After a phenomenal 2017 and a raging bull market that has been ongoing for the best part of a decade, there are concerns that the days of cheap money are coming to an end.
The global financial markets have been going through a meltdown over the last week, and yesterday Fairfax media ran with the headline that the ASX had wiped off $56 billion in value.
Billionaire Howard Marks of Oaktree Capital said in his most recent memo, "Most valuation parameters are either the richest ever… or among the highest in history", and "I'm convinced the easy money has been made".
At times like these, it is easy to become fearful but I believe this could be an opportunity for you to create a significant amount of wealth. Here's why: Human ingenuity.
I agree that using traditional metrics, most stocks appear to be overvalued, particularly if you factor in rising discount / interest rates. However, I believe the real opportunity in today's markets is not in identifying stocks with a low PE ratio but in identifying genuine game changers that are going to dominate their industry for the next decade and beyond. If you can identify such businesses now and even buy them on the cheap during this meltdown, that could create significant wealth for you.
If you had bought shares in SEEK Limited (ASX: SEK) in September 2007 at $9.19, you would have lost 75% of your investment in February 2009 during the GFC when the share price tanked to a low of $2.25. As we know now, SEEK dominates the recruitment industry and is essential for many job seekers and employers. Less than 10 years later, SEEK shares are up over 750% from those lows.
Another example, is REA Group Limited (ASX: REA) which would have scared most investors in 2010 with a PE ratio of over 27 and a price to cash flow revenue of over 24. Fast forward to today, and REA Group's realestate.com is widely used in the property market and so it's no surprise that it has returned over 7 times since then and almost 20 times your money if you had picked it up for much less in 2009.
The same applies to other gems such as Magellan Financial Group Ltd (ASX: MFG) (over 30 times your money since 2009). The ride is often bumpy, but if you have the temperament and you don't need the cash in the short term, there are some real gems out there that might crash tomorrow, but could be game changers over the next decade.
You could start your search by reading more about the disruptors below.
