Happy Friday! Hereâs whatâs on my mind.
Will Musk crash? Or crash through?
The Twitter thing?
Itâs fascinating.
Elon Musk is a polarising figure. Iâm in awe of his intellect and his achievements. Iâm less enamoured with some of his other personal qualities.
And Iâm certainly not a fanboy of his, or his companies.
As a prolific Twitter user, Iâm also a little worried about the damage he might do to the network, if his âcrash or crash throughâ strategy fails.
But still, the saga is fascinating.
Aside from his obvious brainpower, Muskâs biggest advantage, and potentially his biggest Achilles Heel, is how little he cares for the view of others.
Few other CEOs would be as blunt. Or, frankly, as heartless, as Musk appears to be.
Few others would ask employees to confirm they want to be worked like dogs, or have the company assume theyâre resigning. (I’m paraphrasing. A little.)
Few would fire people on, well, Twitter.
But Musk, not caring for the opinions of the rest of us, seems to be of the view that he can attract and retain a critical mass of true believers, who will do things his way.
And he might well be right.
Whether itâs fair, reasonable, appropriate or decent are questions we can debate â but he seems not to care.
Itâs his company, and heâs going to run it his way.
Whatâs interesting about Twitter is that the users are also the product. Unlike a car company or a rocket company, Twitterâs success or failure will depend on the extent to which people will hang around and, increasingly, pay for the privilege.
If users think thereâs no better alternative, theyâll probably stay.
But if Muskâs bravado leads too many people to switch to an alternative, he may well wish heâd done things differently.
The stage is set.
History repeats itself, repeating itself
And this weekâs other scandal? The FTX collapse?
Frankly, I havenât paid as much attention as others. Soap operas are still soap operas, even if they’re financial companies. And they’re usually little more than a distraction.
I feel sorry for those whoâve been caught up in the whole thing⦠but Iâm not surprised.
Collective delusion is powerful.
Smart, wealthy people â including managed funds â have been caught up in the collapse.
Pension funds, who should know better than to chase the latest fad, lost small fortunes.
If it sounds familiar, it should.
The power of crowds has been with us as long as investing itself.
Youâve probably heard of the âtulip bubbleâ and the South Sea bubble. No less than Sir Isaac Newton lost most of his wealth in the latter.
And Iâm sure youâve heard of the dot.com bubble (and crash).
And a little thing called the GFC, when uber-smart people at investment banks all over the world abandoned critical thought and went all-in on collateralised debt obligations (CDOs).
Yes, a lot of normal people got swept up in the crypto craze. But so did the professionals.
Why?
Because âeveryone else is doing itâ and, worse âother people are getting richâ.
At least, they were⦠temporarily.
Itâs ever been thus. And yet people keep falling for it.
Donât.
Oh, and Iâm not saying you should stay away from a financial product just because a celebrity is endorsing it⦠but Iâm not saying you shouldnâtâ¦
Breaking the (block)chain
Oh, and speaking of getting carried away, Iâm no database expert, but itâs hard to escape the feeling that the ASXâs now-cancelled blockchain project was not entirely unrelated.
For more than half a decade, theyâve ploughed $250 million into a project to replace the CHESS system (which records who owns what ASX shares).
And someone thought the answer needed to be the blockchain technology of the sort that underpins Bitcoin (among other things).
Why?
Well, thatâs not entirely clear.
To the average onlooker, a central database, overseen, controlled and regulated by the appropriate entity would seem to be the ideal structure for a share registry.
Certainly, taking the whole thing to a technology in its relative infancy – even if that technology is intellectually super-cool â did seem kinda⦠ambitious.
I said so at the time, and Iâm glad to see theyâve cancelled the project.
Iâm sorry for ASX shareholders that the company has torched that much value in the process. And ASIC and the RBA arenât thrilled that the ASX is going back to the drawing board.
But at least someone had the guts to say the Emperor had no clothes.
Itâs a start.
Quick takes
Overblown:Â Iâm an optimist. But the excitement with which the market reacted to slightly lower US inflation last week was just silly. Now, I do think share prices were (and are) attractive prior to that announcement, and the market was too pessimistic. But the response was one of unbridled relief and was disproportionate to the news itself. And the UKâs inflation rate of 11.1%, released this week, underscores the challenge. Stay optimistic, but remember the road ahead could still be bumpy.
Underappreciated: Letâs go back to the well on this one. Markets are usually pretty efficient, most of the time. But when thereâs excess pessimism (or optimism), they tend to lose perspective. Some companiesâ share prices are beaten down because the immediate future might be tough. But precious little attention is being paid to the â… and thenâ¦â bit. Quite a few quality businesses with attractive long term futures are being sold at attractive prices right now, in my opinion, because investors canât see through the short term gloom.
Fascinating: Speaking of opportunities, have you noticed the huge spike in private equity interest in smaller ASX companies? While investors (and traders) are worrying about whether share prices could fall further, these PE mobs are looking at the cash flow generation potential of those companies and figuring itâs worth paying up to buy the whole thing. Which⦠is an interesting disconnect, no? Weâll see who ends up being right, but PE buyers are no mugs.
Where Iâve been looking: This week, itâs a case of where Iâve been avoiding, rather than looking. Extrapolation is tempting, but it ignores the reality of a changing market. There are some businesses priced for a long term continuation of two different trends: the flight away from growth companies, towards âdefensiveâ companies, and the assumption that the worldâs current struggles will continue. I think both trends are potentially hazardous to your wealth.
Quote: âI can calculate the movement of stars, but not the madness of menâ â Sir Isaac Newton.
Fool on!
The post Musk, Twitter and a Crypto Crash appeared first on The Motley Fool Australia.
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