Review of 2024 and 2025

A.I. takes over.

Jun 28, 2024

2023 came and past. There was no recession, the Russian-Ukraine war continued with more conflict happening in other parts of the world. We may have Trump as the most powerful man on the planet facing off three dictators: Putin, Xi and Kim. How fun.

Meanwhile stock markets continue to make new highs (except China). The Nikkei broke past its peak of 39,000, last achieved in 1989, the year Taylor Swift, the first billionaire singer who helped Singapore gain more hatred from our neighbours, was born. At 35, her age is also slightly higher than the median and average age of all the humans on planet Earth.

My point, is that it's been a while since Japan was on investors' mind (35 years!). Just when Nikkei tried to come back, Taylor and India took centre-stage limelight. She is still touring and India’s Modi is promising more greatness and the stock market hit all time high as well. Yeah, the world is crazy.

So what should we expect for the rest of 2024 and 2025?

I believe what goes up must come down. Just not sure when. Valuations are stretched but not crazy. The last time Nikkei hit 39,000, it was trading at 60x PE. Today it's 16x. The PE for the US market is expensive but not at its most expensive when we look at its history, as exemplified by the famous Case-Shiller PE ratio chart below.

The last bubble was with the Nasdaq and it is worth examining that as well. The Nasdaq was trading at >100x PE back in 2000. While it has way surpassed that peak of c.5,000 at >17,000 today, the PE ratio is c.30x. So, just looking at PE valuations, we can always argue, things are not super crazy. But every bubble is different. It can go way higher and break the previous PE record high,

This could be generative A.I. sucking in even more money which means the Magnificent Seven (Nvidia, Alphabet / Google, Meta / Facebook, Tesla, Amazon, Microsoft and Apple), the GRANOLAS in Europe (GSK, Roche, ASML, Nestle, Novartis, Novo Nordisk, Loreal, LVMH, AstraZeneca, SAP and Sanofi) and the Seven Samurais (Tokyo Electron, Mitsubishi Corp, Toyota, Nintendo, Fast Retailing, Sony and MUFG) continue to go up. While the rest of the market stagnates.

Or things can just collapse should the weakest link break. It could be another Silicon Valley Bank, it could be China, or Elon Musk / Tesla. The risks are not being highlighted today. There isn’t much intelligent narrative as far as I have researched. But with interest rates this high, by right, investors should be favoring stocks with lower PE or higher earnings yield. Yet, we are seeing the opposite.

As fundamental investors, we always have to be mindful of valuations. I would advocate we look at the specific companies closely and make sure valuations are cheap enough. We should also keep comparing earnings yield to T bills. If we can get 3-5% on T bills, we must think hard about buying stocks at less than 3% earnings yield (or <30x PE). Singapore 6 month T bills are still giving 3.7% and US ones are even higher at 4-5%.

As to fundamental analysis, I believe A.I. will change the game. It is still unclear how. One possible scenario is that retail investors could benefit significantly, as they might soon be able to rely on A.I. tools like chatGPT for analysis. Alternatively, it could lead to a situation where no one can consistently beat the market anymore, prompting investors to simply buy into AI-generated indices, ideally yielding still annual returns of 10% or more. At which point, everything here is also written by chatGPT or another competing A.I.

Disclaimer: this post has also been edited by chatGPT.

Before that future happens though, we have Substack today I believe Substack is becoming an important growing eco-system for independent writers who could write as well as professional analysts perhaps with the help of chatGPT. Their analysis are in-depth, informative and much better than Youtube videos (e.g. Roaring Kitty). The following would be a list of posts on both new names and names that I follow.

Before we end, just a few posts from other Substacks: