The sharemarket has a habit of overestimating megatrends at the start, then underestimating their strength and duration when things get interesting and valuations improve
The so-called “FAANG” stocks are an example. The earnings potential of Facebook, Amazon, Apple, Netflix and Google (through parent Alphabet) is no surprise. Yet soaring share-price gains in FAANG stocks last year shocked a market that underestimated their growth.
Locally, the same is true of Seek, REA Group and Carsales.com. I recall some fund managers who argued for years that these stocks were overpriced. They underestimated the migration of advertising from print to online – a trend that still has further to run.