June 24, 2023 | Stock Valuations, AI, Graduates, Bitcoin and the Value of Deferring Social Security Benefits

Smart Investing with Brent & Chase Wilsey

Stock Valuations
The tech boom and bust is often referenced as an example of the dangers of high valuations in the stock market, but one that is less talked about is the Nifty-Fifty. This was a group of 50 stocks back in the early 1970s that were known as "one decision stocks" meaning you could buy and hold forever. Investors became enamored by the group and pushed valuations to extremely high levels due to the companies and their strong balance sheets, high profit margins, and double-digit growth rates. The group included names like Polaroid which traded at over 90 times earnings and Xerox which traded at close to 50 times earnings. Come the stock market decline from 1973-1974 Polaroid fell more than 90% and Xerox was down close to 70%. Today, we know these names went bankrupt and serve more as a history lesson rather than serving consumers. The Nifty-Fifty wasn't just about stocks like these though as it included companies like McDonald's and Disney. McDonald's saw a P/E of over 85 and Disney traded at a little over 81 times earnings. During the stock market fallout, McDonald's fell close to 62% and Disney was down close to 85%. Ultimately, investors need to be very careful chasing high valuation stocks as the risk to the downside can be very high.

AI
With all the talk about AI, I’m sure it’s come across people’s minds if it will replace financial advisors. I’m happy to report at this time the answer is no and as far as I can see in the future, I don’t see it. One has to remember that the information is still not 100% accurate. I also discovered from Andy Serwer, a writer Barron’s magazine, it doesn’t include content after September 2021. That’s a problem. A little over a week ago a question was asked of ChatGPT which weighs more, a pound of feathers or 5 pounds of lead. It said they weigh the same. Remember that ChatGPT scans everything that has been written, which may not be relative and can give the wrong answer. What I do think it will accomplish is to help smart advisers, who understand investing to obtain data quicker and perhaps more precisely. But whoever is reading that data still has to understand it or else it means nothing at all. I think it was a few years ago that the Robo advisor was going to replace many advisers. We see how that went, not very well. Overall, I think AI will make us smarter and it will allow us to do our jobs quicker but not replace jobs that still need the human brain to analyze the data or the human body to perform functions like a plumber or electrician.

Graduates
I just saw an unfortunate report that the percentage of high school graduates ages 16 to 24 that were enrolled in college in 2022 has fallen to 62%. That’s over a four-percentage point drop from just 2019 when it was 66.2%. It could be because our colleges and universities are slowly pricing themselves out of the market to make it worthwhile to get a college degree, or it could be younger people don’t want to wait to start earning a living or start a career. It could also be a combination of the two.

Bitcoin
I saw bitcoin was up 10% due to excitement over ETFs being launched for Bitcoin. Blackrock filed an application earlier in the week for a spot bitcoin ETF that would track bitcoin's underlying market price. This is just silly to me.... Why would somebody buy an ETF, which I'm sure Blackrock will charge a fee for, when all the ETF is doing is following the price of bitcoin. Wouldn't it just make more sense to buy bitcoin? Unfortunately, when an asset has no true fundamentals, this is the kind of news it will trade on.