“There are stocks in the AI world that are trading 100 times earnings, 100 times revenues in certain cases.” – 00:01:50
Remy Blaire is joined by Rob Haugen, the Chief Investment Officer of River1 Asset Management to discuss Warren Buffett’s recent stock-selling activities and his impressive cash reserve, which now exceeds $381 billion. Remy prompts Rob to share his interpretation of Buffett’s strategy, particularly as he approaches the later stages of his career. Rob speculates that Buffett may be waiting for a significant market sell-off to make a major investment, potentially allowing him to capitalize on undervalued stocks.
The conversation then shifts to the topic of leveraged ETFs, which aim to multiply daily returns but come with heightened risks. Rob explains how these funds can create valuation disconnects in the market, especially in sectors like artificial intelligence, where stocks are often trading at exorbitant multiples. He emphasizes the necessity for investors to understand the valuations of the stocks in their portfolios, warning that those who invest based solely on momentum without thorough research may face substantial losses when the market corrects.
Remy and Rob delve deeper into the concept of “investment junk food,” a term Rob uses to describe the allure of certain leveraged ETFs that lack solid business models or proven profitability. While major tech companies like NVIDIA are generating significant revenue, Rob points out that many smaller, leveraged stocks in the AI space have not yet demonstrated their business viability, making them particularly susceptible to market volatility.
As the episode progresses, the discussion turns to the current state of the IPO market, which has been sluggish since the COVID pandemic. Rob explains how an influx of new IPOs could negatively impact existing equity markets, as investors may need to sell off current holdings to accommodate new investments.