Am I crazy to do this? [Equity Allocation 50/50 TSM/NASDAQ]

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avsh21
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Am I crazy to do this? [Equity Allocation 50/50 TSM/NASDAQ]

Post by avsh21 »

[Title edited for clarity -- mod oldcomputerguy]

I have a simple 3 fund portfolio with a 80/20 split and 70/30 US/Int. I have been thinking of splitting my US stock portion into 50/50 TSM/Nasdaq index from a 100% TSM. I understand Nasdaq is extremely tech heavy but I really believe these tech companies are not going anywhere and we will continue to see the amazing outperformance of the nasdaq index compared to the TSM.

Is this a crazy idea? Or, does this seem like a reasonable bet to make?
livesoft
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Re: Am I crazy to do this?

Post by livesoft »

I'm trying to figure out why you are asking this question. I predict that some responses with say, "No" and some will say "Yes" and you will be no better off than if you had not asked these questions.

My response: Either you are confident of your choice or you are not. Which is it?
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KlangFool
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Re: Am I crazy to do this?

Post by KlangFool »

OP,

1) If you have to ask this question, you are not confident enough to make this decision.

2) As to why this is a bad decision, see "Telecom Bust" and "DotCom Bust".

KlangFool
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avsh21
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Re: Am I crazy to do this?

Post by avsh21 »

livesoft wrote: Sat Jul 04, 2020 2:48 pm I'm trying to figure out why you are asking this question. I predict that some responses with say, "No" and some will say "Yes" and you will be no better off than if you had not asked these questions.

My response: Either you are confident of your choice or you are not. Which is it?
That is a fair response. I’d say I am more confident of the choice than not. I guess I am trying to seek validation from wise heads here.
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avsh21
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Re: Am I crazy to do this?

Post by avsh21 »

KlangFool wrote: Sat Jul 04, 2020 2:54 pm OP,

1) If you have to ask this question, you are not confident enough to make this decision.

2) As to why this is a bad decision, see "Telecom Bust" and "DotCom Bust".

KlangFool
Companies like Amazon, Google are completely different than the ones that went bust during the dotcom bubble. There’s no comparison.
KlangFool
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Re: Am I crazy to do this?

Post by KlangFool »

avsh21 wrote: Sat Jul 04, 2020 3:02 pm
KlangFool wrote: Sat Jul 04, 2020 2:54 pm OP,

1) If you have to ask this question, you are not confident enough to make this decision.

2) As to why this is a bad decision, see "Telecom Bust" and "DotCom Bust".

KlangFool
Companies like Amazon, Google are completely different than the ones that went bust during the dotcom bubble. There’s no comparison.
LOL!! We had heard the same story before: "This time will be different!". You are probably too young to know this.

Every generation needs to have its own bust.

KlangFool

P.S.: If you believe what you posted, why buy the Nasdaq Index? Just buy Amazon and Google.
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avsh21
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Re: Am I crazy to do this?

Post by avsh21 »

KlangFool wrote: Sat Jul 04, 2020 3:07 pm
avsh21 wrote: Sat Jul 04, 2020 3:02 pm
KlangFool wrote: Sat Jul 04, 2020 2:54 pm OP,

1) If you have to ask this question, you are not confident enough to make this decision.

2) As to why this is a bad decision, see "Telecom Bust" and "DotCom Bust".

KlangFool
Companies like Amazon, Google are completely different than the ones that went bust during the dotcom bubble. There’s no comparison.
LOL!! We had heard the same story before: "This time will be different!". You are probably too young to know this.

Every generation needs to have its own bust.

KlangFool

P.S.: If you believe what you posted, why buy the Nasdaq Index? Just buy Amazon and Google.
Thanks, that’s extremely helpful! :annoyed
Last edited by avsh21 on Sat Jul 04, 2020 4:19 pm, edited 1 time in total.
lionroar22
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Re: Am I crazy to do this?

Post by lionroar22 »

KlangFool wrote: Sat Jul 04, 2020 3:07 pm
LOL!! We had heard the same story before: "This time will be different!". You are probably too young to know this.

Every generation needs to have its own bust.

KlangFool

P.S.: If you believe what you posted, why buy the Nasdaq Index? Just buy Amazon and Google.
LOL, well stated; couldn’t concur more! I would add to OP, that “simple” (using TSM) is most of the time better than “speculating” (the split you are asking about).
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puc_ytpme
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Re: Am I crazy to do this?

Post by puc_ytpme »

Op,

This recent article By Ben Carlson from a Wealth of Common Sense. Just wrote this article on July 2nd. “The Nifty Fifty & the Old Normal”

It’s a comparison of the Nifty Fifty in the 70’s & today’s tech Stocks. Worth a read & should help bring some clarification

https://awealthofcommonsense.com/2020/0 ... ld-normal/
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avsh21
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Re: Am I crazy to do this?

Post by avsh21 »

puc_ytpme wrote: Sat Jul 04, 2020 3:19 pm Op,

This recent article By Ben Carlson from a Wealth of Common Sense. Just wrote this article on July 2nd. “The Nifty Fifty & the Old Normal”

It’s a comparison of the Nifty Fifty in the 70’s & today’s tech Stocks. Worth a read & should help bring some clarification

https://awealthofcommonsense.com/2020/0 ... ld-normal/
This is a good read, gives an excellent perspective.

Thanks for posting this instead of the usual “lol, you know nothing” commentary that people generally post here on any contrarian thread.
Triple digit golfer
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Re: Am I crazy to do this?

Post by Triple digit golfer »

I wouldn't do it. They may not be going anywhere, but that doesn't mean their stock returns will be good. Good companies often deliver bad stock returns, and vice versa.

Saying that a company will be successful is one thing. But that has absolutely ZERO to do with how the stock will perform.
02nz
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Re: Am I crazy to do this?

Post by 02nz »

No, you're not crazy, but that doesn't mean it's a good idea. To me this looks like a pretty clear example of performance chasing and recency bias, which don't generally work out well.

I suggest you read this: https://www.bogleheads.org/wiki/Boglehe ... philosophy
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willthrill81
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Re: Am I crazy to do this?

Post by willthrill81 »

avsh21 wrote: Sat Jul 04, 2020 2:46 pm I have a simple 3 fund portfolio with a 80/20 split and 70/30 US/Int. I have been thinking of splitting my US stock portion into 50/50 TSM/Nasdaq index from a 100% TSM. I understand Nasdaq is extremely tech heavy but I really believe these tech companies are not going anywhere and we will continue to see the amazing outperformance of the nasdaq index compared to the TSM.

Is this a crazy idea? Or, does this seem like a reasonable bet to make?
For your idea to work, the market would have to be wrong about its expectations of future returns of tech companies. Theoretically, the future cash flows from these companies is already reflected in the current market price.

If you don't believe in market efficiency (i.e. the above idea), then your idea might have merit; it also might not, because the market being wrong about these companies value does not mean that they will even do as well as the broad market going forward.

And just so you're aware, all the top ten largest companies in the S&P 500 in the year 2000, which was very tech heavy even back then, went on to underperform the S&P 500 significantly over the next 19 years (i.e. through 2018). So it's not a sure thing.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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arcticpineapplecorp.
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Re: Am I crazy to do this?

Post by arcticpineapplecorp. »

you're taking sector risk, pure and simple. Sometimes sector risk might pay off, but other times it might not. Regardless, will you be compensated accordingly for the extra risk you will have assumed?

Funny how people give up a guaranteed return of the market to take extra risks (like sector risk among others like size, style, stock, country, manager) for a chance to both outperform or underperform the market.

So many people don't even get the return of the market because they're too busy doing something other than just owning the market.

Finally, you're enamored with tech stocks because they may have done better recently than the market as a whole. You don't understand a few things:
1. the past is not prologue.
2. you're chasing performance (you can't get past returns)
3. you're likely buying high (after those darlings have gone up) rather than low.
4. you're suffering from recency bias.

best of luck.
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
livesoft
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Re: Am I crazy to do this?

Post by livesoft »

What fraction of TSM would a Nasdaq composite index fund already be? 25%? 50%? A nice little Venn diagram or pie chart might be a good visual? Apparently 3.32% of the NASDAQ are non-US stocks, too. I can see that the Fidelity NASDAQ index fund has 2163 holdings, so it probably is not fair to call it a sector bet. :twisted: It is just a large-cap growth index fund.
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arcticpineapplecorp.
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Re: Am I crazy to do this?

Post by arcticpineapplecorp. »

livesoft wrote: Sat Jul 04, 2020 5:15 pm What fraction of TSM would a Nasdaq composite index fund already be? 25%? 50%? A nice little Venn diagram or pie chart might be a good visual? Apparently 3.32% of the NASDAQ are non-US stocks, too. I can see that the Fidelity NASDAQ index fund has 2163 holdings, so it probably is not fair to call it a sector bet. :twisted: It is just a large-cap growth index fund.
fair enough. i see that now at morningstar. so it's a style bet, not a sector bet. i stand corrected. it's still drifting from the market and making a bet against the total market. my point has been made.
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
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Re: Am I crazy to do this?

Post by Escapevelocity »

KlangFool wrote: Sat Jul 04, 2020 2:54 pm OP,

1) If you have to ask this question, you are not confident enough to make this decision.

2) As to why this is a bad decision, see "Telecom Bust" and "DotCom Bust".

KlangFool
I always like your replies Klang. Btw, how did you come up with that moniker?
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Re: Am I crazy to do this?

Post by Fallible »

avsh21 wrote: Sat Jul 04, 2020 2:46 pm I have a simple 3 fund portfolio with a 80/20 split and 70/30 US/Int. I have been thinking of splitting my US stock portion into 50/50 TSM/Nasdaq index from a 100% TSM. I understand Nasdaq is extremely tech heavy but I really believe these tech companies are not going anywhere and we will continue to see the amazing outperformance of the nasdaq index compared to the TSM.

Is this a crazy idea? Or, does this seem like a reasonable bet to make?
You are asking if your belief in something you can't know, i.e., the future of tech companies, is a "reasonable bet." Think about that: 'reasonable' is generally defined as sound and sensible judgment, and a bet is defined as risking something, usually money, based on the outcome of a future event. Now ask yourself what you are asking us.
"Yes, investing is simple. But it is not easy, for it requires discipline, patience, steadfastness, and that most uncommon of all gifts, common sense." ~Jack Bogle
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Re: Am I crazy to do this?

