SIMON BROWN: I am now chatting with Schalk Louw from PSG Old Oak. Schalk, I appreciate the early hour. A note you issued that I must say [sent] a bit of chills down my spine, because I’m old enough to remember that dotcom crash of 2000. Luckily, due to exchange controls, I hadn’t invested anything overseas. But the question you raised is this: are we seeing a repeat of this collapse where the Nasdaq, from its high to its low, was, what, about 70% down? There are some similarities here.
SCHALK LOUW: Hello Simon. Yeah. Hey, hey, it’s Friday. Let’s celebrate that first, because we know Jim Kramer will be ringing the opening bell on Monday, so please don’t jinx us. But yes, let’s start Simon. The note is purely just an assimilation, however. Again, past performance does not guarantee what will happen in the future. All I did was I looked at that period, let’s call it that period between 1999 and 2000, and I said when you look at that period, we know the Fed also tightened its Monetary Policy. They also started with a hiking phase. If you look at the period from June 1999 to May 2000, the Fed raised interest rates six times.
Yes, we also know that before that the Nasdaq was trading at valuations, let’s say it was only seen again 20 years later. Now I just want to say and clear things up, the kind of evaluation we see now was not that excessive. But what happened?
When you look at that six month period after the Nasdaq hit its highs, let’s call it early 2000, March 2000 to be exact, that six month period after it hit its highs, the Nasdaq traded 39 % lower than its highs. Now, very similar to that time – you said you remember that time – we didn’t have Twitter and Facebook and that kind of stuff. We had the good old newspapers. I remember the newspapers, how these newspapers came out and said, well, this is a great opportunity, very similar to this – buy the dips.
Now if we had bought the drop, that period of seven months later, let’s call it 30% lower levels, roughly a year later your portfolio would have been down 52%, or another 52% from compared to these levels. So all I did was I said, what happened? What has happened in the past seven months? Seven months ago the Nasdaq also hit new highs. We saw that the Fed started the bull phase earlier this year, in March to be exact. They have now……3:06 had two rate hikes. They said they would tighten monetary policy after years of easing, and the Nasdaq fell seven months later. The Nasdaq also hit over 30%, which is very similar to 2000. People are starting to say, well, now is the time; let’s start buying the dips.
All I’m saying with that is just be very, very careful. These companies are not yet trading at very cheap multiples. Some of these companies are still, I wouldn’t say, expensive. They definitely look a lot more appealing than [they did] in December last year; but they are still not very cheap. Be careful, we are not at the end of the hiking phase. The world is in trouble [economically]. It’s really in a struggle.
SIMON BROWN: It’s in trouble. I take stock. There are a lot of similarities and these stocks don’t come cheap yet. We can almost divide [them] in two parts. If you pull out some numbers, your Netflix, Shopify drops 70%, 74%. And Apple, Microsoft are both down a quarter; Facebook cut in half, 50% less. But what we have here are companies – I’m looking at Facebook, Apple and Microsoft – that are at least making a profit. In 2000, I don’t think anyone at the Nasdaq was making money. Profit is nice, but those valuations ultimately matter. In the end, you can ignore valuations for a long time, but ultimately they matter.
SCHALK LOUW: For sure. And that’s the only thing you said. Let’s look at the Nasdaq companies of 2000. The Nasdaq companies of 2000 – I would call them garage sales because most of these techies were running these companies from the garage. They did IPOs and they made millions. It’s not exactly the same, you’re right. People like the Metas make money.
But look at this, Faang darlings. What was similar is that a year ago when these companies were trading at these multiples, very similar to 2000, I started having weird and wonderful ways of valuing these companies. People say, ‘Ah, don’t watch EPs anymore. We can’t watch PEs. We have to look at this, we have to look at that”. And that’s usually a telltale sign for me personally that things are ending in a bull market or a bull market phase. How fast we entered a bear market. It went from ‘don’t worry, it’s only a slight correction’ to basically 10% or more now’. Now over 20%, now even over 30% when you look at the Nasdaq.
You mentioned it – Facebook 53% down. Apple 17%, Amazon 34%, Netflix 71% down, Google 24% down and even our blue eyed boy Elon Musk, Tesla down 33% year to date. You know what, I think there will be opportunities. The opportunities look much better than they did in the……6:06. But be very, very selective and be very patient when buying this. I don’t anticipate this – as I said, there have only been two rate hikes. Europe is in deep trouble and I think the world as it stands now is definitely [inclined] to a more volatile market. Be selective, be careful and above all be patient.
SIMON BROWN: I will leave it there. I think Schalk is one hundred percent [on it]. I think selective caution, patience. That’s the theme here. Is it still 2000? We don’t know, but we’ll find out in time. The thing is, there’s nothing certain about that. Some caution, some selection and some patience are required.
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