'We could be heading for a lot of pain'

Veteran investment executive Geoff Wilson tells shareholders to brace themselves and picks out the sector that's most in danger of a massive correction.

| More on:
Female investor in front of computer with hands at forehead.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

A veteran investment executive has warned immense grief could come soon for share investors.

Wilson Asset Management chair Geoff Wilson in an investor call on Friday said the last few months of the ASX have looked "very frothy".

"We could be heading for a lot of pain," he said.

"The way that the market has bounced back [since COVID-19]… people are going to realise that buying shares at doubles or triples, that's not normal."

Wilson's company runs a stable of popular active exchange-traded funds (ETFs), such as WAM Capital Limited (ASX: WAM), WAM Research Limited (ASX: WAX) and WAM Global Ltd (ASX: WGB).

Newbie day traders are creating volatility

Wilson blamed a flood of "non-sophisticated money" coming into the market during the virus crisis for the current bubble.

The All Ordinaries Index (ASX: XAO) has surged almost 33% since the depths of the coronavirus crash in March, even after a slight correction in recent days.

Over the long term, the Australian market has historically gained roughly 10% per year, according to Wilson, so he feels it has to eventually reach that equilibrium.

"The market does have a way of cleansing out excesses… we could be getting close to a bit of a cleansing," he said.

"There is a lot of risk in the market at the moment, definitely."

Tech sector is a worry

Technology sector shares were a particular concern to Wilson, who established his LIC company in 1997.

Examples include fintech Afterpay Ltd (ASX: APT), which has shot up more than 700% since March, and Tesla Inc (NASDAQ: TSLA), which surged 470% before a 30% adjustment in recent days.

"That has been looking quite bubbly. I've been thinking back to 1999-2000 when we had the 'tech wreck'," he told investors.

"There wasn't a specific event that created the tech wreck… It was just over-evaluations, then heat coming out of the market."

Wilson predicted that, in a similar fashion, there could be a fresh "wake-up call" coming soon for tech investors.

"There could be a reasonable-sized adjustment."

Wilson Asset Management has more than $3 billion under management on behalf of 86,000 retail shareholders, split across 6 LIC ETF products.

Tony Yoo owns shares of AFTERPAY T FPO, WAM Capital Limited, and WAM Research Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Tesla. The Motley Fool Australia owns shares of AFTERPAY T FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Investing Strategies

A young woman lifts her red glasses with one hand as she takes a closer look at news about interest rates rising and one expert's surprising recommendation as to which ASX shares to buy
Blue Chip Shares

These ASX 200 shares could rise 25% to 35%

Analysts believe these shares could rise strongly from current levels.

Read more »

Man smiling at a laptop because of a rising share price.

How does direct indexing compare to buying ASX ETFs

Do you like index investing, but want more say in which stocks you pick?

Read more »

A woman in hammock with headphones on enjoying life which symbolises passive income.
Dividend Investing

Invest $20,000 in ANZ shares and get $1,200 in passive income

Can investors rely on ANZ for a 6% yield in their cash?

Read more »

Senior man wearing glasses and a leather jacket works on his laptop in a cafe.
Dividend Investing

Why your retirement income may take a hit — and what to do about it

Lower dividend payments doesn’t need to mean disaster.

Read more »

Australian dollar notes inside the pocket on jeans, symbolising dividends.
Dividend Investing

3 ASX dividend shares to buy with 5% to 7% yields

Analysts expect big yields from these buy-rated shares.

Read more »

Two excited woman pointing out a bargain opportunity on a laptop.
Dividend Investing

With 8%+ dividends, how long can these ASX 200 passive income shares stay cheap?

I think ASX 200 investors looking for ‘cheap’ passive income shares will want to check these out.

Read more »

A smiling woman puts fuel into her car at a petrol pump.
Dividend Investing

Where I'd invest $5,000 in ASX shares now for $1,000 of dividend income

The ASX offers a rich hunting ground for dividend income.

Read more »

a woman holds a facebook like thumbs up sign high above her head. She has a very happy smile on her face.
Dividend Investing

Bell Potter names the best ASX 300 dividend shares to buy

The broker has good things to say about these shares.

Read more »