Amidst record-high inflation and increased stock market volatility, the question of whether another market crash or correction could be around the corner is at the top of many investors' minds. In this segment of Backstage Pass, recorded on Nov. 17, Fool contributors Rachel Warren, Travis Hoium, and Connor Allen respond to investors' concerns.
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Rachel Warren: Long-time listener, first-time caller says, "Hi all, I'm worried that inflation plus too many overpriced stocks". Naming examples like "Rivian, Tesla, will cause a bigger market correction than if the bloated stocks were individually corrected. Opinions?" Connor, you want to share your thoughts on this?
Travis Hoium: I can jump in on that. Corrections don't correct equally if you look at the 2000 crash. As we look at the market today, there's a lot of differences from 2000 and 2001. For instance, a company like Tesla is a real company, they have a lot of sales and earnings. This is not the pets.com potential bubble that we had in 2000 and 2001, so there's a lot of differences there. But I am worried about a lot of these companies that have extremely high valuations, and maybe don't have the fundamentals to reach what I think would be a reasonable earnings multiple.
Even if you can grow for a long period of time, if your market is limited, then there's not as much upside. That'll be the case for a company like Rivian. How many trucks can you sell? I don't know the answer to that, but that would be something to think about if you're an investor in Rivian. I think this is where taking chips off the table in something you think is too highly valued and move it to something that you think is cheaper, is maybe the way to prepare yourself for some market correction.
At least that's what I've done in staying fully invested is maybe moving out of a stock that trades for 30 times sales, and moving into something that's a dividend stock right now. The inflation piece, I guess I'm not super worried about. We've had inflation in the past and the stock market has done really well.
There's a lot of strange dynamics that inflation has with the evaluation of companies. I know that we get a lot of fear in the market about inflation. But unless it's 20%, I guess I'm not that concerned about it and we still have the world's reserve currency, so I'm not losing sleep over inflation. I think it sometimes gets more headlines than it really needs to.
Warren: Cool. What about you Connor, any thoughts?
Connor Allen: I think Travis covered that one pretty good there.
Warren: Absolutely. I think a lot of investors are worried about a potential correction right now. I think, just to reiterate something we talk about a lot. It can be scary, especially if the correction happens and stock prices plummet, which may or may not happen in the near future. We've had a lot of days where the stock market hit record highs lately.
But of course, you never know, and I think that reiterates the importance of invest in these great companies and hold on to them throughout the ups and downs.
You are far more likely to come out far stronger on the other side than if you cash out in a weak point in the market. Absolutely.