From Bill Bonner at bonnerandpartners.com:
RANCHO SANTANA, Nicaragua – Stocks sold off on Friday. The Dow fell 211 points.
Leading the retreat were tech stocks with the Nasdaq, where they tend to hang their hats, down more than 3%.
“Tech sector leads sharp sell-off,” said a Wall Street Journal headline.
Steps to the Moon
“Did you see what happened to professional social network company LinkedIn?” asked Exponential Tech Investor editor Jeff Brown, who was down here with us at Rancho Santana.
“It was a disaster. The company announced earnings, which were pretty much in line with what the market expected. But its forward guidance was down a little.
“Investors dropped it like a hot potato. The stock dropped by almost 50% – and investors lost about $11 billion – in 20 minutes of trading.”
Jeff is a believer in new technology: self-driving cars. Virtual reality goggles. Artificial intelligence.
“Computers are already smarter than PhDs,” he reported.
“In what discipline?” we wanted to know. “There are Cocker Spaniels that are smarter than PhDs in economics.”
“There is a huge difference between a regular company and a company that is on the cutting edge,” he went on.
“The difference is exponential. A regular company may grow 5% to 10% per year. A good tech company grows exponentially, at 100% a year or more.
“Just imagine that you are walking. You get somewhere by putting one foot in front of the other. If you are like a regular company, you grow… one step at a time.
“At a step a day, you’ve gone 30 paces in a month. But if you are able to walk exponentially – one step, then two steps, then four steps… in a month – you could have covered the distance from here to the moon.”
Many tech investments don’t go anywhere, Jeff admitted. But when you get it right, you get a moonshot.
That may be true. But it is also true that from time to time, investors feel they have gone too far. That seems to be the case now… with a broad sell-off in the entire tech sector.
Look Where No One Is Looking
There are “facts and dreams,” said Churchill. Many of those dreamy, techy satellites… launched into space in the Bubble Epoch… are beginning to fall to Earth. Look out below!
Also present here in Nicaragua is our old friend and super stock picker Chris Mayer. The occasion was the Family Wealth Forum, a meeting for our premium family wealth advisory, Bonner & Partners Family Office, in which we discuss both sides of the “family money” formula.
“There are two things you need in order to have family money,” we say gravely, “family and money.” Several people spoke to all the things that could go wrong in a family. Chris was speaking to what could go wrong with the money.
“Right now, hundreds of billions of dollars are being invested in the stock market by investors who don’t know anything about the companies they own.
“They buy exchange-traded funds [ETFs] – passively managed groups of stocks – that typically track the performance of a stock market index. These ETFs distort the market.
“Some well-known stocks are so heavily bought by ETFs that their prices are completely out of line with the real value of the company. And the ETFs are set up in such a way that there is no judgment at all involved.
“They are bought automatically, almost regardless of what is actually going on in the companies themselves.”
To continue reading: These Popular Investment Vehicles Could Crash Hard
