In recent months, small savers have had a fantastic return and crushed the main index on the Oslo Stock Exchange. But now they have the market against them.
Many of the shares on the growth exchange Euronext Growth (formerly Merkur Markets) has had an adventurous return over the past year. Just to mention game company Kahoot!, which is up an insane 663 percent in the past year and is now worth a staggering 50 billion.
According to investment director Robert Næss in Nordea, small savers have largely thrown themselves over these growth stocks and thus done much better than the main index on the Oslo Stock Exchange.
But now the small savers have the market against them. The main index on the Oslo Stock Exchange has risen by 7 per cent since 18 February, while EuroNext shares were down 12 per cent in the same period, according to Næss. There is a significant difference.
– The type of shares that small investors held did not fall that much in March last year, Næss says to Nettavisen Økonomi.
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Chasing winners
Over the course of a week and a half, the return “over the past year” has become significantly weaker. An important reason for this is that as of 5 March, the Oslo Stock Exchange was up 18 per cent in the last twelve months. But on March 19, the increase is as much as 58 percent.
Næss has calculated that the Norwegian small investors over the past 30 days have a decline in their values of 2 percent, while the stock market is up 7 percent, even though the main index has declined slightly (see the graph below).
– Most small savers seem to be chasing companies that can be a winner. It’s a little cool to say that “I bought Zaptec for 13 kroner, and now it has passed 50 kroner.” There is also a simple story behind Zaptec.
Whine
– They make smart home chargers for electric cars, and it is a product that you will need all over the world. And when Zaptec has smarter chargers than most, Zaptec can conquer the world with its chargers. Then you do not understand the future if you complain that the company makes little money today, says Næss.
Such a way of thinking has worked for the last three years, and thus the small savers have succeeded well. But, lately, it’s been a bit of a struggle. Næss points out that a week and a half ago, the shareholders in the growth companies had a fantastic return both in the last three years and in the past year.
Critical
Nordea’s Investment Director has previously been critical of the valuation of these growth companies and it still is.
Many of the most popular companies among small investors do not make money, such as Norwegian, SAS, the plastic recycling company Quantafuel and the hydrogen company NEL.
The charging cabinet Zaptec priced at as much as 170 times what the company is expected to earn per share in the coming year. A normal ratio here for established companies is 12-15, so it indicates completely insane growth expectations for Zaptec, roughly in line with the pricing of Tesla.
In comparison, the technology giant Apple is valued at 27 times expected earnings, so-called P / E, the ratio between the share price and the profit. The Zaptec exchange rate was at its highest at NOK 68.5 and then fell to NOK 44 (see graph below). It fluctuates sharply, but illustrates the decline in growth rates.
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Selective
When asked if it is tempting to throw himself on a wave because friends, acquaintances and others have had a super return, Næss answers:
– Absolutely, and you get served mostly “lies” from friends and acquaintances. I do not mean that they lie directly, but they are selective in their stories. It’s just like asking an exerciser how much time he spends running 10 kilometers.
He will typically come up with his “pers”, but it was probably put under optimal conditions on a good day some time ago. It is not representative of what the average time the exerciser will spend on 10 kilometers.
Næss says that this is also the case in the stock market. It is much more fun to tell about the stock you bought at the bottom and sold with a solid gain.
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Panikksalg
It’s not as funny to tell you that you bought a stock that everyone had talked about and had bought before you. So you bought at the top and panicked and sold it at a much lower price.
Næss thinks many small savers have an idea about the investments they make. Many small savers, for example, joined Norwegian after the price had fallen sharply, but the values are heavily diluted after several share expansions. Debts of tens of billions have been converted into equity – new shares.
– Small savers may think that the price is down 99 percent in the past year, and that by the summer or at least until next year, the planes are up again. Then the upside can be significant, but they forget to take into account that when the number of shares increases dramatically, the calculation does not work.
For the old people
– Do you think that too many small savers have entered the stock market who do not quite know what they are investing in?
– Yes, there are many who believe that double-digit returns in a few months are normal. This nonsense about valuing the shares is something that the “old people” care about. They do not understand the new world, Næss answers.
In that sense, it is reminiscent of the dot.com wave of 1998-99, which not many of the market makers understood. The Dot.com bubble burst completely in 2001.
– Will many of the small savers in these growth shares regret it?
– When I see the shares that they own today, I think many will have to get used to red numbers in the months and years ahead. It will definitely be disappointing.
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Tired and dull
Disappointment was also experienced by Næss’ daughter when she threw herself into a stock competition ten years ago. She then went to high school.
– My daughter imagined that with a father in the “game”, this became an easy match. It did not happen. I came with my tired and boring companies. Already after a week she realized that this was not the recipe for winning the competition, so she dumped my advice and bought something far more resilient.
Næss says there are several who envisage building a fortune on equity investments. He has been contacted by several who want to learn stock investing via a book or some Youtube videos.
– The irony is that it can work in the short term.
Make Money
– For small savers who are going to invest in individual shares, what are the basic tips for not fooling yourself?
– Check that the companies are making money already this year, and that the valuation of the share is not too high. You should also have at least ten shares in the portfolio.
– And even though the stock market gives a good return over time, there are few stocks that give a fantastic return. By buying at least ten shares and preferably twenty, the probability will increase that you at least have some winners in the portfolio.
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