Wally Weitz: Emperor’s New Clothes Moments Ahead

Johnny HopkinsWally WeitzLeave a Comment

In his latest Q4 2021 Market commentary, Wally Weitz discussed the likelyhood of some emperor’s new clothes moments ahead. Here’s an excerpt from the commentary:

“Deep value” had its moments, especially as energy jumped from the performance doghouse to the top of the charts. Innovative new companies threatening to “disrupt” the old guard in a number of industries captured investor imagination. With interest rates near zero, the time value of money was very low, and “birds in the bush” were worth nearly as much as “birds in the hand.”

Thus, companies that promised robust future flocks (sales and earnings) 5-10 years out were favored investments. For example, electric vehicle maker Rivian Automotive came public in the fall of 2021 and rocketed to a $100 billion market cap before even selling its first vehicle.

In John Maynard Keynes’ 1936 The General Theory of Employment, Interest, and Money, he wrote about “animal spirits” – the psychological and emotional factors that drive investors to buy and sell securities in times of economic stress and uncertainty. But Keynes likely never imagined the amazing ways those animal spirits would drive speculation in 2021.

We’ve written about the Robin Hood phenomenon that saw traders, many young and inexperienced, driving stocks of questionable value to incredible heights, egging each other on via social media. Margin borrowing and stock options provided extra leverage (and risk).

Several thousand (!) new cryptocurrencies were created and have an aggregate market value measured in the trillions of dollars. Regulators are scrambling to find ways to protect investors, but it is still “wild west” days in the crypto market. Blockchain technology is very interesting and is already finding mainstream applications, but the value of a crypto “coin” or “token” is in the eye of the beholder.

And as for NFTs – non-fungible tokens – Nike made a considerable investment in this space with their acquisition of RTFKT, a company that makes “virtual tennis shoes” and other digital collectibles. We enjoy watching the spectacle of the crypto phenomenon, but for us, it is an uninvestable “asset class.”

It seems likely there will be some emperor’s new clothes moments.

You can read the entire commentary here:

Weitz Q4 2021 Market Commentary

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