Another miscellaneous ramblings post.
Let’s play a mental game. Imagine if you lived in a world where the public markets consisted of only the following choices: AMC, Bitcoin, Canopy Growth, Gamespot, Microstrategy, Nio and Tesla.
There would be little purpose in investing in the public markets beyond gambling. It would more or less be a zero-sum casino for the most part (until, at least in the short term, Gamespot and AMC went bankrupt). Perhaps the public would feel more “secure” investing in a “index ETF” that would be a “well diversified basket” of these companies, but of course since they are usually capitalization-weighted, it would be like splitting your money between Tesla and Bitcoin. Who reads the fine print on these ETFs beyond their titles anyway?
Today that leads me to the next point of Tesla getting in on the Bitcoin zero-sum game bandwagon – Michael Saylor (Microstrategy) is the big winner here. However, note that $1.5 billion for Elon is approximately 0.2% of Tesla’s market capitalization, while it is more than what Microstrategy invested (at cost) into Bitcoin. I’d be really curious to know what would happen if Tesla decided to float a $5 billion convertible debenture (which would receive a very low coupon rate because of the huge implied volatility in the stock’s options) and dumped the proceeds into Bitcoin – who else would be compelled to jump in, fearing the miss-out on the bandwagon?
The good news is that because a bunch of capital is being thrown at a zero-sum asset doesn’t mean that I have to. Fortunately there are more than two options to invest in the public markets beyond Telsa and Bitcoin.
Let’s play this mental game again, and throw in some boring, relatively unremarkable positive income/cash generating company that has a very high probability of being around for the next 50 years: Fortis (TSX: FTS). What happens? Almost by default, the “natural valuation” of Fortis will rise because of the contrast provided in comparison to the other companies. Believe it or not, there are some people out there investing in publicly traded securities not for gambling purposes.
The point is that we have multiple currents flowing in the public equity ecosystem – those that get most of the attention (the Teslas and the like) versus the ones that creep a thousand feet under the surface. Right now there are enough of them, but even they, to a large extent, have been recipients of financial attention due in part to the monetary environment (low rates) and the availability of automated data screening to find them out (just imagine in Warren Buffet’s growing up days where you had to write into companies to obtain their financial statements and this was the only way to discover they are trading at 3 times earnings).
Investing in part is a choice of alternatives and priorities. If you want immediate safety and liquidity, there is cash. There used to be the GIC/government bond option for those that wanted to make a small return on their cash, but this choice is now more or less gone. You can speculate on commodities (gold, silver, oil and gas, etc.) but the underlying commodity does not give a return, although it should retain some form of value because there will be future demand. Finally, there are stocks and they provide a huge range of risks and potential rewards. I am just thankful the stock market still has companies that are trading well under the radar of the Reddit and Robinhood retail traders!
Bitc mkt cap = $860b, tesla mkt cap = $800b, combined = $1.6t, buys Berkshire 3 x’s over with $200b left to play