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How to Invest When Stagecoaches Turn Back to Pumpkins

The business helped consumers get loans.

Not too exciting, right?

But when you throw in artificial intelligence, cloud computing and a CEO from Google…

Investors acted like sharks having a feeding frenzy.

They bought shares with both hands when Upstart went public in December 2020.

On its first day of trading, shares rose as high as 50%.

Less than a year later in October 2021, the stock was higher by 1,200%.

But people were only buying for one reason: Shares were moving higher.

Yet many investors had no idea what the company even did…

A guest on CNBC touted how he made a 25% gain on Upstart in less than a week.

Yet when asked by the host what the company did, he couldn’t answer!

But alas, the laws of gravity haven’t been repealed.

Sure, stock prices can disconnect from the fundamentals of the business.

But not for too long…

Cinderella at the Ball

In October 2021, Upstart’s stock price traded as high as $390 per share.

Then, the world changed. Inflation started to pick up steam.

And it was pretty clear that the Federal Reserve would need to raise interest rates.

This was like a wet blanket for companies that were more story than substance.

Over the next few months, the wheels came off the cart for the stock market.

Even blowout revenue and beating earnings forecasts couldn’t stop stocks from falling.

Just like that, the clock struck midnight, and the stagecoach turned into a pumpkin.

Upstart and other tech companies revised their earnings and revenue lower.

And investors were concerned they wouldn’t do too well in a recession.

So, their stocks that were trading at nosebleed valuations started getting dumped.

In just nine months, Upstart’s stock price tumbled close to 90%.

But Alpha Investors avoided Upstart and other growth stocks that have imploded like this.

Here’s why…

Where’s the Beef?

A stock is a piece of a business.

So, I always look at the business first to find out if its stock is a good investment.

Once I figure out what the business does, I can come up with a valuation.

And at the peak in October 2021, Upstart was trading at 420X earnings.

Mr. Market’s valuation for Upstart was in outer space!

The stock had only one place to go: lower.

And Upstart wasn’t the only growth stock that got kicked in the teeth.

Teladoc, Zoom and Peloton all lost around 90% from their highs.

When stocks trade based on story, not substance, it never ends well for investors…

New Cycle

Tech investors are seeing the damage across the board.

Investment management firm SoftBank has lost $26 billion on its tech startup portfolio.

And Tiger Global — one of the biggest winners from the tech bull — has hit a wall.

Its hedge fund is down 44% in the first four months of this year.

The loss erases about two-thirds of the dollar gains made for investors since its 2001 launch.

Now, don’t get me wrong … I’m not a technology hater.

I drive a Tesla and love my Apple iPhone, iPad and Mac.

In fact, we currently have 10 technology stocks in the Alpha Investor portfolio.

The difference between them and Upstart?

It boils down to the price we paid for the shares.

All the stocks in our portfolio were added when Mr. Market offered them at bargain prices.

And that’s key to making money in any market cycle, including this new one.

If you’re already part of the Alpha Investor family, you know that I shared a new opportunity that checks that box just last week.

If you missed it, you can catch up here. But don’t delay — I don’t know how long this stock will keep trading below our buy-up-to price.

And if you’re not part of the family yet, what are you waiting for?

You can find out how to access this same opportunity — and several others — by checking out my special invitation for you here.

Regards,
Charles Mizrahi

Charles Mizrahi

Founder, Alpha Investor



Source
How to Invest When Stagecoaches Turn Back to Pumpkins is written by Charles Mizrahi for banyanhill.com

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