Not All Corners of the Market Are Expensive In his recent memo, Marks discusses how incredibly expensive the dominant tech stocks of today have become. You know the stocks I'm talking about - the FAANG group that includes Facebook (Nasdaq: FB), Apple (Nasdaq: AAPL), Amazon (Nasdaq: AMZN), Netflix (Nasdaq: NFLX) and Alphabet's Google (Nasdaq: GOOG). These great companies sport extremely rich stock market valuation multiples today. Marks then pulls on his deep experience for a lesson on how buying great companies at extremely expensive valuations might end by comparing the FAANG stocks to the "Nifty Fifty." The Nifty Fifty was a group of dominant companies that became extremely popular with investors in the late 1960s. The group included the incredible technology companies of the day, like Xerox (NYSE: XRX), IBM (NYSE: IBM), Eastman Kodak (NYSE: KODK) and Polaroid. The thinking back then was that the Nifty Fifty companies were so dominant and had such incredible business moats that no valuation was too rich to pay for their stocks. The same argument is being made today for the FAANG stocks... In the late 1960s, the Nifty Fifty companies looked every bit as bulletproof as Facebook, Apple, Amazon, Netflix and Google do today. But for investors who purchased very expensive shares, that didn't turn out to be true. I'll let Marks explain the Nifty Fifty because he actively invested through this period... Fifty years ago, the Nifty Fifty appeared impregnable too; people were simply wrong. If you invested in them in 1968, when I first arrived at First National City Bank for a summer job in the investment research department, and held them for five years, you lost almost all your money. The market fell in half in the early 1970s, and the Nifty Fifty declined much more. Why? Because investors hadn't been sufficiently price-conscious. In fact, in the opinion of the banks (which did much of the institutional investing in those days) they were such good companies that there was "no price too high." Those last four words are, in my opinion, the essential component in - and the hallmark of - all bubbles. Marks doesn't know that the pricey FAANG stocks of today are going to end like the Nifty Fifty. But he seems to suspect that might be how this movie ends. I've warned about Big Tech stock valuations repeatedly over the past six months. (You can revisit some of those articles here, here and here.) While I'm not saying that I think these stocks are going to crash, I wouldn't rule it out. I most certainly think that the upside in Big Tech names at current valuations is very limited. But it isn't all doom and gloom for investors... While billions of dollars have been piling into FAANG stocks, other areas of the market have been forgotten - and now they represent excellent value. In past months, we looked at some of those: homebuilders, emerging markets, banks, small caps and value stocks. Opportunity is always out there. You just often have to look where everyone else isn't looking. Good investing, Jody | 
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