Snap, crackle, pop! A brief history of bubbles

A 500-bagger like Microsoft of 20 years ago; the 800-times growth of Fortescue during the Aussie mining boom; Facebook and Google unicorns: investors holding out for the next big thing are courting disappointment, says Lazard Asset Management Portfolio Manager Dr Philipp Hofflin.

“That level of wealth creation really makes people think they could get one of these ‘make me rich in one investment’ type of stocks…but it’s a siren song,” he says.

Australia’s imitation of the tech boom in the late 1990s featured many local companies that weren’t good quality, as the long list of blow-ups attests.

“There wasn’t really another Microsoft, which itself fell about 75% at the other end of the boom,” Hofflin says.

“And in Australia, we just took some really ordinary stocks and put them on high multiples as a way of imitating the US.”

Similarly, the mining boom never created another Fortescue-like success story.

Why let the truth ruin a good story?

This is a theme Hofflin explored in another recent wire authored on Livewire, where he measured well-known narratives against facts.

“There's this belief that some of the growth stocks, particularly the digital disruptors, are doing really, really well and that they're doing this at the expense of traditional value stocks that are being disrupted.

“But in fact, I’ve never seen anybody quote any numbers to support this.”

In this video, Hofflin also unpacks the findings of a detailed study that shows value actually outperformed growth by around 7% over a 12-year period, “which really goes against the narrative.”

He also explains why investors write off value stocks at their peril, and why the large cap booms of the last half-century have been built on momentum and psychology rather than fundamentals.

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