OK cheapskates, we’re going to start this one with a word of warning (aside from our regular disclaimer) – the stocks we’re going to talk about today are not the usual stocks we would invest in. They are currently pretty volatile and we think – still pretty expensive (as far as p/e ratios go). If you do decide to invest, we urge you to tread with caution, especially as many experts are predicting a coming market crash or stagnation (check out our article HERE on investing during a crash)
HOWEVER, having said that, experts are always predicting a crash and while we wouldn’t normally invest in these vehicles at these prices, 1 – we feel it wouldn’t be right talking down stocks without experimenting for ourselves and 2 – with the huge swings in the market recently, now could be an attractive time to buy.
So without further a do, let’s get into it.
As always, the following is not financial advice, read our disclaimer
So why are they risky?
To understand why we haven’t invested in these type of companies until now, its worth understanding how we got here.
The past 12 months has been an absolute roller-coaster for global stock markets. When the news was breaking across the globe about the Covid pandemic and world governments were locking countries down, prices took an almighty tumble. The value of both the FTSE and the S&P500 fell by around a third in a matter of days in mid March and a lot of sectors such as travel, oil and leisure fell even further.
However, like a phoenix rising from the ashes, tech companies (and the indexes that contain a lot of them) started to skyrocket, so much so that in just over 150 days of the crash, the S&P500 had hit an all time record.
Some stocks like tesla, had a stratospheric rise of almost 1000% in 2020, leading people to wonder, why exactly, when the world has faced the worst pandemic in a century and a recession on the cards, why was the stock market booming so high? Well, there’s a few reasons…
The first thing that happened was that world governments, in an effort not to slow down economies, decreased interest rates to near 0% to try and stimulate business and public lending and in turn make sure businesses and the public continued to spend. The government also introduced a number of schemes to prop up the market, like stimulus cheques in the US and the furlough scheme in the UK, meaning that even though businesses were closed, people still had money – money to invest. On top of that, with the government buying up corporate and treasury bonds, bond yields hit new lows, making the stock market a very attractive place for investors to put their money.
The other factor adding to the strong rebound of the stock market in 2020 was big tech – and people’s sentiment toward them. During the Pandemic and subsequent lockdowns, companies like Apple, Amazon, Microsoft and many smaller companies like Zoom benefited from a surge in people’s reliance on technology to stay connected. This gave investors the green light to pile into these companies, growing them to monster status. Apple is now worth more than the companies of the FTSE 100 combined and the top 5 companies in the S&P500 (Apple, Amazon, Microsoft, Alphabet and Facebook) account for 25% of the whole index’ value. When these companies move, the quite literally have the power to move entire world markets.
These two factors combined have caused some companies (and indexes) to rise to a value way higher than we would normally be comfortable investing in. At time of writing, amazon’s p/e ratio is 74.4 and Tesla’s, even though its come down recently, is a whopping 1140! Avid readers will know we don’t like to invest in companies with a price to earnings ratio of more than 15, maximum 20.
So why are we investing then?
Great question. Recently, there have been some pretty sizeable dips in the value of these stocks, which while still expensive, brings their price down to a level that piques our interest.
Last week, bond yields rose ever so slightly, signaling the beginning rise in interest rates. This sparked a chunky sell off in the market and big tech companies, the ones who have the most to lose, took the biggest hit.
Let’s take a look at all 3 companies we invested in, what happened and why we invested.
APPLE (AAPL : NASDAQ)
First up, Apple. The biggest company on the planet, Apple is an absolute stock behemoth that has benefitted handsomely from the stock market rally in 2020. However, the price hit a low of $116 on March 7th, coming from a high of just over $143. Whilst this isn’t as big of a drop as some, it was enough for us to start sinking some money in. We did this for a few reasons.
- 1 – It has already set a precedent that it can comfortably hit $143, which is a good sign.
- The P/E ratio is almost reasonable. At time of writing, it’s around 33, but at the time we bought, it would have been slightly lower, potentially sub 30. Although that’s still higher than we like, we’re going to treat apple slightly different here because….
- Future prospects. Apple is one of the kings of the tech world and doesn’t show any sign of slowing (its dividend yield is around 0.6%, meaning its plunging profits back into future development which is a good sign). We expect apple to be around for years to come.
- We don’t own many single stocks in American companies (even though the US makes up a suitably sizeable chunk of our ETF holdings). With the UK stock recovery set to potentially slow (more on that later), we want to add some good Us companies to the portfolio.
TESLA (TSLA : NASDAQ)
What an incredible year its been for the automaker, briefly hitting just over $900 having rose almost 1000% in a year. Readers will know that we’ve been pretty pessimistic on tesla due to it’s obscene price compared to its earnings (2020 featured the only quarter in it’s history where it made a profit). Further to that, Michael Bury from ‘The Big Short’ fame had this to say:
“My last Big Short got bigger and Bigger and BIGGER too, enjoy it while it lasts.”– Michael Bury
However, Tesla took an almighty blow early this march in a the tech dip, losing around 35% of its value. We managed to buy in on the March 8th just before markets closed and more importantly, just before things started to rebound, meaning we got the very best price. Here’s some of the reasons we invested.
- Big tech isn’t going away – even the unprofitable ones like tesla and many are sure to be big players in the future. There’s no doubt that the stock is incredibly expensive, but when a stock with such a commanding position in the stock market dips 35%, we have to take a look.
- While interest rates rose slightly and investors seemed to cycle into more value stocks like leisure and travel, it didn’t take long for people to realise that the amount stocks had dipped was a lot more than the potential growth on the cards for those more value style stocks. This caused a rebound of sorts, something we wanted to experiment with.
CRISPR THERAPUTICS (CRSP : NASDAQ)
The last stock here is probably less known to our readers, but make no mistake, has had a meaty rise through the pandemic. Crispr is a big player in the genomics space, developing gene-editing technologies. Part of the reason its had such a great run is that it’s one of the largest holdings in the now infamous ARKK fund. If you’re unfamiliar with the ARKK fund, it’s an investment fund headed up by Maverick investor and recent investing icon Cathie Wood, who’s funds have performed well above expectation during the pandemic.
Crispr, along with many companies in the ARKK fund, had almost halved in value from its high of over $210 on 14th Jan, to $113 on March 8th. Again, we were lucky enough to have bought in right at that moment it hit the bottom, expecting a little bounce back – and bounce it did. At time of writing, we’re almost 15% up on Crispr, not bad for a speculative pick. Here’s some reasons we like Crispr:
- We have very little holdings in future bio-tech and with it’s gene-writing technology being hailed as “the biggest bio-tech discovery of the century”, it seemed like a good place to start.
- again, with the stock price hitting such lows (compared to it’s high) and interest rates not having raised THAT much, a small investment seemed like a worthwhile call to get skin in the game
- Crispr is small cap compared to others in this space with a market cap of 10Bn, meaning if we wanted to keep buying it down, we would feel more comfortable as it has much more room to grow than other tech companies that have taken a hit.
So will we hold onto these investments?
This remains to be seen – we’re still pessimistic on stocks that have incredibly huge valuations and none of these stocks form part of our stocks and shares ISA – they are held as standard investments with spare cash we are prepared to experiment with. It’s highly unlikely that we will be holding tesla for the long term but we feel it’s important that as speakers in the investing space, we have at least taken a look at stocks that we would normally speak against. We will continue to update this post as and when we sell, buy more, make so much money that we can retire or lose it all!
Thanks for reading! Head on over to our cheapskate portfolio section HERE to find out what else we’ve invested in.
Let us know your thoughts by leaving a comment below!