Steve Johnson: Get wary of GetSwift

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(Ed note: first published in Dec 2017) In our 'Christmas Cracker' series, we've brought you a top insight for 2018 from one of our contributors each morning through December. The final Cracker for 2017, is written by Steve Johnson, Forager Funds 

Keeping your head when others lose theirs

“Nothing so undermines your financial judgement as the sight of your neighbour getting rich.” - John Pierpont Morgan

Although it has been more than a century since Morgan's words, little has changed about human nature. The main difference being that, in our digitally connected world, we have a lot more neighbours.

As 2017 comes to a close, I’m seeing more of my “neighbours” apparently making fortunes. And increasing signs of impaired financial judgement as a result. Granted, this is a bull market that is now more the eight years old. For most of that period, however, it has been a reluctant and nervous bull market.

The arguments between bulls and bears have been grounded in logic. The bears have argued that company earnings are unsustainably high and that multiples are well above long-term averages. The bulls countered that interest rates were lower than historical averages, likely to stay that way and that equities were relatively cheap as a result.

Both of those arguments have merit and you could have a well-considered reason for being on either side of the fence (or, in my case, sitting on top of it).

The back half of 2017 however has seen an increase in something more common in previous bull markets: mania. Crypto-currencies are the most obvious manifestation. Not since the 2000 tech bubble have I seen so many people talking about and speculating in something they know absolutely nothing about. But it is becoming increasingly prevalent in the stock market too.

Get wary of GetSwift

ASX-listed GetSwift is a logistics software startup with a fully-diluted market capitalisation of roughly half a billion dollars.

Despite generating less than $1 million of revenue last year, a flurry of ASX announcements has investors excited. Particularly the one stating that “GetSwift is pleased to announce that it has signed a global master services agreement with Amazon.”

Even the bulls of yesteryear would have been sceptical. One can only assume this is the same Amazon that built the world’s most sophisticated cloud computing service because it couldn’t find an offering that met its requirements. The same Amazon that already offers same day delivery to more than 8,000 cities and towns. The same Amazon that spent US$21 billion on research and development in the past 12 months.

I will be very surprised if Amazon buys logistics software off anyone. Let alone an Australian minnow with less than $1m of revenue.

In the mania of late 2017, however, it is being lapped up. The GetSwift share price has rocketed from $0.25 at listing to $4.00 at the time of a recent capital raising. It was up 84% on the day of the Amazon announcement.

The more this sort of thing happens, the more formerly rational people feel like they are missing out on something. And the more likely they are to do something stupid.

Keeping your head while others lose theirs, then, is likely to be the one biggest challenge in 2018. Prepare to be called a dinosaur, to be accused of not understanding that this time it is different and for periods of underperformance. There is every chance we are about to experience a real bull market.

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