Last week, Peter Costello, chairman of Australia’s sovereign wealth Future Fund, also warned that surging tech stock valuations are not sustainable and predicted a correction at some point.

Citing the role of ultra-low interest rates and an enormous wave of government spending in supporting economies, he said tech stocks, in particular, had been pumped up by cheap money.

The former federal treasurer and chairman of Nine Entertainment, owner of this masthead, pointed to the surge in the tech-heavy NASDAQ Composite Index, in the United States, and forecast a market correction.

Technology and fintech stocks have been on a tear, not only in the US but also at home, with major players such as AfterPay, which rose from about $30 at the start of year to end 2020 at more than $110. Similarly, Xero’s shares rose from about $80 to more than $140 over the same period.

Anton Tagliaferro, founder of Investors Mutual, has been warning about the “euphoria” in some sections of the sharemarket for some time. He laments that Tesla, a “company yet to build a record of sustainable earnings”, is now the sixth-largest listed US firm by market capitalisation.

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Tagliaferro shuns speculative stocks in favour of well-established firms with “real” businesses.

In a recent strategy update, Michael Frazis, who runs the top-performing Frazis Fund, which aims to pick the best global market innovators in online retailing, digital health, software, renewable energy, life sciences and the consumer and entertainment sectors, says markets feel “pretty hot right now”.

“We might be in the early stages of a bubble,” he says.

However, he remains confident that if his fund continues to “invest in high-quality companies that are growing 100 per cent year on year, that we will end up significantly ahead.”

Smaller retail investors, many of whom may lack the depth of market knowledge and research ability of industry professionals, may not be so lucky. Still, their numbers are growing.

Angel Zhong, senior finance lecturer at RMIT, says there is increasing use of “social trading”, where unmoderated investment advice is provided on platforms such as Reddit, investment channels on YouTube and share trading groups on Facebook.

She says a part of the huge gains made by the tech darlings is due to increased retail trading.

“The surging tech stock valuations are unlikely to be sustainable. To find the value of any stock, it goes back to the fundamental principle of present value of future cashflows and the fundamental aspects of a company,” Dr Zhong says.

In May last year the Australian Securities and Investments Commission (ASIC) released a report showing a big increase in the number of retail investors trading during the coronavirus pandemic.

The regulator said: “Retail investors chasing quick profits by playing the market over the short term have traditionally performed poorly –even in relatively stable, less-volatile market conditions.”

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