Post by babystep »

avsh21 wrote: Sat Jul 04, 2020 2:46 pm I have a simple 3 fund portfolio with a 80/20 split and 70/30 US/Int. I have been thinking of splitting my US stock portion into 50/50 TSM/Nasdaq index from a 100% TSM. I understand Nasdaq is extremely tech heavy but I really believe these tech companies are not going anywhere and we will continue to see the amazing outperformance of the nasdaq index compared to the TSM.

Is this a crazy idea? Or, does this seem like a reasonable bet to make?
You are taking a little more risk and expecting that you will be rewarded for that. If the performance difference between TSM and Nasdaq continues to be the way it has been in the last 4-5 years then you will be rewarded for that risk but if it doesn't then you will underperform the TSM.

You should think about what TSM does for you. Here are the top 10 holdings of VTI:

Microsoft Corporation4.67%
Apple Inc. 4.25%
Amazon.com, Inc. 3.44%
Facebook, Inc. Class A1.81%
Alphabet Inc. Class A1.45%
Alphabet Inc. Class C1.38%
Johnson & Johnson1.31%
Berkshire Hathaway Inc. Class B1.18%

It is already tech-heavy because it self adjusts depending on what companies are getting bigger. If 5-10 years from now, XYZ sector companies start becoming bigger than it will adjust accordingly. No tax cost to you. Please take a look at the history of the top 10 US companies in the last 100 years and you will realize that no-one stays at the top for a long time.

What are you going to do if Nasdaq starts underperforming in 5-10 years from now and you are sitting on decent capital gains?
Sale and take the tax hit? Do nothing and continue to underperform?
DanFrancis
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Re: Am I crazy to do this?

Post by DanFrancis »

I would not do it. You are getting those companies with owning the total stock market. But if you wanted to put 5% or so in Nasdaq...you could buy QQQ. I have owned it since its inception.
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Re: Am I crazy to do this?

Post by snailderby »

The question I would ask myself is not, "Do I think these companies will be profitable in the future?," but "Do I think these companies will be more profitable than the market expects?" Amazon already has a price/earnings ratio of 138.89, which is 6x the price/earnings ratio of the total stock market. Do you think Amazon is still undervalued by the market, even at that price?
Last edited by snailderby on Sun Jul 05, 2020 9:41 am, edited 1 time in total.
sd323232
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Re: Am I crazy to do this?

Post by sd323232 »

avsh21 wrote: Sat Jul 04, 2020 3:02 pm
KlangFool wrote: Sat Jul 04, 2020 2:54 pm OP,

1) If you have to ask this question, you are not confident enough to make this decision.

2) As to why this is a bad decision, see "Telecom Bust" and "DotCom Bust".

KlangFool
Companies like Amazon, Google are completely different than the ones that went bust during the dotcom bubble. There’s no comparison.
when i hear something like this, i know stock market crash is around the corner

i remember in 2007 everyone was saying house prices never go down, only up, so as long as you buy a house it does not matter what price, buy it, hold it for couple years, sell for profit.
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vineviz
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Re: Am I crazy to do this?

Post by vineviz »

avsh21 wrote: Sat Jul 04, 2020 3:02 pm
KlangFool wrote: Sat Jul 04, 2020 2:54 pm OP,

1) If you have to ask this question, you are not confident enough to make this decision.

2) As to why this is a bad decision, see "Telecom Bust" and "DotCom Bust".

KlangFool
Companies like Amazon, Google are completely different than the ones that went bust during the dotcom bubble. There’s no comparison.
The main difference is that today’s high flyers haven’t gone bust yet.

The list of former S&P 500 top 10 stocks is a literal graveyard of stocks that were “completely different “ from stocks that came before.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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cashboy
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Re: Am I crazy to do this?

Post by cashboy »

avsh21 wrote: Sat Jul 04, 2020 2:46 pm
Is this a crazy idea? Or, does this seem like a reasonable bet to make?
i think you have said it best - its a bet.

i have seen several posts about 'investing' vs 'speculation'. making a bet seems more like speculation than investing (and i mean that in a nice way).

consider that, and then make your decision.

please consider updating this post with your decision.

best of luck with whatever you decide to do!

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Three-Fund Portfolio: FSPSX - FXAIX - FXNAX (with slight tilt of CDs - CASH - Canned Beans - Rice - Bottled Water)
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Re: Am I crazy to do this?

Post by MotoTrojan »

Absolutely crazy. Recency bias to the max. The companies can continue to outperform while their stocks are range-bound or even declining for a decade or more, just as they did after the bubble (and I am not talking about negative earning farce companies).
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Re: Am I crazy to do this?

Post by CyclingDuo »

sd323232 wrote: Sun Jul 05, 2020 9:29 am
avsh21 wrote: Sat Jul 04, 2020 3:02 pm
KlangFool wrote: Sat Jul 04, 2020 2:54 pm OP,

1) If you have to ask this question, you are not confident enough to make this decision.

2) As to why this is a bad decision, see "Telecom Bust" and "DotCom Bust".

