Jim Cramer thinks the economy psychology behind the massive runs in FANG — his acronym for Facebook, Amazon, Netflix and Google, now Alphabet — should become a case study in how stocks don’t divorce themselves from fundamentals, but they develop scarcity value.
“These high-flying stocks become something akin to modern art or professional sports teams, valuations that, while they can’t be explained by simple numbers, can be absolutely understood from the perspective that there just aren’t enough of them to go around,” the “Mad Money” host said.
Last summer, Cramer spoke with an NFL team owner about how the price of an NFL team keeps getting higher. At the time Cramer said there would be a valuation peak, and the owner questioned his judgment.
The owner used the example of Steve Ballmer’s $2 billion purchase of the Los Angeles Clippers. While many regarded the purchase as an outrageous sum, Ballmer couldn’t pass up the chance to buy the Clippers because of scarcity value. NBA teams simply don’t go up for sale very often.
This mindset is much like a classic painting. The availability, or lack thereof, sets the price.