netnet Posted June 4, 2018 Share Posted June 4, 2018 Interesting article on bubbles. https://www.researchaffiliates.com/en_us/publications/articles/668-yes-its-a-bubble-so-what.html It has a little history of the Zimbabwe currency hyper inflation and the gyrations of its stock market. This is a very interesting article. But I suspect that wiser heads, such as Munger would say that the trying to predict macro events is a fools game. Buffett in '68 said something to the effect, I don't make predictions, but when people are crazy, I do notices. Munger suggests looking at specific stocks/companies. That said this article does provide a framework for this. Note there is a a skewering of Tesla thrown in: Over the first quarter of 2018, Tesla has been an excellent example of a micro-bubble. Tesla’s current price is arguably fair if most cars are powered by electricity in 10 years, if most of these cars are made by Tesla, if Tesla can make those cars with sufficient margin and quality control and can service the cars properly, and if Tesla can raise additional capital sufficient to cover a $3 billion annual cash drain and another billion to service its debt. To us, that seems an unduly optimistic array of assumptions, especially given the magnitude of Tesla’s debt burden. Such an argument ignores the deep pockets of competitors and the common phenomenon of disruptors being themselves disrupted by newcomers. Absent the unfolding of this rosy scenario, Tesla’s current price would require remarkably aggressive assumptions to deliver a positive risk premium. For investors who agree with this assessment, Tesla constitutes a single-stock micro-bubble. I'm putting this in although I know it will derail the larger arguments of the article. Edit, hyperlink added Link to comment Share on other sites More sharing options...
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