Some of the highest-flying stocks have suffered the most.
May 18, 2021
The old adage says stocks fall much faster than they climb but they climb more often than they fall. That has certainly been the case for growth stocks. These high-flyers have been rocketing upward for months but many plummeted back to Earth over the past few weeks.
Steve Symington and Maxx Chatsko joined Dan Kline on the May 17 “7investing Now” to explain what’s happening. It’s not an easy situation for investors in these companies but it’s also not a unique one. This type of market volatility happens regularly with high-growth companies and our team will help you understand how to view volatility.
A full transcript follows the video.
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Dan Kline: Let’s start with the first question. I will go to Maxx first one will growth stocks recover quickly, it has been a brutal time for growth stocks, and will they recover quickly, Maxx.
Maxx Chatsko: So Matt and I on the team here tend to think a little bit differently about valuations. And we thought you know, in the last year, hey, these are getting a little crazy. So I think the recent pullback makes sense. And you know, although I’m not gonna say like don’t buy, get out of the market, you know, hoard cans of beans and ammunition. No, I’ve been buying throughout, you know, every month, right? So you can say buy the dip, but I would say set your expectations to be realistic.
Don’t expect, you know, if you buy now that you’re going to be sitting on gains in two months, right, I think it’d be realistic about how the market is starting to place a value on growth. I think those premiums are starting to deflate a little bit. And it’s gonna be a little touch and go here in the summer, right? The recoveries already kind of upon us. I think a lot of high expectations are priced in, I can see a lot of sideways movement maybe until the next earnings releases and updates, you know, at the end of July through mid-August. So we might not get a whole lot of excitement here in the next couple of months.
Dan Kline: This is also a great time to look at the fundamentals, not us at 7investing. But lots of people in the investing world got caught up in buying the latest tech SPAC of a company they didn’t really understand this is a real time to go through your portfolio, especially when it comes to newer growth stocks. And go, Why did I buy this? And does that reason still make sense? You’re seeing irrational exuberance when it comes to some of these earnings reports.
You know, you’ll get you’ll get Disney reporting 9 million new subscribers and the market to be like, Oh, that’s terrible. Like it should have been faster. And then you’ll get Fubo adding 100,000 subscribers, which is irrelevant number and the markets like hurray, this is absolutely awesome. So it is a very, very strange market. But Steve, you own some growth stocks. What are your thoughts here?
Steve Symington: Right. So the question, will growth stocks recover quickly? I think the responsible answer is nobody knows. Right. But one thing we do need to keep in mind is that while stocks, big pullbacks are more common than you think. But when stocks do pullback or even cohorts of stocks, right, while the rest of the markets, you know, broad indexes are at all-time highs, growth stocks are falling hard. They tend to fall a lot harder and faster than they rebound. So, but they tend to climb over time more than they fall.
So that’s sort of the point of patience, right is we have to recognize that stocks fall hard and fast. And the rebound is not always quick. But I think, you know, some growth stocks might recover quickly when it becomes evident that the pullback was sort of overblown for certain names. But I think some consolidation, as Maxx was sort of alluding to, would be a healthy thing. If we had some kind of sideways movement and built some bases in order to allow a broader return to growth, or a broader bull market to kind of resume
Dan Kline: I would also tune out the whole concept of recovery. I’ve said this many times, but we’re not smashing our computers and never use Zoom again. We’re just gonna like go to the mall without a mask. Like, it’s not some like and yeah, maybe we’ll travel a little bit more this summer, but I don’t know but you Steve or Maxx, but when I travel, my phone comes with me like, I’m still gonna check my 7investing Slack. I’m still gonna broadcast from all sorts of places. It’s not like I’m going technology-free.
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