KlangFool
Companies like Amazon, Google are completely different than the ones that went bust during the dotcom bubble. There’s no comparison.
when i hear something like this, i know stock market crash is around the corner

i remember in 2007 everyone was saying house prices never go down, only up, so as long as you buy a house it does not matter what price, buy it, hold it for couple years, sell for profit.
Wait, the Nasdaq composite index has outperformed the S&P 500 and Total Stock Market Index in the following time frames: one week, one month, three months, six months, year to date, one year, five years, ten years, etc... . Why would one "not" want to be invested in it? :mrgreen: No doubt it is top heavy and pundits have been fearful of it, but it is difficult to argue with the returns. 8-)

For the OP, even the Nasdaq 100 captures 90% of the overall Nasdaq Index returns and can be purchased via Invesco's ETF QQQ (ER of .20%). Otherwise, owning the entire index of all 2000+ companies is available via Fidelity's Nasdaq Index mutual fund FNCMX (ER of .30%) or Fidelity's ETF version ONEQ (ER of .21%). Even the equal weighted ETF of the Nasdaq 100, QQEW has outperformed since it has been in existence (April 2006).
avsh21 wrote: Sat Jul 04, 2020 2:46 pm I have a simple 3 fund portfolio with a 80/20 split and 70/30 US/Int. I have been thinking of splitting my US stock portion into 50/50 TSM/Nasdaq index from a 100% TSM. I understand Nasdaq is extremely tech heavy but I really believe these tech companies are not going anywhere and we will continue to see the amazing outperformance of the nasdaq index compared to the TSM.

Is this a crazy idea? Or, does this seem like a reasonable bet to make?
At least some of us are not going to call you crazy.

:sharebeer

CyclingDuo
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avsh21
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Re: Am I crazy to do this?

Post by avsh21 »

Some clarification here - when I meant invest in the NASDAQ index, I meant investing in NASDAQ 100 via QQQ.

Sorry, I should have been clearer about it. Appreciate all the responses.
fingoals
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Re: Am I crazy to do this?

Post by fingoals »

willthrill81 wrote: Sat Jul 04, 2020 4:46 pm
avsh21 wrote: Sat Jul 04, 2020 2:46 pm I have a simple 3 fund portfolio with a 80/20 split and 70/30 US/Int. I have been thinking of splitting my US stock portion into 50/50 TSM/Nasdaq index from a 100% TSM. I understand Nasdaq is extremely tech heavy but I really believe these tech companies are not going anywhere and we will continue to see the amazing outperformance of the nasdaq index compared to the TSM.

Is this a crazy idea? Or, does this seem like a reasonable bet to make?
For your idea to work, the market would have to be wrong about its expectations of future returns of tech companies. Theoretically, the future cash flows from these companies is already reflected in the current market price.

If you don't believe in market efficiency (i.e. the above idea), then your idea might have merit; it also might not, because the market being wrong about these companies value does not mean that they will even do as well as the broad market going forward.

And just so you're aware, all the top ten largest companies in the S&P 500 in the year 2000, which was very tech heavy even back then, went on to underperform the S&P 500 significantly over the next 19 years (i.e. through 2018). So it's not a sure thing.
I would appreciate if you could clarify the following for me. I keep hearing "<...> is already priced in" on this forum over and over again. And I think that I partially understand it: if something is already priced in, then a typical overpriced asset has less delta between its current and future values than if that asset were priced "normally". I said "partially" because, even considering the logic above, if the company in question keeps performing very well (even overperforming), buying that asset at a higher price might still result in significantly outperforming the broad market. So, if that is the case, what is the point of the "priced in" argument? The delta one?
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Re: Am I crazy to do this?

Post by wackerdr »

avsh21 wrote: Sun Jul 05, 2020 2:27 pm Some clarification here - when I meant invest in the NASDAQ index, I meant investing in NASDAQ 100 via QQQ.

Sorry, I should have been clearer about it. Appreciate all the responses.
I believe it is up to your appetite to stomach the volatility. I personally invested in QQQ and FBGRX ( only available growth option in 401k) as my core holdings each 35% , together with 10% in TQQQ/TMF , 10% in FUAMX and 1 year of emergency fund in cash/ HYSA.

This runs contrary to bogleheads TSM approach, but i am comfortable and can sleep at night. SPY has 500 stocks and VTSAX has 3400 stocks. In my opinion, the benefits of stock diversification is incrementally less impactful beyond a certain point ( QQQ has 100 stocks and FBGRX has 300) , and you are saddled with lot of low performers when you pick TSM. So I don’t look to buy TSM or Haystack, but broad enough diversified portfolio. This approach sure has a lot of volatility, but I am ok with it, and didn’t cause me any regret or second thoughts even in the midst of recent crash.
Last edited by wackerdr on Sun Jul 05, 2020 3:19 pm, edited 4 times in total.
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Re: Am I crazy to do this?

Post by fire5soon »

I have worked in the finance industry for over 20 years and worked directly with clients who invested during the 90's tech mania. Long story short... it didn't end well for most of them. I learned a lot of lessons without having to pay the tuition myself.

One particular client (who was blue collar and made less than $50k/yr) had a $12 million position in JDSU which was considered a safe company at the time. They had ridden that stock a long way up and refused to sell any of it because they thought it would go up forever. Unfortunately for them JDSU was not as invincible as they thought and that $12 million became dang near worthless. Over 20 years later and I still think about them and how sickening they must have felt.

TSM and broad index funds can be boring, but sometimes that's ok.
A man is a success if he gets up in the morning and gets to bed at night, and in between he does what he wants to do. - Bob Dylan
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avsh21
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Re: Am I crazy to do this?

