Hedge Funds appear to be jumping on the Dave Portnoy bandwagon and buying stocks at a record pace despite viewing them as overvalued.
In the months that have passed since the stock market crashed back in March, a new breed of traders has surfaced.
These ex-sports betters, bored quarantined workers, and first-time traders are unpredictable, powerful, and drawn toward risky stocks. They are best represented by Barstool Sports’ Dave Portnoy, whose flashy online persona has been all about taking down ‘the suits’ on Wall Street.
There’s an argument to be made that Portnoy, who had only ever traded one stock before the pandemic struck, shouldn’t be the poster boy for new-age investment advice.
A quick look at valuations shows stocks are climbing to nosebleed levels despite no underlying evidence of strong future earnings. Anyone who’s been trading longer than just a few months understands that in the end, share prices always return to the fundamentals. Always.
But as long as the Federal Reserve continues to reward risk-on traders, Portnoy will keep winning. It’s a simple, albeit dangerous strategy. One that’s more akin to gambling than investing. One that the so-called suits on Wall Street would never employ… right?
Bank of America’s monthly fund managers’ survey shows Wall Street’s finest are giving up on valuations, economic indicators, and other fundamentals to follow in Portnoy’s footsteps. Dave Portnoy, together with a flock of Robinhood traders, has officially turned fund managers into the same overzealous, irrational traders they’ve been criticizing all along.
The survey showed that a whopping 78% of fund managers believe the market is overvalued. That’s higher than the percentage who were worried about inflated valuations when the dotcom bubble burst.
Only 37% said they believe we’re in a new bull market, and a measly 18% say they expect a V-shaped economic recovery.
You’d expect that kind of outlook to yield a rush to safety. Instead, the same people who painted a grim forecast are chasing retail investors into the stock market. Cash levels among fund managers have declined from 5.7% to 4.7%, representing the most significant decline in more than two decades.
Typically when funds start buying securities, it’s a sign of strength because they don’t tend to dip in and out. The BofA survey suggests most fund managers think the stocks they’re buying are already overpriced. They also foresee a prolonged economic downturn in the future. That doesn’t sound like a long-term investment.
Dave Portnoy has promised to put Wall Street big wigs out of business several times on his Twitter feed. Based on this survey, he could make good on that pledge.
In short, the BofA survey says that fund managers are buying stocks at record pace despite their better judgment. They’re going against years of experience, and thousands of dollars worth of education to pick up securities they know are overvalued in a market they think is on the verge of collapse.
Why? Because everyone else is. If the stock market does crash as some are predicting, fund managers will follow the rest of the sheep to the slaughter. And in the end, Dave Portnoy and his band of Robinhood traders will have done just what they promised—put them out of business.
Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com.
Last modified: September 23, 2020 2:00 PM