Prem Watsa, a billionaire investor known in the financial press as “the Canadian Warren Buffett,” says technology stocks are more absurdly overvalued now than they were during the dot-com bubble.
“Valuations of value-oriented stocks versus growth stocks, particularly technology, have never been so extreme, exceeding even the extremes of the dot-com era in 2000,” Watsa said during an earnings call for his firm, the Canadian insurance conglomerate Fairfax Financial Holdings
“As the economy continues to normalize, we expect a reversion to the mean with value-oriented stocks coming to the fore,” according to a transcript of the call posted by Seeking Alpha.
Like Buffett’s Berkshire Hathaway Fairfax boasts a large equity portfolio. Watsa is CEO, chairman and founder of Fairfax.
To support his point, Watsa offered up a comparison to the dot-com crash between 2000 and 2002, which saw U.S. stocks record three consecutive years of losses led by the tech-heavy Nasdaq. The Nasdaq Composite fell by roughly 39.3% in 2000, followed by a drop of 21.1% in 2001 and 31.5% in 2002.
“And if history is any guide, there is more to come. I will note to you that the Nasdaq dropped 50% in 2000 and then dropped another 50% in the next two years,” Watsa said during the call.
Fairfax’s holdings include many value-oriented stocks. One example is its largest investment, Atlas Corp. a container ship operator. The firm’s holdings in Atlas represent nearly half of its portfolio, according to the latest filings which delineated Fairfax’s holdings as of the end of the fourth quarter.
Fairfax also holds a handful of stocks that are also owned by Berkshire, including Bank of America Corp. and Occidental Petroleum Corp.
The Nasdaq Composite declined by 33.1% last year, compared with a drop of 19.4% for the S&P 500 according to FactSet. However, many of the megacap tech stocks that weighed heavily on the Nasdaq last year have kicked off 2023 with sizable gains. Meta Platforms Inc. has gained 44.5% since the start of the year after shedding more than 64% of its value last year, FactSet data showed. Still, U.S. technology names remain well below their peak valuations from late 2021 and early 2022.
The ARK Innovation ETF which holds shares in many speculative technology names like Zoom Video Communications and Coinbase Global Inc. has risen more than 27% since the start of the year after falling by nearly 67% last year, according to FactSet.