Post by avsh21 »

Maybe this is a naive question, but I’ll ask anyway - I am not picking technology stocks, I am still investing in an index (a different one than TSM). If, say, FB’s marketcap goes down 10 years from now, it will be replaced by another company. Am I wrong here?
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1789
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Re: Am I crazy to do this?

Post by 1789 »

avsh21 wrote: Sun Jul 05, 2020 2:27 pm Some clarification here - when I meant invest in the NASDAQ index, I meant investing in NASDAQ 100 via QQQ.

Sorry, I should have been clearer about it. Appreciate all the responses.
My question is the following: if you like the past performance of a tech fund - QQQ, why do you NOT invest the best performed tech fund then ? FSCSX ? Where is the love for QQQ coming from?
"My conscience wants vegetarianism to win over the world. And my subconscious is yearning for a piece of juicy meat. But what do i want?" (Andrei Tarkovsky)
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avsh21
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Re: Am I crazy to do this?

Post by avsh21 »

1789 wrote: Sun Jul 05, 2020 2:53 pm
avsh21 wrote: Sun Jul 05, 2020 2:27 pm Some clarification here - when I meant invest in the NASDAQ index, I meant investing in NASDAQ 100 via QQQ.

Sorry, I should have been clearer about it. Appreciate all the responses.
My question is the following: if you like the past performance of a tech fund - QQQ, why do you NOT invest the best performed tech fund then ? FSCSX ? Where is the love for QQQ coming from?
1. I do not want the added risk of an active fund.
2. I want to keep the ER less than .25.
wackerdr
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Re: Am I crazy to do this?

Post by wackerdr »

1789 wrote: Sun Jul 05, 2020 2:53 pm
avsh21 wrote: Sun Jul 05, 2020 2:27 pm Some clarification here - when I meant invest in the NASDAQ index, I meant investing in NASDAQ 100 via QQQ.

Sorry, I should have been clearer about it. Appreciate all the responses.
My question is the following: if you like the past performance of a tech fund - QQQ, why do you NOT invest the best performed tech fund then ? FSCSX ? Where is the love for QQQ coming from?
2 key differences: 1) QQQ has top 100 cap weighted, many in tech, but not an exclusive tech.2) FSCSX is actively managed and exclusive Tech.
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1789
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Re: Am I crazy to do this?

Post by 1789 »

wackerdr wrote: Sun Jul 05, 2020 2:57 pm
1789 wrote: Sun Jul 05, 2020 2:53 pm
avsh21 wrote: Sun Jul 05, 2020 2:27 pm Some clarification here - when I meant invest in the NASDAQ index, I meant investing in NASDAQ 100 via QQQ.

Sorry, I should have been clearer about it. Appreciate all the responses.
My question is the following: if you like the past performance of a tech fund - QQQ, why do you NOT invest the best performed tech fund then ? FSCSX ? Where is the love for QQQ coming from?
2 key differences: 1) QQQ has top 100 cap weighted, many in tech, but not an exclusive tech.2) FSCSX is actively managed and exclusive Tech.
When you divert from cap weighted market portfolio those details don't matter. Clearly people who pick QQQ is doing it for a possible extra juice and they pick it mainly because past performance. Do you not agree? Hence i provided a better past performer than QQQ.
"My conscience wants vegetarianism to win over the world. And my subconscious is yearning for a piece of juicy meat. But what do i want?" (Andrei Tarkovsky)
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Re: Am I crazy to do this?

Post by chrisdds98 »

avsh21 wrote: Sun Jul 05, 2020 2:27 pm Some clarification here - when I meant invest in the NASDAQ index, I meant investing in NASDAQ 100 via QQQ.

Sorry, I should have been clearer about it. Appreciate all the responses.
Is this a hedge for a worsening coronavirus? That sounds reasonable to me. you may underperform total market at the cost of hedging against prolonged recession
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1789
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Re: Am I crazy to do this?

Post by 1789 »

avsh21 wrote: Sun Jul 05, 2020 2:54 pm
1789 wrote: Sun Jul 05, 2020 2:53 pm
avsh21 wrote: Sun Jul 05, 2020 2:27 pm Some clarification here - when I meant invest in the NASDAQ index, I meant investing in NASDAQ 100 via QQQ.

Sorry, I should have been clearer about it. Appreciate all the responses.
My question is the following: if you like the past performance of a tech fund - QQQ, why do you NOT invest the best performed tech fund then ? FSCSX ? Where is the love for QQQ coming from?
1. I do not want the added risk of an active fund.
2. I want to keep the ER less than .25.
I am not sure why it would matter once you pick a corner of market. If we are speculating, my speculation is large cap growth/tech funds will be the first one to get slaughtered when things turn around. I am saying this as an engineer (same for my spouse) working in the top a few companies that makes up QQQ.
"My conscience wants vegetarianism to win over the world. And my subconscious is yearning for a piece of juicy meat. But what do i want?" (Andrei Tarkovsky)
wackerdr
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Re: Am I crazy to do this?

Post by wackerdr »

1789 wrote: Sun Jul 05, 2020 3:00 pm
wackerdr wrote: Sun Jul 05, 2020 2:57 pm
1789 wrote: Sun Jul 05, 2020 2:53 pm
avsh21 wrote: Sun Jul 05, 2020 2:27 pm Some clarification here - when I meant invest in the NASDAQ index, I meant investing in NASDAQ 100 via QQQ.

