage of.  This isn’t an Everything Bubble like we had in 2021, but instead it is a more focused one.  The concentration of these stocks in the Nasdaq and S&P 500 do indeed make those indices more vulnerable although momentum has most definitely been in their favor.