Growth stocks are more overvalued today than during the dot-com boom, Prem Watsa warned.
The “Canadian Warren Buffett” said tech stocks appear hugely overpriced relative to value stocks.
The billionaire investor and Fairfax Financial chief cautioned growth stocks could tumble.
A billionaire investor dubbed the “Canadian Warren Buffett” has warned technology stocks are more absurdly overpriced than during the dot-com bubble — and predicted they will suffer a dramatic decline.
“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,” Prem Watsa said. “As the economy continues to normalize, we expect a reversion to the mean with value-oriented stocks coming to the fore.”
Watsa is the founder and CEO of Fairfax Financial, an insurance conglomerate with a billion-dollar stock portfolio that’s often compared to Buffett’s Berkshire Hathaway. He issued his grim outlook for US growth stocks during a fourth-quarter earnings call on Friday, according to a transcript provided by Sentieo/AlphaSense.
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The value investor said on the call that his company’s stock holdings remain deeply undervalued, but he expects that to change. He noted that Fairfax’s portfolio doubled in value between 2000 and 2002, while the major US stock indices roughly halved during that period.
The value investor also pointed out that despite the market’s rally this year, Big Tech stocks like Amazon and Tesla are still down sharply from their peaks in 2021. Moreover, their smaller peers like Zoom and Shopify have regained even less ground.
“If history is any guide, there’s more to come,” Watsa said. “I will note for you that the Nasdaq dropped 50% in 2000 and then dropped another 50% in the next 2 years.”
Fairfax and Berkshire have several key holdings in common, including Bank of America, Chevron, and Occidental Petroleum. Watsa also shares Buffett’s love of highly concentrated bets: seven stocks including Blackberry accounted for nearly 90% of Fairfax’s $4 billion portfolio at the end of December.