Stock bullets are delightful.
What was there not be happy – the stock market mostly grows, and making money seems easy. As new investors focus on collecting small, speculative stocks, institutions hide in high-tech stocks.
For prudent investors, the time to realize the two great risks hidden in the stock market is now – when the market is high. Let’s explore with the help of a graph.
Please click here for a table of Dow Jones Industrial Average US ETF: DIA,
which tracks the Dow Jones US industrial average: DJIA.
See the following:
• To give investors a long-term perspective, the chart goes back to the start of the bull market in 2009.
The chart compares the Dow Jones industrial average with the S&P 500 US: SPX,
Amazon (SH.BA: AMZN,
Apple US: AAPL,
US Alphabet: GOOG
and Facebook USA: FB.
As much as it is known that Apple shares are among investors, the chart is an eye opener as Apple has significantly underformed shares of Amazon, Alphabet and Facebook.
• Apple just reported revenue from inflation, despite the pandemic. The company also announced a four-for-one stock split. Apple stock is flying high.
• Amazon was expected to report huge revenue as it became a quintessential tool for consumers during the pandemic. Oldest ratings on Amazon.
• Despite a boycott by advertisers ̵1; and a decline in advertising in general – Facebook’s revenue was a blast – as was Apple’s.
• Alphabet gains were excellent, but not explosive. However, by some measures, the Alphabet is cheaper than the four stocks.
• The chart shows that many stocks plunged into Arora buying areas during the March market downturn. Buying zones are very powerful for stock market investors. You buy when stocks dive into shopping areas. It takes patience but it pays off quite well. For example, Apple shares plunged into the Arora shopping area, trading as low as $ 212.61 not so long ago, and is now at around $ 410 as of this writing.
• Apple, Amazon, Alphabet and Facebook stock lists are just as high as they get. The profits of the companies are accelerating. If they can produce great profits during a pandemic, imagine what they can do when the economy starts booming and there is a vaccine. Their dominance in the market is growing and so is their range of offerings.
Two hidden dangers
Before you send hate mail to highlight the risks, understand that the Arora Report is strong in these actions. Amazon, Facebook, Alphabet and Apple are in the Arora Report model portfolio. And my job is to help investors. While many investors focus on stock market rewards, it is more important to focus on the risks in this environment, where excessive government borrowing and over-printing of money by the Federal Reserve are inflating the stock market bubble. Here are the two hidden dangers:
• Part of the power in these four companies is that they have become quintessential services. Consumers have very few real choices to go elsewhere. Usually, utility services in the United States are regulated and there have been serious regulatory limits on the profits they can make. If you have seen the last congressional hearing, you may have already reached an incomprehensible conclusion that the regulation is coming. It is a question of “when,” not “if”.
• These four stocks have become crowded markets. The best way to understand a crowded trade is to think of a fast moving boat, in which everyone is on one side. The boat can safely continue for a long time, but it only takes a small wave for the boat to catch on.
Investors need to properly restructure their stock portfolios to account for these risks.
Discovery: Arora Report portfolios have positions in Apple, Amazon, Alphabet, and Facebook. Nigam Arora is the founder of The Arora Report, which publishes four newspapers. It can be reached at Nigam@TheAroraReport.com.