Ignore valuations of stocks and company fundamentals at your peril.
Churchill Capital Corp. IV CCIV,
a special-purpose acquisition company (SPAC) that is said to have merged with aspiring Tesla, Lucid Motors, finally announced Monday night that it was indeed going to do so. And in a classic Wall Street reaction, the market sold the news after long buying the rumor.
CCIV was up 500% from its IPO as a blank check company, and today the stock market has erased half of what its market value was seen to be at noon Monday. This is a stock that I cautioned against earlier this month as one of many Random Number Generators (RNGs) to avoid. People and institutions that had been buying CCIVs for weeks at $ 40, $ 50, $ 60, or even $ 70 per share suddenly saw a huge loss in value.
Maybe they’re looking at their other SPAC RNGs and wondering if they should actually be looking at the reviews.
Looking at this week’s ugly stock market action in a larger context, you may notice that Tesla Inc. TSLA,
at $ 900 after the company reported a not-so-good quarter that included questions about expanding gross margin, it looks like it could have been a top manufacturer.
Many questionable VE stocks continued to rally for a week or two before gaining their comeuppance this week. At least for a day or two. It will be interesting to look back in a month to see what non-TSLA EV stocks do from here on out. I would expect most to move much lower even than today’s quotes, which are much lower than last week’s quotes.
Stack in ARK
These days, everyone wants to be Cathie Wood from ARK Invest. She was an early bull on Tesla and Bitcoin BTCUSD,
and some of the other themes that my longtime followers and I tackle even earlier than her. Its actively managed ETF, ARK Innovation ETF ARKK,
being the most famous, she performed very well and her commentary has been on the spot for a few years now.
Read: These are the stocks that have helped tank the high-flying ARK Innovation ETF over the past week
But I have bad news. Even though I’m a fan of Cathies and wish her and her investors all the best, I can’t help but think of the story of George Gilder, with whom I have become friends over the decades that have followed.I wrote this in 2001 for TheStreet.com(I just realized that this article was published just two weeks after September 11.):
Investors should take a few rules into account when evaluating companies in their portfolio: Cash is king, because cash flow is becoming increasingly difficult to judge constantly. As such, a simple glance at a company’s balance sheet can tell you a lot about its investment value. Now that the huge daily pick-ups in telecom operator stocks are gone forever, the potential benefits of any business with questionable viability are not worth the risk of your capital. Look for real income in the books. As tech guru George Gilder and his followers have learned (at least, I hope they already have), cutting edge technology doesn’t translate into a great investment. Businesses need sales channels and products for which there are immediate uses. You might be surprised that I haven’t mentioned profitability in this list. Profitability is naturally important, but even companies like Cisco are unlikely to be profitable this quarter, and perhaps several others, as they will need to continue to align capacity, people and inventory with demand.
Let me repeat the caveat here: you will never see the kind of returns, at least in telecoms and telecoms stocks, that we saw almost daily in the late 1990s. That’s another reason. where these types of tech mutual funds, which continue to preach to stay the course, will take forever to recover from balance.
The hangover
The telecom and telecom tech companies never saw the kind of performance they had in the late 1990s again. I think the same can be said of EV stocks and many other favorites that Cathie Wood and his crowd of blind followers indulge themselves these days as they put their money to work regardless of reviews.
This is what George had to sayin 2002:
In retrospect, it’s obvious I should say subtly, Hey, things got out of hand at JDS Uniphase, and it’s not worth what you’d have to pay for it, he says. Every month he thought about giving a warning to his subscribers, and he decided to do so every time. He had witnessed what others had dubbed the Gilder Effect: the steep rise in a stock after adding that company to their list. It was not uncommon for a stock’s price to rise more than 50% within an hour of posting a newsletter. If I had said, Hey, this is a top you all should sell, that would have been a cataclysmic event, he said. I think of telling people that they should sell half of their holdings, and each time I conclude that my subscribers would be pissed off. I also wondered what I would rush if I did. 50% of its readers had signed up for what Gilder now calls the market hysterical peak. Half of my subscribers would have been eternally grateful [for a warning]but the other half, the new ones would have been furious because they had just entered, he said. It was pretty terrifying. I really didn’t know what to do. In the end, he did nothing. And soon enough he had a whole new set of distractions to worry about. In the past, we’ve sold our investor conferences within two weeks, says Gilder. But in 2001, we sent out the same materials and the same invitations, and five or seven people signed up. He lost the deposits that had been placed to reserve hotel space for gatherings. Newsletter renewal rates have dropped. A huge tax bill has come due. In the spring of 2002, Hed laid off almost half of his staff. You can just be fabulously flush for a while, then the next day you can’t make that last million dollar payment to your partners, and suddenly there’s a lien on your house, he says.
Many of the top titles on the Georges top list in 1999 ended up dropping 99% or more. Many went from scratch, even as their technologies and ideas continued and built the internet that we use every day now.
CCIV is probably a harbinger of more pain for those who ignore assessments and fundamentals.
VSody Willard is a columnist for MarketWatch and editor of Revolution Investing newsletter. Willard or its investment firm may own or consider owning securities mentioned in this column.
