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Expensive share prices matter eventually

Finally it seems that stock markets have woken up to valuation risk
Expensive share prices matter eventually
  • Bitcoin sell-off a dose of reality for speculators
  • Stock markets struggling is a that sign inflation expectations are making investors think 

Stock markets are struggling to move higher. Low interest rates and low inflation which has supported higher valuations are now being questioned. Even strong profits growth is failing to move share prices up from their current elevated levels.

This week we have seen some of the biggest signs of speculative excess deflate as has been the case with bitcoin. 

I firmly side with those that think bitcoin is a gigantic speculative bubble that will end badly. I totally get why people question the value of paper money but bitcoin cannot yet function as money.

There is also a lot of money to be lost when it is revealed that the emperor indeed has no clothes. It may take a while for this to come about but when it does someone is left nursing big losses. This is what was seen in the dot com bubble and if bitcoin evaporates I would not be surprised either.

As with all bubbles it can be hard to sit by and watch people make fortunes, but they are taking huge risks to do so. 

The same can be said with other vehicles of speculative excess such as Spacs and the froth looks to be coming out of them.

Being conscious of valuation has always been important. I’ve learned very important lessons in recent years that you can pay more than you might think for a very good business, but I also think this has been underpinned by the favourable backdrop of low interest rates and low inflation. Take those away and valuation takes on a different and lower level and that is arguably the risk equity investors are facing now.

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