When the tech bubble broke in 2000, tech was 40 percent of the S&P 500 Index and it was 12 percent of the total assets invested the U.S. stock market. How will it react as coats are pulled from the current 40 percent tech representation in an index that is greater than 36 percent of total stock market assets? The S&P 500 Index fell 40 percent in three years back then and that coat rack was way less loaded from an indexing standpoint.
Lastly, our job as stock pickers is to find companies that fit our eight criteria with lots of room on their coat rack. Our guess is the growth money will move toward healthcare shares like Walgreens (WBA) and Amgen (AMGN). Both trade at very reasonable price-to-earnings multiples and have been questioned by Amazon’s push into healthcare, which kept many “coats” away.
The all-out assault on old media has left an empty coat rack for Disney (DIS) and Discovery, Inc. (DISCA). These are wonderful content creators in a world where content just keeps getting more valuable. Also, they are favorites among moms, who to this day, are still responsible for most of the consumer spending in the United States.
History would argue that even if this correction in glam tech shares is temporary, the long-duration investor could benefit from avoiding the remainder of the time that their coat rack remains full. However, there are some obvious signs that all is not well for those who want to keep the “social life” going in the glam tech sector.
William Smead is CIO and CEO of Smead Capital Management.