Good morning, it's Paul here!

Market overview

It seems to me that the froth is coming off things. We've had a roaring bull market, with lots of speculative stocks zooming up. It's all felt rather euphoric, and it's been ridiculously easy to make money in growth stocks, in the last couple of years.

Conditions like that don't last forever. The skill is not in making money during the euphoric phase of a bull market - that's the easy bit. In fact, it's often the most reckless people who make the most money in bull markets - total junk can easily multibag for a while. The difficulty is hanging on to that money, once the bull turns into a bear. The reason that's tough, is because to maximise the gains in a bull market, you have to do pretty daft things - like ignoring valuations, and conventional value metrics. It's all about running the winners.

Then inevitably, at some point the music stops, and the party's over. Then the momentum stocks nearly all roll over, and give up a lot of the gains. With powerful rallies along the way, to suck people back in. I am seeing a lot of parallels between what's happening now, and my memories of 1998-2000. Excessive valuations for growth companies, in particular. Plus a big appetite for blue sky story stocks, at high valuations again.

I can't predict when the bull market will end. We're long overdue a big correction. So personally I'm feeling pretty cautious at the moment. I'm not interested in opening up any new long positions on expensive growth stocks, and have sold most of the ones I was in - e.g. Purplebricks (LON:PURP) - where the valuation is just too high now.

e-commerce stocks are still very interesting though - because the growth rate is still so high, something like 20% p.a. still in all e-commerce sales in the whole UK. The flipside of that growth, is that the market share has to come from somewhere. So I see older, more traditional retailers as being very vulnerable. Hence I'm short of Marks and Spencer (LON:MKS) , Debenhams (LON:DEB) , and Halfords (LON:HFD) for example.

Overall though, sentiment is really driven by the…

Finish reading with a 14 day trial

or Unlock with your email

Already have an account?
Login here