How do investment managers justify owning Tesla (TSLA) at the current valuation? Or perhaps worse, owning highly-levered companies in beat-up industries that won’t recover for years (see airlines). Talk about “risk” assets! Where is the fiduciary responsibility?
From the outside looking in it would seem investment managers – at least some of them – are too focused on chasing short-term performance at the expense of prudent risk management. I experienced this same phenomenon some 22 years ago during the late 1990’s Tech bubble. Our High Yield team chased performance by owning the riskiest high yield credits (the Telco boom) and goosed performance by owning high-flying equities wherever mandates allowed. I was too new and too green at the time to understand the motivations (retaining one’s job) behind chasing short-term performance.
This current equity market bubble reminds me of that late 90’s Tech bubble in more ways than one. I suspect the motivations behind questionable investment decisions are in many cases the same today as they were 22 years ago.