Prem Watsa, the investment legend and founder of Fairfax Holdings, was brutally blunt. In his annual investment letter, he said he is “always amazed” at the manner in which “rampant speculation” has driven up the stock prices of internet companies like LinkedIn, Facebook, Twitter etc. “We’re confident that most of this will end as other speculations have – very badly!” Prem Watsa added in a grim tone.
Prem Watsa’s prediction came true yesterday when LinkedIn, which is/ was one of the darlings of the internet craze, fell off the cliff. In just one trading session, it lost a whopping 43% of its market capitalisation and wiped off $11 billion of investors’ wealth.
In the wake of LinkedIn’s debacle, other fancied internet stocks like Twitter, Facebook, Google, Amazon etc lost big chunks of their value. Nasdaq, the index of tech stocks, also shaved off a big percentage of its value.
There may be more bad news for the shareholders of LinkedIn because StarMine claimed that the stock’s intrinsic value is $72, a 30% discount to the closing price on Friday.
Understandably, the punters who were looking to make a quick buck were distraught at their loss.
“retail idiots will never learn. this is how Wall street steals money” ecartmen1997 proclaimed. “havent seen carnage like this since Dendreon” he added.
“where is the bottom?” android_shopper wanted to know.
“even the worst Chinese stocks don’t go down like this … man, this was ugly” idbtc complained.
“Because all these irresponsible stock analysts cut the price target sharply. I wonder these A-holes know what they are doing. How can the price cut more than 30%+, just based on one missed guidance?” wtwin1318 fumed.
“The only good news about this big drop in the stock is … I do not own any!!!!” dowtrader25 joked with a wicked smile on his face.
However, the bigger issue is that the problem is not confined to internet stocks. Instead, the savage crash in the stock prices of fancied companies is a sign that the entire market is spooked says Molly Wood, an expert. She pointed out that most investors are still suffering from PTSD (Post Traumatic Stress Disorder) relating to the stock market crash of 2008 and are very jittery. She called the LinkedIn crash a “trigger warning” that a crash is imminent. Any bad news, no matter how trivial it may be, is sufficient to trigger a savage sell off she warned.
So, the sensible thing for novice investors like us to do is to fasten our seat belts, sit tight and not attempt anything adventurous. The journey is likely to be turbulent!