The Compound and Friends - Are Tech Stocks Unstoppable? (with Ben, Josh and Michael)

Episode Date: May 8, 2019

Are US stocks destined to continue crushing international stocks? How about tech stocks vs everything else? Sure seems that way. But the recency bias is real! Michael Batnick, Ben Carlson and Downtown Josh Brown discuss! Enable our Alexa skill here - "Alexa, play the Compound show!" https://www.amazon.com/Ritholtz-Wealth-Management-LLC-Compound/dp/B07P777QBZ Talk to us about your portfolio or financial plan here: http://ritholtzwealth.com/ Obviously nothing on this channel should be considered as personalized financial advice just for you or a solicitation to buy or sell any securities. Please see this 3,000 word terms & conditions disclaimer: https://thereformedbroker.com/terms-and-conditions/   Subscribe to the mini podcast on iTunes or Spotify Enable our Alexa skill here - "Alexa, play the Compound show!" Hosted on Acast. See acast.com/privacy for more information. Learn more about your ad choices. Visit megaphone.fm/adchoices

After game one of the Celtics Bucs series, I sent my friend a text message and I said, I don't want to overreact, but the Bucs look like they're in trouble. Giannis has been neutralized, they're collapsing on him, and I don't trust Bledsoe, Miritic, the rest of the supporting cast is just not going to get it done, and the Celtics look like they're really coming together. And so last night, he sent me a text message after the Bucs took two games in Boston, wow, the Bucs are really good. sent me a text message after the Bucs took two games in Boston. Wow, the Bucs are really good.

So I said to you that that reminds me of stocks that just continue to go up. They look unstoppable. And there's a George Orwell quote that says, whoever's winning right now looks to be invincible. And I think that's so applicable to like politics, investing, economic ideas. I think what changed is the definition of right now. Because right now, to me, is like intra-game. Like when I see a team go on an 8-0 run, I'm like, all right. Series is over. All right.

Give Ben the microphone because we only have two. So you're a momentum fan, basically. Yeah. Wait. So do you feel that way though in football? I don't. Oh, yeah. Oh, fan, basically. Yeah. Wait, so do you feel that way, though, in football? I don't. Oh, yeah. Oh, yeah.

Really? Yeah. So a team scores a touchdown, and it looks like they can score one every time. No, no, no. No, if the Giants are down 7-0, I'm not like, all right, see, it's over. But I agree with you in basketball especially on an 8-0 run. Because it just looks like the other team collapsed, and your team will not be able to be stopped. Well, even like in the NBA where there's a seven-game series,

after every game, there's so much analysis now that you really feel like, okay, what just happened, that's what's going to happen for the rest of the series, and it's never going to change. So we feel that way about stocks, I think, sometimes, or geographic regions. Like right now, it's very hard to be underweight U.S. stocks. Particularly tech. Could you envision a scenario where Amazon stops working? Or where oil companies outperform technology companies. It will happen under maybe for six months or three months, but nobody can picture it happening for five years.

And this is what people say in the economy now. Everyone, all the stories now are saying maybe the U.S. will be Australia and never go into a recession again because things have been going great and we're in this Goldilocks scenario and how could we ever have a recession? And people just extrapolate. When was the last Australian recession? Is it 25 years? I think the last time Crocodile Dundee came out, maybe. So now, this

gets to the point of what is baked in? Where are the expectations? And we know where they are, but we don't really know where they are because we know that everyone thinks that US stocks are going to continue to outperform, and maybe they will. But I think that the expectations, and I've made this analogy a lot, that when you're betting on the Warriors, you see the odds. You know that you're getting a shit payoff because they're the heavy favorites. With investing, you don't really see that, at least not in the stock market, you don't. Don't you see the odds, though, in the form of P-E ratio?

that at least not in the stock market you don't don't you see the odds though in the form of pe ratio so you say like us is 19 times and germany is 11 times those are the odds okay but then within that if you do like the the sector stuff you could say that okay maybe the the um multiples are explained away by by tech stocks or something like that that traditionally have higher multiples so it's not necessarily apples to apples. But then people tell themselves, well, there's a reason that these foreign countries are cheaper. But there are. The reason is they don't have companies that grow earnings and revenue 30% a year regardless of how big they are like we have here.

