We own a company that reported solid results last night. The numbers were outstanding year over year, but generally inline with expectations. The stock is up 10% this morning.
I only point this out because merely “in line” results — no matter how great year over year — would have certainly been met with an ugly and perhaps violent reception to the downside not too long ago. As we’ve been writing in our Economic Updates, I think this offers further evidence that the incremental investment dollar is once again flowing into growth oriented funds after a seven year hiatus. In the recent past, hedge funds may have shorted companies with high “surface” multiples that only met expectations, but today, they don’t likely want to step in front of growth’s “fund flow freight train”. They might even be buyers. As we’ve also mentioned, the fact that overall domestic growth is slowing suggests that growth is becoming scarcer and more likely to experience incremental appreciation through multiple expansion.
I also want to be absolutely clear, however, that the current environment, admittedly giddy at times, will at some point end, as all such things do. Investors must absolutely, positively, keep this in mind when considering their overall asset allocations. But I also happen to believe that there is a great deal more runway ahead for growth investors. If past is a guide, investors have likely crowded into the areas that have done very well over the last five years while neglecting those that have not. There will be dips, but they will likely be viewed as buying opportunities given past neglect. Neglect will eventually turn into fear (Are we missing something?), then disbelief (I can’t believe this!), capitulation (Okay, I’m in) and finally, greed (I’m ALL in, this is just too easy!) This cycle usually takes more than a few weeks, months or quarters and is why, some say, market leaders tend to enjoy five year cycles.
For now, enjoy, but never be complacent…
I only point this out because merely “in line” results — no matter how great year over year — would have certainly been met with an ugly and perhaps violent reception to the downside not too long ago. As we’ve been writing in our Economic Updates, I think this offers further evidence that the incremental investment dollar is once again flowing into growth oriented funds after a seven year hiatus. In the recent past, hedge funds may have shorted companies with high “surface” multiples that only met expectations, but today, they don’t likely want to step in front of growth’s “fund flow freight train”. They might even be buyers. As we’ve also mentioned, the fact that overall domestic growth is slowing suggests that growth is becoming scarcer and more likely to experience incremental appreciation through multiple expansion.
I also want to be absolutely clear, however, that the current environment, admittedly giddy at times, will at some point end, as all such things do. Investors must absolutely, positively, keep this in mind when considering their overall asset allocations. But I also happen to believe that there is a great deal more runway ahead for growth investors. If past is a guide, investors have likely crowded into the areas that have done very well over the last five years while neglecting those that have not. There will be dips, but they will likely be viewed as buying opportunities given past neglect. Neglect will eventually turn into fear (Are we missing something?), then disbelief (I can’t believe this!), capitulation (Okay, I’m in) and finally, greed (I’m ALL in, this is just too easy!) This cycle usually takes more than a few weeks, months or quarters and is why, some say, market leaders tend to enjoy five year cycles.
For now, enjoy, but never be complacent…