Sorry, I should have been clearer about it. Appreciate all the responses.
My question is the following: if you like the past performance of a tech fund - QQQ, why do you NOT invest the best performed tech fund then ? FSCSX ? Where is the love for QQQ coming from?
2 key differences: 1) QQQ has top 100 cap weighted, many in tech, but not an exclusive tech.2) FSCSX is actively managed and exclusive Tech.
When you divert from cap weighted market portfolio those details don't matter. Clearly people who pick QQQ is doing it for a possible extra juice and they pick it mainly because past performance. Do you not agree? Hence i provided a better past performer than QQQ.
I don’t know about others, but I picked QQQ because of these 2 reasons. FOCPX is also a candidate for tech exclusive fund.
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Re: Am I crazy to do this?

Post by wackerdr »

Duplicate
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1789
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Re: Am I crazy to do this?

Post by 1789 »

avsh21 wrote: Sun Jul 05, 2020 2:54 pm
1789 wrote: Sun Jul 05, 2020 2:53 pm
avsh21 wrote: Sun Jul 05, 2020 2:27 pm Some clarification here - when I meant invest in the NASDAQ index, I meant investing in NASDAQ 100 via QQQ.

Sorry, I should have been clearer about it. Appreciate all the responses.
My question is the following: if you like the past performance of a tech fund - QQQ, why do you NOT invest the best performed tech fund then ? FSCSX ? Where is the love for QQQ coming from?
1. I do not want the added risk of an active fund.
2. I want to keep the ER less than .25.
You dont want to invest in the fund i mentioned. Because something inside you is telling that there is a high risk that it will not continue perform as it did in last 30+ years. This is understandable and it is a good thing! ER discussion and active fund points are meaningless as this fund returns came many multiples of any other tech funds. If i tell you it will outperform QQQ by 5% but ER Is 2% you would (Not just you but all of us) still invest in it. I would just encourage to think with a similar mindset about QQQ. That will cause you NOT to invest in it.
"My conscience wants vegetarianism to win over the world. And my subconscious is yearning for a piece of juicy meat. But what do i want?" (Andrei Tarkovsky)
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willthrill81
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Re: Am I crazy to do this?

Post by willthrill81 »

fingoals wrote: Sun Jul 05, 2020 2:32 pm
willthrill81 wrote: Sat Jul 04, 2020 4:46 pm
avsh21 wrote: Sat Jul 04, 2020 2:46 pm I have a simple 3 fund portfolio with a 80/20 split and 70/30 US/Int. I have been thinking of splitting my US stock portion into 50/50 TSM/Nasdaq index from a 100% TSM. I understand Nasdaq is extremely tech heavy but I really believe these tech companies are not going anywhere and we will continue to see the amazing outperformance of the nasdaq index compared to the TSM.

Is this a crazy idea? Or, does this seem like a reasonable bet to make?
For your idea to work, the market would have to be wrong about its expectations of future returns of tech companies. Theoretically, the future cash flows from these companies is already reflected in the current market price.

If you don't believe in market efficiency (i.e. the above idea), then your idea might have merit; it also might not, because the market being wrong about these companies value does not mean that they will even do as well as the broad market going forward.

And just so you're aware, all the top ten largest companies in the S&P 500 in the year 2000, which was very tech heavy even back then, went on to underperform the S&P 500 significantly over the next 19 years (i.e. through 2018). So it's not a sure thing.
I would appreciate if you could clarify the following for me. I keep hearing "<...> is already priced in" on this forum over and over again. And I think that I partially understand it: if something is already priced in, then a typical overpriced asset has less delta between its current and future values than if that asset were priced "normally". I said "partially" because, even considering the logic above, if the company in question keeps performing very well (even overperforming), buying that asset at a higher price might still result in significantly outperforming the broad market. So, if that is the case, what is the point of the "priced in" argument? The delta one?
Let's say that the market has collectively determined that there is a 60% probability of a stock having earnings of $100 and a 40% probability of the same stock having earnings of $30. The expected earnings would be $72 (i.e. [.6*$100]+[.4*$30]). This is basically what is meant when someone says that the market has, at least theoretically, priced something in.

Now you may disagree with the market's assessment of the above probabilities, but it's important to remember that virtually all market participants disagree with them. The above probabilities would represent the collectively determined probabilities of all market participants and might not represent those of any one participant. But at the above probability, there is an equal number of people willing to buy at the current price and an equal number willing to sell (i.e. market equilibrium).

If you better determine the probabilities than the market's collective assessment, then you have the opportunity to possibly outperform the market. It's far from certain that you would due to numerous factors, such as the fact that the 'correct' price might not be manifested for a longer time frame than you need for your own purposes, the additional costs you will incur by trading, and the market's ability to 'remain irrational longer than you can remain solvent'.

The above form of efficiency is sometimes referred to as micro-efficiency and exists at the level of individually traded companies.

Another form of efficiency argued by some to exist is macro-efficiency, the ability of the entire stock market to accurately assess the above probabilities.

Some believe the market to be highly efficient on both the micro and macro level, whereas some believe it only exists at the micro level. Others believe the market to be 'mostly efficient most of the time', etc. We know that inefficiencies certainly exist. Even Fama has admitted this. The question then becomes whether the inefficiencies can be consistently exploited in a net profitable manner by investors.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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avsh21
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Re: Am I crazy to do this?

