Vocus (ASX:VOC) founder: ASX is in ‘bubble territory’

Is the ASX 200 Index (ASX:XJO) in bubble teritory? These 2 venture capitalists think it might be. Here’s how, and why.

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A hand holding a pin about to burst a balloon, indicating a crash or drop in asx shares

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The S&P/ASX 200 Index (ASX: XJO) and ASX shares are unquestionably making most investors very happy right now. The ASX 200 Index just had its best month since the 1980s in November and, on today’s gains, is up almost 13% since 30 October.

The ASX 200 has also pretty much seen off the losses that the coronavirus-induced market crash brought us for the year, and is now up more than 47% since the lows of 23 March.

But the higher shares climb, the more investors have to lose, and so the more nervous they tend to get.

According to reporting in the Australian Financial Review (AFR), one investor is especially so, calling the current share market “overvalued”. That investor is James Spenceley, a founder of the ASX-listed telco Vocus Group Ltd (ASX: VOC).

These days, Mr Spenceley describes himself as a ‘venture capitalist’, but still isn’t afraid to call out what he calls “outsized valuations”. He notes that if he took Vocus to IPO right now, he’d probably manage a price-to-earnings (P/E) ratio of 25 if the company hit the boards today, rather than the P/E ratio of 5 that Vocus managed upon its ASX debut:

Everything is overvalued, there’s absolutely no question, we’re into bubble territory. I think the important differentiator is bubbles can keep going for a very long while.

He also told the AFR that, “people could draw down from their mortgage at 2.5 per cent and put money into the stockmarket making 15, 20 per cent a day, a month…”. He concludes by stating “we’re not necessarily commenting on value… the heart of the problem is complete obliviousness to risk”.

The ASX 200 party rages on

The AFR also quotes another venture capitalist with concerns over the current market. Mark McConnell is CEO of Citadel Group Ltd (ASX: CGL) and also reckons there are danger signs in the current market. He told the AFR that young investors were “after an instant golden goose”.

Mr McConnell singles out the red hot buy now, pay later (BNPL) sector as an example:

When I read some of the reports around some of the fintech and buy now, pay later [stocks], I get uncomfortable with statements such as, ‘it will eventually grow into its valuation’. For a value investor that doesn’t really work for my paradigm.

He goes on to blame young and speculative investors for not putting in the time and research to navigate risk on the market:

I’m continually amazed at how many people buy on the strength of the bouncing ball moving up and down on the screen but yet they never read an annual report, they never turn up to an annual general meeting, they’ve got no idea what the company does.

It’s a similar sentiment to the one Warren Buffett made 20 years ago. Food for thought!

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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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