Daily Brief - Going all-in

They’re going all-in and buying them all. AMC, NIO, even NKLA. A large European asset manager loaded up on volatile stocks in its U.S. investment portfolio, writes Barron’s. And not by a little: DNB Asset Management, with over $70 billion in assets under management, are tripling their investment on AMC, for example.

They’re crazy

Many high-profile investors are starting to make bearish noises about the market. In his blog, Jeremy Grantham writes that “I believe this event will be recorded as one of the great bubbles of financial history, right along with the South Sea bubble, 1929, and 2000.”

So why are other investors doubling and tripling their most speculative bets?

AMC stock rose nearly 13 times in price in 2021, compared with a 27% rise in the S&P 500 index. So far this year, shares have slid 24.4% compared with a 2.2% drop in the index. A sell-off, to be sure, but note that the share price is STILL 10 times the closing price of $2 and change at the end of December 2020.

NKLA purchase is easier to justify. The stock has been beaten down severely. For a truck that lacks its own propulsion and needs a steep slope to actually move, any price above zero might seem high.

HOWEVER, the company has actually started making deliveries. The first one back in December caused an 18% jump in the stock price.

And NIO?

Forbes writers argued a few weeks back that the stock might be 55% undervalued after a 100%+ pop in revenues. Despite delivering only 3,667 vehicles this October, NIO managed to quickly retool its factories and delivered a total of 25,034 vehicles in Q4, making over 10,000 deliveries in November and December.

And a recent Seeking Alpha piece also sounded a lot more positive on the automaker, arguing that now that China has finally scrapped limits on foreign investments in its auto sector, stock is likely to see substantially broader demand.

In short, all of these stocks are well off their highs, and some of them are seeing substantially better business fundamentals.

FOMO or not

So, is this irresponsible greed? As Jeremy Grantham notes, “When price rises are very rapid, typically toward the end of a bull market, impatience is followed by anxiety and envy. As I like to say, there is nothing more supremely irritating than watching your neighbors get rich.”

More likely, it’s a simple recognition that markets are impossible to time with any precision, and investors are balancing their FOMO with selecting stocks they consider less exposed to the downside.