Like me, I trust you are celebrating yet another winner from Lewy, our horse racing expert.
Not content with his best bet from Derby day saluting, then picking the winner of the Melbourne Cup, yesterday he added to his heroics by tipping Set Square to win The Oaks, the filly duly saluting at the juicy odds of $7.50.
As predicted yesterday, it did result in an influx of new members to our Motley Fool Share Advisor stock picking service. Perhaps we should revise our disclaimer to say past horse tipping performance has no relevance to our ability to continue to pick future stock market winners.
Not wishing to blot the copybook, we're putting Lewy and his horse picks out to pasture for another year.
If only he could pick stocks as well as he can horses…
Just as well we've got a few experts of our own when it comes to stock picking — like our own Scott Phillips.
You may know him from Sky News Business, or seen him chatting to Ticky Fullerton on the ABC's The Business.
There's more to Scott than fast talking — he's a mean stock picker too, as witnessed by the track record of Motley Fool Share Advisor. The average return for all our ASX picks is over 50% versus the All Ordinaries Index gain of just 19%.
Changing tack, if Goldman Sachs are right, we could be on the cusp of a new wave of stocks to hit new highs.
In an article in The Age, the investment bank has called the return of the 'defensive bull market.'
In a nutshell, over the past month, higher yielding stocks, particularly the big four banks, have led the S&P/ASX 200 Index's strong recovery. But, with bank valuations now looking stretched, Goldman are effectively saying you're going to have to look elsewhere for your capital gains.
Somewhat surprisingly, Goldman likes stocks with high price-to-earnings ratios, naming SEEK Limited (ASX: SEK) and CSL Limited (ASX: CSL) as two such stocks.
In the case of SEEK, hopefully it's a case of great minds think alike, even if Goldman are a little late to the party. Our own Scott Phillips tipped SEEK to Motley Fool Share Advisor subscribers over two years and 157% ago.
Better late than ever, I guess, although for the record, Scott has now moved SEEK to a hold.
Not so another fast-growing ASX tech stock trading on a high price-to-earnings ratio. This is a stock Scott likes so much that he recently made it only his third ever re-recommendation.
Based off the returns of his first two re-recommendations — up 28% and up 50% respectively, soundly out-performing the market — Scott's latest tip to Motley Fool Share Advisor members could be another big winner.
Speaking of winners, overnight in US markets, the Dow and S&P 500 jumped to yet another record high.
It's what happens when ultra-low interest rates collide with a recovering economy and strong earning results from a host of companies, including Microsoft and Caterpillar.
Also giving global stocks a nudge along were comments from Super Mario Draghi, the head of the European Central Bank, who effectively said the money-printing fire-hose remains available to stimulate a stalling European economic recovery.
In the Washington Post, one pundit said…
"It only takes the slightest suggestion that further easing is likely, or that (bond-buying) is a possibility, and the markets go wild."
Our pundit might need to get out a little more. I'd hardly call a 0.4% gain for US markets "wild."
The same goes true for the S&P/ASX 200 — it's up 0.5% in Friday trade, with gains coming across the board, including Telstra Corporation Ltd (ASX: TLS) adding a few more cents, now trading at $5.76, a new 52-week high.
Yesterday I named Telstra shares as being a better bet than Medibank Private. Looks like I'm not the only one thinking that way… although I'm sure there are plenty of investors who are looking forward to owning both stocks.
To be clear, I'm not trying to persuade you otherwise. I'm not piling in at the Medibank Private IPO, but each to their own. Medibank Private will likely be a steady long-term winner, paying a reliable fully franked dividend, and everyone will live happily ever after.
On my wall, I have a framed share certificate. A paper one. Remember them? It's for a UK company called lastminute.com plc.
The date on the certificate is 21 March 2000. It was the peak of the dot com frenzy. I was living in London, working in The Motley Fool's UK business. As a dot com ourselves, we were in the thick of the frenzy — launch parties every night, with open bars, and a stock market on fire. Now that's what I call "wild."
lastminute.com was the poster-child for the dot com frenzy. Founded by two young, high profile Oxford graduates, it had 500,000 regular users and was growing at a ferocious pace.
250,000 private investors applied for shares in the company's IPO. Each share was priced at 380p valuing the company at £571 million.
At The Motley Fool UK, we were inundated with requests for help in filling out the relevant IPO forms, including questions as basic as "if I staple my cheque rather than pin it to the application form, will I miss out on my allocation?"
It's not a word of a lie. This was the chance for tens of thousands of people, who'd never invested in shares before, to join in the dot com frenzy, and to make a quick profit. At the time, there was nothing more certain than a dot com IPO soaring on the first day of trade.
True to form, lastminute.com shares did soar on the first day, jumping as high as 511p, almost 35% up from their IPO price.
There were just two problems.
The first problem was completely ignored by the masses — lastminute.com's income for the ten months ending December 2009 was just £330,000, a mere fraction of its £768 million market cap on day one of trading.
But heck, what did that matter? A profit is a profit, right? And for dot com stocks, the old rules didn't apply.
Right.
The second problem was in the allocation of shares. Private investors received just 35 shares each, the total investment being the princely sum of £133. In Aussie dollars, using today's exchange rate, that translates to a little over $200.
Stating the obvious, whatever the opening day pop in the shares, or indeed their subsequent long-term performance, no private investor was going to get rich on their $200 IPO investment.
As it turns out, March 2000 was about the absolute peak in the dot com bubble, as it was for the lastminute.com share price…
Source: Wikipedia
As you might have worked out, I was one of those 250,000 private investors. I'm ashamed to say I chased this hot IPO in the hope of turning a quick profit.
I ignored the fundamentals. The dollar signs trumped common sense. This was not investing. It was speculation, and greed, of the highest order.
As you can see from the chart above, a year after the IPO, my 35 lastminute.com shares were valued at just £20, or a little over $30.
It was then I decided the most valuable thing I could do with my shares was to never sell them, instead framing the certificate and use it as a lasting reminder…
a) To never again invest in a hot, "can't lose" IPO.
b) To never again get greedy.
c) To always focus on valuation, and the underlying fundamentals of a company, including assessing its competitive advantage.
In 2005, lastminute.com were taken over at 165p per share, valuing the share certificate on my wall at less than $100.
The Medibank Private IPO is a whole different beast. It's a proper company, earning real profits, that will be paying fully franked dividends, and courtesy of its size and domination of the private healthcare sector, has a strong competitive advantage.
But for me, I just can't shake that feeling that a lot of private investors are piling in in the HOPE of stagging a quick profit.
That's the bit I can't get past. And the premium valuation. And that, as a dividend play, there are better options out there, like Telstra.
The odds are Medibank Private shares will pop on day one of trading. If you're jumping on board, enjoy the moment, and the gains.
I'll cheer for you too, but I will also take a glance at the lastminute.com share certificate hanging on my wall. Although its monetary value is now zero, as far as investing lessons go, it's priceless.
