(Bloomberg) — Investors should avoid the temptation to buy the dips in expensive high-growth stocks because “once the fever breaks, it lasts a long time,” according to Andrew Slimmon, senior portfolio manager at Morgan Stanley Investment Management.
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Slimmon joined the “What Goes Up” podcast to discuss what he’s investing in these days. He also explains how the MSIF U.S. Core Portfolio fund he co-manages beat the S&P 500 with a 36% gain in 2021. Below are the condensed and lightly edited highlights of the conversation. Click here to listen to the full show and subscribe on Apple Podcasts, Spotify or wherever you listen.
Q. You wrote to us before the show, saying “avoid the temptation to step in and buy into the selloff in high-growth stocks.” You said, “my experience is: Once the fever breaks, it’s done for quite a while.” Historically, is there any precedent you could point to? Is it too simple to point to the dot-com bubble as a fair comparison?
A. So first of all, I just want to make sure it’s understood: I’m not a value manager, or a growth manager. I’m not trying to, you know, spin what works or what my investment philosophy is at all times. I’m just looking at what the fat pitch is. And as it pertains to this group, the reason why I believe once the fever breaks, it lasts a long time, is if you wind the clock back, if you look at some of these uber-growth funds back to where they were in early fall of 2020, that means a lot of people haven’t made money, right? Because they chased into them after they peaked.
And the reason why the dot-com analogy is correct is that that means that every time they start to go up, there’s someone that can get out even. And so there’s tremendous selling resistance at higher levels because so many people have lost money. And that to me is very similar to the dot-com bubble, and other bubbles. Once a very speculative bubble breaks, it’s not a V bottom because there’s too many people looking to get out.
Q. So what cohort would you look at? Could you see…