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1720-2020: Human's desire to chase Bubbles!

Early Aug of 1720, stock price of South Sea company reached 1000 pounds (from 100 pounds at start of year).  The year was marked with many companies with lunatic, dubious and fraudulent business plans were formed and their stock prices increased many-fold. One company's plan was "For carrying-on an undertaking of great advantage but no-one to know what it is”...sounds very similar to 2020's SPAC IPOs which are coming to market. By 1720 year end, many of these companies stock were worthless. Even South Sea stock returned to gravity and ended year with price close to 100 pounds. Many aristocrats, parliamentarians and even King George I lost money. Talking about gravity, even Newton could not resist the temptation of quick money and invested in the South Sea company and lost significant amount of his fortune.

 So why is this relevant today? First of all, its 300 year anniversary of that historic bubble! Second, humans don't change/learn even after multiple such bubbles. We see so much parallels in this year's micro-bubbles. We see SPAC coming out to acquire companies with no products and only business plans. Companies adding "electric" to their existing businesses to get EV valuations. If we look at just last 20 years, we had so many such bubbles - dot.com bubble, housing bubble, crypto bubble, CBD (aka weed) bubble and now EV bubble. Many experienced as well as new investors tend to rush towards these bubbles and get burned. So my advice is: We can learn from Newton and resist the temptation of making the mistake he did when it comes to investing in bubble stock 300 years ago. Remember gravity. It applies to stock prices also!

 Next week is marked with many market impacting events:

  • Earnings of major companies - Alphabet, Amazon, Apple, AMD to name few
  • Fed meeting and its policy going forward especially when COVID infections are jumping across the nation
  • Progress and agreement on stimulus talks which would decide fate of unemployment benefits
  • Start of phase 3 of COVID vaccine trials
  • And one of the most anticipated: Return of the NBA to finish the season. We are missing the sports action for nearly 5 months. I am also happy that finally IPL2020 will happen later in the year. That would cheer up India.
  • Final leg of US election phase (less than 100 days away) - it's about time Biden makes his choice for running mate. I strongly appeal to him to select American-African woman as his running mate to demonstrate that he really cares and will also help in invigorating his base and help win presidential election
Markets have been slowly rotating from high-flying high-tech stocks to other sectors of economy like energy and financials as well as from large caps to small caps. Markets always bring the equilibrium in the long-run. We will see some stabilization in markets for next 2-4 weeks before it becomes nervous for the historically bad months of Sept/Oct. S&P would continue to be range bound between 2900 to 3300. Given S&P is at over 3200, it may be worthwhile to stay on sidelines and wait for right opportunity.

I plan to check out movie "Radioactive" (on Prime Video) based on life of Marie Curie. 

/Shyam

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