Personal Wealth Management / Expert Commentary
Ken Fisher Debunks Common Myths About Valuations in Technology Stocks
Some investors are worried that current valuations of technology stocks are unsustainable and could signal upcoming turbulence in that sector.
In this video, Ken Fisher, investor and founder of Fisher Investments, looks at valuations on tech stocks and examines what they can—or can’t—teach investors about the future.
Title screen appears, “Common Myths About Valuations in Technology Stocks”
A man appears on the screen in a navy suit jacket and a checkered shirt. The man begins to speak.
A banner identifies him as Ken Fisher, Executive Chairman and Co-Chief Investment Officer, Fisher Investments.
Ken Fisher: So one thing you hear a lot right now is to say that technology stocks are overvalued. And of course, that isn't singularly related to technology stocks per se, but also stocks that aren't categorized as technology, but thought of as technology. Like let's say, Amazon, which is technically in consumer discretionary, not in technology. And the answer is some are, some aren't.
Ken Fisher: The category overall isn't really so bad when you think about the fact that if you were to take the PEs, flip them on their head into EP's, and think of that as an interest rate compared to long term bond rates. And then remember that the E presumably should keep growing from the growth associated with that technology. Assuming that it's really technology that's aimed at growth and successful at that. In that regard, the valuations don't really appear bad at all of they don't appear great either.
Ken Fisher: The other point I want to point out to you is that, people, in stocks routinely make the presumption that they think valuations somehow are predictive of what will happen to price over the next 1 to 3 years, and in fact over intermediate to semi long term time periods. Valuations, both the stock market as a whole and for subcategories of the market, both low and high, have never been predictive of future returns.
Ken Fisher: So while technology stocks aren't overall cheap and not overall disastrously priced, if you think of them correctly, it's still also true that even if they were overpriced or cheap, that wouldn't necessarily be telling you where they go next year or the year after or the year after. Warren Buffett famously said that in the short term, the market is a voting machine and in the long term, it's a weighing machine.
Ken Fisher: And what that means is that in the short term, it's about popularity. And in the long term it is about value. But that long term is well out there. It's not about the next 1 to 3 years. The market doesn't weigh in that way. Over the next 1 to 3 years, it's still mostly focused on popularity.
A series of disclosures appears on the screen ““Investing in Securities involves a risk of loss. Past performance is never a guarantee of future returns. Investing in foreign stock markets involves additional risks, such as the risk of currency fluctuations. The foregoing constitutes the general views of Fisher Investments and should not be regarded as personalized investment advice or a reflection of the performance of Fisher Investments or its clients. Nothing herein is intended to be a recommendation or a forecast of market conditions. Rather it is intended to illustrate a point. Current and future markets may differ significantly from those illustrated here. Not all past forecasts were, nor future forecasts may be, as accurate as those predicted herein.”
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