Post by avsh21 »

1789 wrote: Sun Jul 05, 2020 3:15 pm
avsh21 wrote: Sun Jul 05, 2020 2:54 pm
1789 wrote: Sun Jul 05, 2020 2:53 pm
avsh21 wrote: Sun Jul 05, 2020 2:27 pm Some clarification here - when I meant invest in the NASDAQ index, I meant investing in NASDAQ 100 via QQQ.

Sorry, I should have been clearer about it. Appreciate all the responses.
My question is the following: if you like the past performance of a tech fund - QQQ, why do you NOT invest the best performed tech fund then ? FSCSX ? Where is the love for QQQ coming from?
1. I do not want the added risk of an active fund.
2. I want to keep the ER less than .25.
You dont want to invest in the fund i mentioned. Because something inside you is telling that there is a high risk that it will not continue perform as it did in last 30+ years. This is understandable and it is a good thing! ER discussion and active fund points are meaningless as this fund returns came many multiples of any other tech funds. If i tell you it will outperform QQQ by 5% but ER Is 2% you would (Not just you but all of us) still invest in it. I would just encourage to think with a similar mindset about QQQ. That will cause you NOT to invest in it.
How is investing in QQQ same as investing in an actively managed fund with a 3x ER? That’s like saying investing in SPY index is same as investing in a large cap active fund.
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Re: Am I crazy to do this?

Post by fingoals »

willthrill81 wrote: Sun Jul 05, 2020 3:25 pm
fingoals wrote: Sun Jul 05, 2020 2:32 pm
willthrill81 wrote: Sat Jul 04, 2020 4:46 pm
avsh21 wrote: Sat Jul 04, 2020 2:46 pm I have a simple 3 fund portfolio with a 80/20 split and 70/30 US/Int. I have been thinking of splitting my US stock portion into 50/50 TSM/Nasdaq index from a 100% TSM. I understand Nasdaq is extremely tech heavy but I really believe these tech companies are not going anywhere and we will continue to see the amazing outperformance of the nasdaq index compared to the TSM.

Is this a crazy idea? Or, does this seem like a reasonable bet to make?
For your idea to work, the market would have to be wrong about its expectations of future returns of tech companies. Theoretically, the future cash flows from these companies is already reflected in the current market price.

If you don't believe in market efficiency (i.e. the above idea), then your idea might have merit; it also might not, because the market being wrong about these companies value does not mean that they will even do as well as the broad market going forward.

And just so you're aware, all the top ten largest companies in the S&P 500 in the year 2000, which was very tech heavy even back then, went on to underperform the S&P 500 significantly over the next 19 years (i.e. through 2018). So it's not a sure thing.
I would appreciate if you could clarify the following for me. I keep hearing "<...> is already priced in" on this forum over and over again. And I think that I partially understand it: if something is already priced in, then a typical overpriced asset has less delta between its current and future values than if that asset were priced "normally". I said "partially" because, even considering the logic above, if the company in question keeps performing very well (even overperforming), buying that asset at a higher price might still result in significantly outperforming the broad market. So, if that is the case, what is the point of the "priced in" argument? The delta one?
Let's say that the market has collectively determined that there is a 60% probability of a stock having earnings of $100 and a 40% probability of the same stock having earnings of $30. The expected earnings would be $72 (i.e. [.6*$100]+[.4*$30]). This is basically what is meant when someone says that the market has, at least theoretically, priced something in.

Now you may disagree with the market's assessment of the above probabilities, but it's important to remember that virtually all market participants disagree with them. The above probabilities would represent the collectively determined probabilities of all market participants and might not represent those of any one participant. But at the above probability, there is an equal number of people willing to buy at the current price and an equal number willing to sell (i.e. market equilibrium).

If you better determine the probabilities than the market's collective assessment, then you have the opportunity to possibly outperform the market. It's far from certain that you would due to numerous factors, such as the fact that the 'correct' price might not be manifested for a longer time frame than you need for your own purposes, the additional costs you will incur by trading, and the market's ability to 'remain irrational longer than you can remain solvent'.

The above form of efficiency is sometimes referred to as micro-efficiency and exists at the level of individually traded companies.

Another form of efficiency argued by some to exist is macro-efficiency, the ability of the entire stock market to accurately assess the above probabilities.

Some believe the market to be highly efficient on both the micro and macro level, whereas some believe it only exists at the micro level. Others believe the market to be 'mostly efficient most of the time', etc. We know that inefficiencies certainly exist. Even Fama has admitted this. The question then becomes whether the inefficiencies can be consistently exploited in a net profitable manner by investors.
Understood (though will still re-read your comment to better digest). You prompt and detailed reply is much appreciated. So, considering the "priced in" argument settled, am I correct that non-Boglehead investors avoid overpriced stocks and prefer value stocks because of the larger potential delta (bigger earning opportunity) or are there other considerations?
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1789
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Re: Am I crazy to do this?

Post by 1789 »

avsh21 wrote: Sun Jul 05, 2020 3:27 pm
1789 wrote: Sun Jul 05, 2020 3:15 pm
avsh21 wrote: Sun Jul 05, 2020 2:54 pm
1789 wrote: Sun Jul 05, 2020 2:53 pm
avsh21 wrote: Sun Jul 05, 2020 2:27 pm Some clarification here - when I meant invest in the NASDAQ index, I meant investing in NASDAQ 100 via QQQ.

