The rotation out of the market’s priciest stocks has really gathered pace. Should investors heed the old adage about buying when there’s blood in the streets?
The scale of the sell-off is notable. Stocks such as Robinhood, Beyond Meat, Peloton and Zillow have lost over 70 per cent of their value. Morgan Stanley notes that 40 per cent of Nasdaq stocks are down over 50 per cent from their highs, although it's not tempted, saying value should continue to outperform growth.
So does Research Affiliates, which says speculative high-priced stocks are “most at risk in the current environment”.
Short sellers, too, are unconvinced by stocks such as Beyond Meat, which is now the most-shorted Russell 1000 stock.
The dangers of buying too early are clear. Star fund manager Cathie Wood, whose widely-followed Ark Invest Innovation ETF consists of disruptive stocks such as Tesla, Zoom and Coinbase, last month said so-called innovation stocks were not bubbly, but in "deep value territory". Their sell-off meant the Ark fund could deliver 40 per cent annual returns over the next five years, she said.
Since then, however, the sell-off has accelerated. Wood’s Innovation ETF has almost halved since February and still trades on 11.5 times sales – an eye-watering multiple.
As hedge fund manager David Einhorn once asked, what do you call a stock that's down 90 per cent? A stock that was down 80 per cent and then got cut in half.