I think it's an easy explainer for why the US stock market is more highly valued and has been for 10 years. The question is, is the discrepancy big enough to compensate investors for taking risk in foreign companies? Do you ever hear of Mercado Libre? No. I think that's a beer we're drinking last night.'s a great beer It's also One of the hottest stocks On the planet It's the eBay Slash Amazon Slash Alibaba

Slash PayPal Of Mars Of South America So it's a Brazilian stock Brazil is one of the Shittiest stock markets On earth Like

It's had huge rallies But like Really has gone nowhere In a long time This stock Is like $570. I think it went up $100 a share the other day. So it's an international stock and it's a $30 billion US, $30 billion market cap. MELI is the ticker.

But it just goes to show this really isn't about geography. This is about technology stocks. Nobody is looking at Melly and being like, oh, yeah, that's typical of the Brazilian stock market. Most of the stocks in Brazil are quasi-state-run petroleum companies and banks. So this thing doesn't care what country it's in. It just goes up. All right. So what's the point?

My point is we're not really arguing whether the odds are baked in for US outperformance versus international. What we're actually saying is technology stocks globally. Look on StopPo. By the way, Spotify is not a US company. It's European. It doesn't care that European stocks suck. The stock is a huge valuation. So this is the thing behind these growth companies is that right now it's impossible to envision a scenario where they stop working, where their earnings stop growing. But traditionally at some point they become overpriced and people over anticipate what's going to happen and they fail to meet the expectations and then things get reset. Ben, were you shocked? We didn't talk about this. then things get reset. Ben, were you shocked? We didn't talk about this. Were you shocked when Berkshire Hathaway or Buffett disclosed in an interview that one of his guys was buying Amazon?

A little, but I mean, they almost need to have these big fish, I guess, to move the needle for them. But getting back to the tech thing, don't you think that it makes sense that there will be more tech companies around the world now, like that the US is not going to have a monopoly on good ideas? I think that, and I also think what is a tech stock? Because technology companies do not respect borders. Like in the old days, if you were a phone company, you weren't selling clothes. Like Amazon, first of all, is a consumer discretionary. If you go by a Gix classification, they really don't care what you think they are. If they want to be in dry cleaning, within two years, they'll have like 10% market share of

every dry clean shirt in the country. So what's a tech company? And arguably, Berkshire buying Burlington Northern Railroad, 100 years ago, that was a tech stock. I mean, just my, so it's very, very hard to say tech will dominate and it's hard to envision it ever not winning. I feel like they can continue to win. I don't know. Thoughts? I agree. I mean, it does sound like, oh, you told me it's different this time, but yeah, I think it is. Very fucking different. Yeah. Oh, one other question I wanted to ask you. So if you now think about the amount of market cap in consumer discretionary tech, I think they're calling Facebook and Netflix communications. But just those companies and then the next tier below it are the best performers in mid caps.

And then the best performing small caps are also tech. Like why do we even worry about whether it can continue to win or not if that's actually what moves the index itself? Right. It's almost like self-selecting for you. Right. Yeah. That's probably the point is that trying to pick them in advance is probably too hard for any of us to figure out.

And guess what? If you own the whole pie, you're going to get them eventually anyway. Well, if you had to pick one, which would it be? Pick one to own? Let's say for the next 10 years. One stock. Like a crazy moonshot type?

I don't know. Out of all the tech stocks? Yeah. Does Disney count now? Yeah, probably. Yeah, they're all tech. What do you think about the Amazon of Africa that just came public, Jumia? Did you look at it?

Any thoughts? Jumia? I feel like you're making these companies up. No, it's based in Berlin, but it operates the top online e-commerce and payments marketplace in four of the biggest African cities. It's an IPO. I don't know. You got some work? He has his fingers up in pulse. You got some work. He has his fingers on the pulse.

You got some work to do. All right. Let us know what you think. Is there any way to stop Giannis? Is there any way to stop technology companies? Jumia. Do they look invincible? Are they truly invincible?

Have things changed? Leave us comments. Leave us your feedback. Go ahead and smash that like button. Thank you to WeWork. Sorry we filmed in your conference room. And we will talk to you soon.