"Short-termism" is endemic in global markets, and is driving the sell-off of US tech giants as well as the see-saw performance of Australia's big four banks over the past year, says Tim Samway, the managing director of highly successfully boutique fund manager Hyperion Asset Management.
"It's wealth destructive," the managing director said of investors' tendency to chase short-term yields, or in the case of tech stocks, short-term profits.
"It does frustrate me to see the market focusing on the short term – it destroys capital.
"The whole market tends to look at price earnings over a year, maybe over two. It just locks people into that short-term mindset."
It was this kind of analysis that had driven at least some of the sell-off in US tech stocks over the past few days, Mr Samway said.
And a fear of missing out on transitory gains could lead investors to favour yield plays over investing in companies showing long-term growth potential, overexposing investors to cyclical, lower quality or riskier parts of the market.
Last week, falls in Facebook, Amazon, Apple, Netflix and Google (dubbed the FAANG stocks) dragged the Nasdaq composite index to its biggest two-day loss since September, with some of these names down as much as 5 per cent during Friday's trading day on Wall Street after a Goldman Sachs note questioned if they were overvalued.
"Those big platform, network stocks look pretty reasonably priced if their growth goes on for the next five to 10 years. But they can look expensive if you're looking at a one- or two-year price-earnings ratio," Mr Samway said.
"They've had a good run. And people get worried. But that's the routine. It's what markets do from time to time – overshoot on the upside and the downside."
Hyperion's analysts believe the tech stocks will, in a few weeks, still report strong earnings in the quarterly results – an outcome that should lead to investors pouring back in.
Though for long-term investors, this kind of volatility isn't all bad.
"If you see a company at $50 that's a $100 stock, you'd rather it went to $40 on the way there first so you can cheaply up your investment," Mr Samway mused.
It does frustrate me to see the market focusing on the short term – it destroys capital.
In Australia, short-term plays have been behind the see-saw performances of the big four banks, which rose strongly from the election of Donald Trump to the start of May before being savagely sold off.
Hyperion isn't viewing the sell-off as a chance to buy the dips, as it believes for the big four, it's all downside from here.
Even with bank prices down 10 per cent since the start of May, there were simply too many risks in the sector, with too little growth to compensate for it, Mr Samway said.
'Highly geared'
"Interest rates could go down a bit more but not by much. It's never been so good in the bad debt cycle. There are increasing capital requirements on the banks, there's the bank levy, a slow economy, a lack of credit growth, increasing scrutiny on bank management practices ... the list is just long! And there's a point in which you say, that's a lot of risk there for very little upside in earnings over the next five years.
"And anyway, these are still highly geared businesses in risky times."
Hyperion made a lot of money for investors from the banks in the 2000s, when credit growth was strong and the banks enjoyed rising profitability.
But since the global financial crisis, Mr Samway said, most of the growth has come from wealth advisory businesses, which some of the banks are now looking to divest in the face of financial advice scandals.
In keeping out of the banks as their share prices surged after the election of Mr Trump, Hyperion missed out on double-digit gains stronger than those seen even in some American banks.
Short-term earnings
While the banks have retreated significantly of late, they've still had an excellent six months, providing billions in gains for some investors.
But Mr Samway dismisses this kind of movement as offering only brief gains, not in keeping with Hyperion's core investment philosophy.
"When you buy short-term earnings, the banks have a great run. Last year was terrific," he said.
But he worries a fear of missing out is too common among Australia's investment class, leading to high risks for the Australian economy as a whole due to its overexposure to the heavyweight banking sector.
Overexposure
"The big owners of the banks can be broken into two major sectors. Australian super funds, and private investors.
"But at the end of the day, the members of super funds are private investors. You've got mums and dads with term deposits, their bank accounts, their home loans, then their super investments – and whatever other personal investments they have, usually heavily weighted to the banks.
"My view is, from talking to our big super fund clients, they're generally aware of that issue: that there's a general overexposure to banks.
"For most super funds, even when they spread across multiple managers, they still end up with a large holding in banks. Most fund managers are too scared not to hold any."