What is ‘The Bubble Basket’?
Back in April of 2014, following the sharpest draw down of my professional career, I created a bubble basket, one that mirrored what I imagined David Einhorn’s basket (why not? he seems to be smarter than 90% of managers out there) looked like. He has disclosed to be short about 100 bubble stocks, all high valuation, high hype, low in profits, pieces of offal. My ‘Bubble Stock Index’, placed inside of The PPT is, essentially, a thermometer of risk appetite, the sort of appetite that gets you into trouble.
When the index was created, it cratered down to 80, only to come racing back to new highs, AND MORE, in August of 2014. If you recall, I penned this piece, warning you to sell.
Well, here we are now and the bubble index has been coming in.
Frankly, it looks broken. People don’t have the appetite any longer for this sort of sordid investing. We may bounce from these extreme oversold levels. If we do, I invite you to examine your portfolios and to sell anything trading more than 10x sales. Granted, I own a few high valuation stocks, like PANW and CYBR, but CYBR is meant to be a trade and PANW is long term. If you like SPLK and FEYE for the next 10 years, ignore this post. We’ve all become degenerate heroin addicts in search for a quick fix. Back in the old days, when men were still men, they’d take 90% draw downs and be delighted to have been apart of the game, retired, then jumped out of windows. Nowadays, we whine and bitch and moan about our prospects or lack thereof.
In summary, the Bubble Basket has broken lower and I expect more pain to come, before things start looking good again for you River Boat gamblers.