Imagine this: You’re looking for a brand-new house to buy.
You spot a stunning one in a suburb that ticks all your boxes.
The current valuation of the house? $1 million.
The actual selling price? $1 billion.
Well, yowza. Without a moment’s thought, you take up a mortgage. You jump into the purchase with glee. What an incredible bargain! It’s exactly what you’ve been looking for!
And it’s great you’ve made this commitment. Other hungry buyers were already circling that suburb, looking for an easy feed.
There are rumours that the house could soon be fetch $2 billion, if not $3 billion.
You know this is true because that’s what the real-estate agent told you is going to happen.
So, yeah, like I said…
What. A. Bargain.
Now, I know what you’re already thinking. This story is so whimsical, so outrageous, that it can’t possibly be true. It couldn’t happen in real life. No one would be that dense.
Buying a million-dollar house for a billion?
That’s insane, isn’t it?
And yet, in the stock market, it happens every day.
In fact, it happens every single time people buy one of the most expensive tech stocks ever: Tesla [NASDAQ:TSLA].
Source: Simply Wall St
Right now, Tesla has a current price-to-earnings ratio of roughly 900. So, if this company was a million-dollar house, you’d be paying close to $1 billion to own it.
At these sorts of wild valuations, it doesn’t take much for a slip-up to happen. At best, you will experience a sharp correction. At worst, an outright crash.
Well, that’s exactly what we saw unfold recently. From its peak on January 8, Tesla has lost a whopping 36% of its value.
Source: Google Finance
In effect, Tesla’s gains for 2021 have been totally wiped out in short space of time. It’s now back to where it was in early December 2020.
And guess what? This could just be the tip of the iceberg. Tesla is one of many tech stocks that have suffered a drastic sell-off recently, as both institutional and retail investors have jumped ship.
And where are they fleeing to?
Well, Eric Kuby, who’s an American fund manager, has a pretty good idea:
‘We’re coming out of a multi-year period of extraordinary outperformance from big cap techs.
‘Value stocks have been so inexpensive. A major rotation is going to take place.
‘There is no question value stocks will outperform. It’s time to look for high quality and low volatility.’
The Vistafolio formula is about margin of safety
At Vistafolio, we invest globally on behalf of Eligible and Wholesale Clients.
We have a lower-risk strategy of investing in sectors like property, infrastructure, banking, energy, food production.
We love to buy assets at fair value. And sometimes, if we look really hard, we can even buy assets that are undervalued.
So, even as Tesla and other overvalued tech stocks have tumbled, many of our loyal clients have experienced the exact opposite. They have actually seen the net value of their assets go up.
Indeed, that’s the benefit of investing in stocks at good prices. They have room to breathe. To grow. To expand. They could be robust enough to withstand stress and scrutiny.
To put this into perspective, if a house is valued at $1 million, we’re looking to buy it at $1 million *or* less. You won’t catch us plonking down $1 billion just because the rest of the crowd is doing it.
We want margin of safety. That’s our high standard.
If this sounds like something you want to discover, we’re actually offering a FREE consult for our Vistafolio service right now 👉 Click here to find out more.
This could just be the perfect solution to protect and grow your wealth.
Analyst, Wealth Morning
Disclaimer: Past performance is not a guarantee of future results. Vistafolio service is only available to Eligible Investors and Wholesale Investors (not to Retail Investors) as defined in the Financial Markets Conduct Act (2013).