Investors have been enjoying a smooth ride, but now the hard part begins
Tom Bradley: The going is getting tougher and investors need to mentally prepare for the grind ahead
We’ve had a smooth, effortless ride from the stock market lows of March 2020 to the current record highs. Low interest rates have been an important driver, as has the increased pace of technological change and digitization.
It’s been a period with lots of the highs and few of the lows that normally go with investing. But, as the saying goes, investing is a marathon, not a sprint, and it now feels like we’re about to hit Heartbreak Hill — a series of gruelling hills at mile 20 of the Boston Marathon. In other words, the easy part is behind us, and we’ll need to grind it out for a while.
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The weed stocks reaffirmed something that mining investors have known for decades: buy the sizzle and sell the steak. It is great owning a mining stock when the company is proving up a new discovery, but agony while the mine is being permitted, built and commissioned.
Cannabis companies are part of a larger trend whereby innovative companies can lose large sums of money for years, and yet still raise huge amounts of capital. I refer to them as the “non-profit sector.” We now have a slew of companies that need to transition from fantasy to reality; shift from being valued on what could happen to trading on a price-to-earnings multiple based on what is happening.
For example, Zoom Video Communications Inc. is an innovative company that was at the right place at the right time. Now it has to justify a US$80-billion valuation (half of what it was at the high) in the face of intense competition from tech giants such as Microsoft Corp. and Google LLC. Ultimately, Zoom must prove it’s a technology platform rather than just a feature in a suite of software products.
