Today is Christmas Day, and we may all be thinking: “this time it’s different”, but please allow me to muse for a while on (of all things on Christmas Day) overheated stock market valuations, then I’ll use that to put it to you that, in some of the most important ways, this Christmas is not different at all.
I wish you all the very best this Christmas Day, as the totally cheesy song from the cheesiest movie ever (Love Actually) goes, “love is all around”, irrespective of gifts, gatherings, eating and drinking
Tom xx
read on…
“This time it’s different”
One of my favourite podcasts is by David McWilliams, always seeking to look at economics in a way we can all understand. Earlier this week I was listening to his latest one, looking at the tech bubble of super-high valuations on tech-driven “blitzscaling” (a phrase coined by Reid Hoffman of LinkedIn). Companies like Tesla, Uber, AirBnB do not yet make a profit as they are chasing world domination (literally) in their sectors, and yet, driven also by speculators in the market (rather than investors) who are utilising credit that is, for those who can access it, free or near to free, at low rates we have never seen in our lifetimes.
David, in his musings on the podcast, reminded me of a classic phrase we hear with regard to stock market pricing every time the markets get overheated. We hear it how often? EVERY. SINGLE. TIME. The phrase? “This time it’s different”. “Experts” will say this time we don’t have to value companies based on a multiple of earnings, this time we can come up with a new way to value them. Hmm, let’s see. At 55 years old and having been investing (not speculating) for nearly 40 years, one thing I am sure of is that this time is NOT different. Business fundamentals do still apply.
In April 2019 I wrote: “WeWork and remembering lessons of the past“, highlighting that the WeWork model was another “this time it’s different” and projecting it would fail a business. It looks like it will, or at least the equity investors will be wiped out as it pivots. Oh, and the issues were there way before Covid, simply that, as I’ve noted before, the pandemic has and will “accelerate and amplify” what was already going to happen. Anyway, in that article I noted some lessons from the past, specifically the tech bubble of 1999/2000:
- We will always have recessions
- When people start making up new metrics and ratios for their business to justify their valuation, watch out
- When they are losing money and consider the need to make profits irrelevant, watch out.
- When they match long term debt with short term revenues, watch out.
So, in stock market investment, every time I hear “this time it’s different”, I remember that the past is the greatest indicator of future, so, this time it is NOT different.
Christmas Day, different, and yet the same as always
Now, to Christmas Day. As you can imagine, I “banked” a few daily posts before taking a Christmas break. This one goes out on Christmas Day, which does have a different feel to it, particularly in the UK and the virus hotspot of London, where people are not allowed to go beyond their household, so many will be on their own today, or, at best, with only those in their household, as no extended family gatherings are permitted this year.
Yes, it does feel different, but please do take some moments to consider when i put it to you that, in some key ways, this time it is not different.
Christians every year decry the materialism and profligate spending and consumption and urge us to consider the true meaning of Christmas. This year I hope we are all looking to consider that, to be present to what Christmas means, what family means, what is truly important to us.
I’m a businessman and entrepreneur who focuses on leadership and is always learning. One thing, though, that I have always known, is that the most powerful force in the universe (and in business, and in leadership) will always be the same, it will never be “this time it’s different”. We always have access to this, it is always there for us, it doesn’t matter if we can be together at Christmas with our families and friends, it doesn’t matter that we are locked into our homes. The most powerful force in the universe, what remains when we strip out and strip back everything else?
Love.
Yes, this time Christmas is different in terms of who we can see and what we can do, but at the same time, the constant is love. Love for self is the core, then love for others, family, friends, community.
For me, on a personal note, I hope my three sons wake up this morning in the Cayman Islands, thousands of miles away from me, and read this. We haven’t seen each other since February and won’t until the vaccine rollout outpaces the virus spread. Of course likely they won’t read their Dad’s daily post on Christmas morning, but even if they don’t, I know one thing for sure, as do they. This time is different, yet also always the same. Love is always there.