I started my morning out the way I normally do today; I grabbed some water and headed over to my favorite investing outlet to see what the news was today. It looks like everyone seems to be talking about tech stocks. The truth is, the NASDAQ is nearing the 5,000 mark and investors are excited. However, I think that this steep increase may be danger in the making. The fact of the matter is that with economic conditions getting better, investors are more willing to make irrational decisions with regard to risk; and in my opinion that’s exactly what they’re doing. Ultimately, investors are creating a tech bubble. Today, we’ll talk about the history of investor willingness to take risk during positive economic times, a couple of tech stocks that are growing (and really shouldn’t be), and we’ll talk about why this may be another step toward the next economic recession.
Overall, Investors Have A Bad Relationship With Risk
When I think of the relationship between risk and investors, I think of that couple that always seems to be splitting up and getting back together. When there is a reason for it, the two seem like they were made for each other. However, when times get rough, they split up and go their separate ways.
The bottom line is that in poor economic conditions, investors tend to make smarter investment decisions; rather than take added risk for potential profits. As the United States economy continues to improve however, we’re starting to see what I would consider to be excessive risk taking in the market.
One thing that I’d like to remind everyone of is the fact that excessive risk taking was probably the leading factor in the economic recession the world is still recovering from. In that case, it was risk taking in the housing market. Nonetheless, while the market may have changed, excessive risk taking is still incredibly dangerous.
Why Am I Saying Growth Is Excessive? Look At These Stocks
Amazon (AMZN) – If there was a dirt rating for stocks, I would save that rating for the likes of Amazon. We’re talking about a company that has no real view, no plan, and until the 4th quarter of 2014, no profits. If I took the name Amazon and the ticker away, but gave the facts to expert investors; they’d probably laugh me out of the building! However, for some reason the company’s stock continues to climb. In the past month alone, the stock has climbed nearly $100. When I first saw the chart, I had to check another source. What are investors thinking? There’s no economy good enough to turn a horrible company into a great enterprise; stop throwing your money at the wall!
Google (GOOG) – I love Google in the long run, but in the short term, the price is growing at a very unsustainable rate. Look at Google’s last earnings report. Guess what you’ll see! You’re going to see a big miss! However, if you search online, you’ll see statements like “Google’s Miss Wasn’t All That Bad!” Come on guys, you’re investors, you know that a miss is a miss! If you paid attention to the report, you also know that Google is struggling with foreign sales as a result of the strong US Dollar. So why; an anyone just tell me why, Google’s stock is up $40 in the last 30 days? It just doesn’t make sense! I can understand meager growth on faith alone, but 10% in 30 days says investors are getting crazy with risk!
Excessive Risk Taking Needs To Stop!
The bottom line is that being comfortable with risk is one thing, but being enamored by the reward and blinded to risk is another. I’ve talked to tons of investors and I have to say, they’re some of the smartest people I’ve ever met. So, I can’t for the life of me understand why so many would make the mistake of overvaluing a poor company like Amazon and pumping too much money into Google. If this keeps going, there’s no where left to go but bubble land; and you all know that bubbles pop!
What Are Your Thoughts?
Do you think we’re looking a tech bubble in the eye? Why or why not? Let me know in the comments below.