American Funds video transcript: “Tech investing then and now: Is history repeating itself?”
Michael Utley: You started your career covering technology. That's certainly where we're seeing the highest valuations. But maybe they're deserved? It's for a reason — this innovation?
Claudia Huntington: I think in many cases it is well-deserved. The market has this fear/hope/greed cycle. And sometimes it's for the market overall, and sometimes it's just for certain segments. And having lived through the dot-com excitement and popping of the bubble, it feels like, in some cases, there are some companies that are assumed to, perhaps, grow to the sky — which probably won't happen. Again we're in a period of great disruption, and the winners of today may very well be the winners 10 years from now. And I think part of our obligation is to try to find those and stay with those. But there are going to be some that have done very well now — and are very highly valued — that, five years from now, there may be a better solution.
It's always an environment where, I think, being able to analyze individual companies is extremely important, and it is what we do —
Michael Utley: Absolutely.
Claudia Huntington: — at Capital. But this is particularly a period to be really careful about whether a company's long-term strategy is going to work.
Michael Utley: And I certainly want to follow up with you on the comparisons between the dot-com era and now. There seems to be a lot of disagreement about, are we repeating history or are we at a completely different point in time? Do you have a view on that?
Claudia Huntington: There are both similarities and differences, I think. In the dot-com period, the valuations of a very few companies was literally infinity. There were no earnings. And the valuation was very high, and the revenues were very low. In some respects, American Funds did very well during that period for the most part, particularly those that were growthy, because we avoided — not entirely — but for the most part, we avoided many of those companies that were selling at infinity multiples.
Michael Utley: Right.
Claudia Huntington: It was also a very concentrated tech market, so there were just a few companies that were just sort of crazy. Now it's less concentrated in terms of those sort of favored few, but it's still a bit concentrated. So, there's a little parallel, but not a huge parallel. And in many cases, some of those companies really have fundamentals. The fundamentals are growing, in some cases, 50%-plus. So, there is real growth there in some of these companies that are also making money. In the dot-com period, many of them weren't even making money, so there was no end to how far they could fall, because there was no support system.
In this case, there are many of these companies that are very solid and proven growers, and have real earnings and real cash flows and so forth, and are very well run. So, there's a bit of a greed cycle going on in some of these companies, but it's nowhere near what it was in the dot-com, and it may not ever get there.
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