Is Bubble Burst 2.0 approaching?

Ever since the positive COVID-19 vaccine news were released by Pfizer, the stock market has been soaring for most stocks, including retail REITs and bank stocks which have surprisingly emerged as one of the best performers. Meanwhile, glove stocks were among the top losers on Bursa Malaysia. Looking back the ups and downs of the stock market, some of the shares (other than glove and pharmaceutical stocks) have miraculously hit all-time high, such as plastic stock Thong Guan, furniture stock Liihen, semiconductor stock Frontken and many more. The high-flying tech stocks such as Vitrox, UWC and MPI have also rose rapidly during this “COVID-19 season”.

Somehow, this situation has reminded me of the dot-com bubble burst in less than two decades ago. In the early 20s, many Internet Companies were launched and the high expectation from investors that the tech stocks would dominate the economy have created many significantly overvalued stocks. Many of these stocks eventually plummeted and the investors have experienced severe losses due to the unrealistic expectation.

I’m not an expert to predict whether there will be a bubble burst 2.0. But what we should always keep in mind is never to forget the fundamental of investing and consistently exercising risk management by having a well-balanced stock portfolio to diversify any individual sector risk.

However, the point is not to have invested solely in tech stocks. Instead, it’s that they are an increasingly important component of any diversified portfolio and a growing proportion of the market index. This reflects the fundamental changes to our economy over the past two decades with online retailers, mobile technology, digital streaming services, and other advancements changing our everyday lives.

Avoiding another internet bubble:

1. Again, and again we should not ignore the fundamental of business

Many investors have been seeking for the “BEST TECH STOCKS TO INVEST NOW” without knowing their business structure or their past financial track records. I have seen investors asking “why this stock price up?” or “why today price down?” regularly in various stock forums. FYI, it is a norm for share price to move either up or down every day due to market sentiment. Shouldn’t you be more concerned on: how the business is operating, how the company is growing or acquiring any new source of revenue, how stable is the business’s cash flow, is there any future prospect for the company etc.

2. Don’t blindly follow popularity

For myself, I am not looking for stocks that price would rise within days. BUT I’m certainly looking for companies with strong business fundamental, and consistently seeking to expand its operation with sustainable cash flows in the long run. I would love to invest in companies that I’m confident in its business model, hence I could sleep soundly at night without worrying the daily fluctuation of its share price.

3. Reminding yourself the type of investor you wish to be

During May or Jun’20, when the market gradually recovered, I’m not sure whether you are aware that there were traders who was found fleeting success and criticizing Warren Buffet’s investing style. I’m still astonished till today on their actions. The one-off success could possibly considered as a success but those who have consistently beating the market in the long run, no matter bear or bull market are the real winners, and I love to learn to be like these investors.

There is no right or wrong when it comes to investing style. However, it is critical to remain cautious as an investor.