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December 10, 2020 | The Hoodies

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

Airbnb lost $700 million in the first nine months of this year on revenues of $2.5 billion. In real life you’d drag it behind the barn and shoot it. Same with DoorDash, the meals-delivery guys who last year burned $667 million on sales of $885 million. What a disaster.

But this week when DoorDash stock became available to investors for the first time (it’s called an IPO – initial public offering), the kids swarmed it. Shares doubled for a while Wednesday and when the smoke cleared the company was worth about $40 billion.

As for Airbnb, the IPO was scheduled Thursday. And while Covid crushed it for a while with more and more cities starting to ban or restrict it, the betting is by the time trading starts (there was a delayed opening – too much demand) this thing will have exploded in market capitalization. More swarming. More FOMO. More frenzied buying of anything that’s (a) online and (b) new.

(Update: the stock price of Airbnb doubled from its opening, valuing the company at more than $100 billion. And it still makes no money.)

Look at Canada’s tech baby, Shopify. It provides hands-on eCommerce retail tools, and while it’s been operating for a while (I used it as the platform for iPad-based sales of pumpkin spice muffins and Rocky Road ice cream at the Belfountain General Store), its shares have absolutely bloated. Company assets are scant, yet at $170 billion it’s now worth more than two of the major banks – combined.

And while we’re talking about speculative investor frenzy and asset bloat, don’t forget Bitcoin. The crypto – backed by absolutely nothing – has again been flirting with the $20,00 mark, gyrating wildly in value. It’s not a viable currency. Not a reliable medium of exchange. It’s not even a storehouse of value. It cannot be loaned out or used in fractional banking. There is no regulator and its very existence is threatened by romping computing power. And yet it’s been swarmed.

“Bitcoins and other cryptocurrencies,” says analyst Cam Hui, “are the latest digital equivalent of Beanie Babies or sports figure trading cards. It’s difficult to see how they can have value in the long run.”

And they won’t. CBs will one day have their own digital currencies, backed and regulated by governments. The private crypto years will end in tears.

But back to Airbnb, DoorDash, LightSpeed, Nuvei and other profitless, sexy, craved outfits arousing investors. What’s happening? Is the FOMO legit?

Maybe. Partly. Depends. The pandemic has poured gas on societal trends like online shopping, WFH, deurbanization plus the digitization of financial services and everything from buying cars to telemedicine. Quarantines, physical distancing, lockdowns and virus panic have changed many human activities in 2020. Outfits like DoorDash (it’s delivered over 550 million meals to people’s homes this year) and Shopify, powering online sales, have emerged as investment winners as a result.

Investors who use these services ain’t dumb. They can see this. They pile on.

Second, the virus has resulted in a huge, steaming pile of cash in society – as detailed here earlier this week. Millions of people are working from the spare bedroom, not spending money on gas, car maintenance, child care or pants. Costs have been slashed, incomes retained and the personal savings rate has doubled as a result. Then there’s Justin’s $250 billion in direct payments to individuals and companies. CIBC economists say this has resulted in $170 billion sloshing around in bank accounts. Or buying stock in DoorDash and Airbnb.

Besides, a lot of these WFHers are bored. Like seriously, eat-the-drywall bored. No bars, clubs or restaurants. No concerts or business trips. No commuting or concerts. No pro sports games. I mean, how long can you spending Zooming colleagues, walking the pooch, surfing Netflix or wandering around in your skivvies eating Cheetos?

This brings us to the age of Robinhood. It’s exciting.

Millions of moisters now have this app on their phones. It allows ‘investors’ (aka gamblers) to buy and sell securities fast, without cost. No commissions at all. So day traders can flip in and out of positions every few hours. Or minutes. Or seconds. And they do.

Says Wall Street/Bay Street vet Ed Pennock:

The Robin Hoodies are transforming markets. They are 20% of the volume. 25% on a busy day. They have new tricks which the old dogs aren’t paying attention to. Commissionless trades enable rapid turnover. They don’t trust many of the structured products. They want to buy and sell stocks. Particularly if they can bail for nothing. Robin Hoodies do their own research. They rely on each other. They use Seeking Alpha, Zacks’, Motley Fool, and others. They don’t use P/E’s, PSR’s or many standard tools. They don’t care for the analysts and their recommendations and target prices. They’re not fixated by “Bubbles and Peaks and Crashes”. They buy the dips. And if it works that’s good. If it doesn’t, then they bail. On to the next one.

Exactly. Massive momentum investing – people going with the flow. Riding the trend up. Jumping off when some genius on Twitter says to. And lots of them have made a bundle – after all, the Hoodies were materially responsible for propelling Tesla into space. Now DoorDash billions. More to come. What’s happening fully eclipses the dot-com mania which, two decades ago, did not end well.

More than $160 billion has been raised in the US this year in IPOs – amid the worst public health emergency and global recession in a century. A sizeable chunk came from clueless people who got a text telling them to press Send.

Be balanced. Be diversified. Be ready. This is real.

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December 10th, 2020

Posted In: The Greater Fool

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