Sorry, I should have been clearer about it. Appreciate all the responses.
My question is the following: if you like the past performance of a tech fund - QQQ, why do you NOT invest the best performed tech fund then ? FSCSX ? Where is the love for QQQ coming from?
1. I do not want the added risk of an active fund.
2. I want to keep the ER less than .25.
You dont want to invest in the fund i mentioned. Because something inside you is telling that there is a high risk that it will not continue perform as it did in last 30+ years. This is understandable and it is a good thing! ER discussion and active fund points are meaningless as this fund returns came many multiples of any other tech funds. If i tell you it will outperform QQQ by 5% but ER Is 2% you would (Not just you but all of us) still invest in it. I would just encourage to think with a similar mindset about QQQ. That will cause you NOT to invest in it.
How is investing in QQQ same as investing in an actively managed fund with a 3x ER? That’s like saying investing in SPY index is same as investing in a large cap active fund.
The reason behind the two is the same. Performance chasing. I am just offering a better past performer. Of course its your money and you can spend it as you wish.
"My conscience wants vegetarianism to win over the world. And my subconscious is yearning for a piece of juicy meat. But what do i want?" (Andrei Tarkovsky)
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CyclingDuo
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Re: Am I crazy to do this?

Post by CyclingDuo »

1789 wrote: Sun Jul 05, 2020 2:53 pm
avsh21 wrote: Sun Jul 05, 2020 2:27 pm Some clarification here - when I meant invest in the NASDAQ index, I meant investing in NASDAQ 100 via QQQ.

Sorry, I should have been clearer about it. Appreciate all the responses.
My question is the following: if you like the past performance of a tech fund - QQQ, why do you NOT invest the best performed tech fund then ? FSCSX ? Where is the love for QQQ coming from?
Fidelity Select Software & IT Services is indeed a great fund (it resides in both of our IRA's as one of our long term actively managed mutual fund investments). QQQ covers more than software and IT making it a more diverse investment. Pepsi is in the top 10 of QQQ and the top 100 covers IT, telecommunication services, consumer discretionary, healthcare, consumer staples, and industrials. Personally, we invest in both the Fidelity Select Fund and the QQQ.

Did I miss if the OP is going to be holding the position in taxable or tax deferred?

CyclingDuo
"Save like a pessimist, invest like an optimist." - Morgan Housel
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Re: Am I crazy to do this?

Post by aristotelian »

The strategy you propose is less diversified and higher risk. That is certain. The question is whether it has higher expected return to justify the risk. It is possible that tech stocks will continue to outperform. It is also possible that they are overvalued and will crash hardest. Maybe not from covid but something else. Since the outcome cannot be known in advance I would say it does not have a higher expected return so you might as well go with the more diversified strategy and own the whole market which includes Nasdaq.
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Re: Am I crazy to do this?

Post by bottlecap »

Definitely reasonable sounding. Just wrong.

Are there any investors out there that seriously think tech is "going away"?

If not, how are you making gains uncompensated for the risk you will take?

JT
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avsh21
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Re: Am I crazy to do this?

Post by avsh21 »

bottlecap wrote: Sun Jul 05, 2020 8:36 pm Definitely reasonable sounding. Just wrong.

Are there any investors out there that seriously think tech is "going away"?

If not, how are you making gains uncompensated for the risk you will take?

JT
Reasonable but wrong? How do you mean?
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avsh21
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Re: Am I crazy to do this?

Post by avsh21 »

CyclingDuo wrote: Sun Jul 05, 2020 7:14 pm
1789 wrote: Sun Jul 05, 2020 2:53 pm
avsh21 wrote: Sun Jul 05, 2020 2:27 pm Some clarification here - when I meant invest in the NASDAQ index, I meant investing in NASDAQ 100 via QQQ.

Sorry, I should have been clearer about it. Appreciate all the responses.
My question is the following: if you like the past performance of a tech fund - QQQ, why do you NOT invest the best performed tech fund then ? FSCSX ? Where is the love for QQQ coming from?
Fidelity Select Software & IT Services is indeed a great fund (it resides in both of our IRA's as one of our long term actively managed mutual fund investments). QQQ covers more than software and IT making it a more diverse investment. Pepsi is in the top 10 of QQQ and the top 100 covers IT, telecommunication services, consumer discretionary, healthcare, consumer staples, and industrials. Personally, we invest in both the Fidelity Select Fund and the QQQ.

Did I miss if the OP is going to be holding the position in taxable or tax deferred?

CyclingDuo
It will be in both taxable and tax-deferred (probably equally divided).
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avsh21
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Re: Am I crazy to do this?

Post by avsh21 »

aristotelian wrote: Sun Jul 05, 2020 8:31 pm The strategy you propose is less diversified and higher risk. That is certain. The question is whether it has higher expected return to justify the risk. It is possible that tech stocks will continue to outperform. It is also possible that they are overvalued and will crash hardest. Maybe not from covid but something else. Since the outcome cannot be known in advance I would say it does not have a higher expected return so you might as well go with the more diversified strategy and own the whole market which includes Nasdaq.
I get what you are saying - yes, it definitely has more risk than investing in just TSM and I expect the reward to be higher.
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