As the world embraces a wave of speculation and risk-taking, fuelled by dreams of innovation and deregulation, the financial landscape teeters on a delicate balance. From Vancouver City Council’s decision to explore bitcoin payments to Premier Doug Ford’s ambitious vision of a tunnel under Highway 401, the speculative spirit of 2024 mirrors past euphoric periods such as 1999 and 2021, albeit with a different mix of drivers.
The financial world, too, reflects this speculative fervor. Bitcoin, buoyed by expectations that President-elect Donald Trump’s administration will further deregulate cryptocurrencies, has surged past the US$100,000 mark. Meanwhile, meme coins like Dogecoin have skyrocketed, further fuelling investor enthusiasm.
This optimism has not gone unnoticed in the stock market, where companies like Tesla have seen their valuations soar. Tesla’s stock has risen 75% since election night, despite little news other than updates on Elon Musk’s pay package. Trump Media and Technology Group, valued at over US$7 billion despite modest revenues of US$1 million in the last quarter, keeps the meme stock craze alive.
These developments highlight the speculative nature of the current environment. As Tom Bradley, co-founder of Steadyhand Investment Management, notes, “Investor excitement can drive up prices in the short term, but an asset must offer some utility and ultimately produce a profit for gains to be sustainable.”
The AI and Crypto Craze
Artificial intelligence, much like cryptocurrencies, is at the forefront of investor interest. Companies are embracing AI not only as a transformative tool but also as a branding opportunity, akin to the dot-com craze of the early 2000s. However, questions remain about whether AI will generate significant incremental revenue or merely serve as a feature to sustain existing product prices.
Despite its undeniable potential, the hype surrounding AI raises concerns. Coupled with historically high price-to-earnings ratios for mainstream stocks and low-risk premiums on high-yield bonds, the financial market appears to be in a frothy state.
Staying Grounded Amid Speculation
For long-term investors, the current environment demands a return to fundamentals. Bradley emphasizes the importance of investment basics: “Price matters. If you pay too much, a good asset will be a bad investment.” He advises against being swayed by daily price movements and underscores the significance of revenue growth and profits in determining value.
Bradley also urges investors to remain pragmatic. For those with immediate financial needs, he suggests taking advantage of the strong market to secure necessary funds. For others, rebalancing portfolios to align with target asset mixes can help mitigate risks.
Finally, he cautions against overexposure to speculative investments. “If you’re speculating or chasing the next great thing, size the bet appropriately,” he advises, stressing the importance of maintaining a diversified portfolio.
In this era of speculation, risk-taking, and dreaming, Bradley’s insights serve as a timely reminder that sound investment principles remain essential. By balancing optimism with pragmatism, investors can navigate the current landscape while staying grounded in reality.
