The dot com "do over" bull market?

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frankmorris
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The dot com "do over" bull market?

Post by frankmorris »

Reading through Random Walk Down Wall Street, and trying really hard to see what bubble we're in right now, if we're in one. One comment theme amongst bubbles is that some new fad (business model, technology, etc.) causes people to not see that the business models those fads are built around are NOT good.

Looking at the high flyers currently (e.g., Netflix, Amazon, etc.), they seem to have good business models. Sure, some of the PE ratios are quite high, but many of these companies seem to be built around solid business models. Online shopping is hard to see as a fad. Netflix (and other online streaming opportunities) are likely to replace TV. Even if those particular companies don't make it for some reason, it seems that the business models they're built around are solid, if imperfect.

Back in the late 90s we didn't quite get the dot.com predictions right - pets.com, etc. didn't do well because they were based on a speculative bubble that GOOD tech could make up for a BAD business model. I'm not sure the same could be said of today's market.

What am I missing? Where is the bubble? If valuations are high, where are the corresponding bad business models that usually accompany unsustainable bubbles?

(PS - I can't imagine this topic hasn't been discussed ad nauseum here, but I couldn't seem to find an exact match, so thought I'd post. Feel free to post a link to a relevant thread/topic - I'd much appreciate it.)
NiceUnparticularMan
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Re: The dot com "do over" bull market?

Post by NiceUnparticularMan »

Don't worry--whenever there is the next big crash, we'll figure it out with the benefit of hindsight (and then argue about how the real explanation is different, and so on).
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Re: The dot com "do over" bull market?

Post by willthrill81 »

Despite valuations being 'high' compared to historical averages, the market believes that it's appropriate. FWIW, Bogle and Buffet both view stock prices as reasonable given the low interest rate environment we've had for nearly a decade.
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Re: The dot com "do over" bull market?

Post by David Jay »

frankmorris wrote:I can't imagine this topic hasn't been discussed ad nauseum here...
For the true buy-and-hold investor, this is not a concern. There are bubbles. Equity prices go up. Equity prices go down. I have lived through the flash crash (1987), the dot com bubble, 9/11 and the financial crisis. And as "Nice" said above, bubbles are only clearly visible in the rear view mirror.

I am not going to do anything (other than some limited rebalancing) when the market goes up or down so why spend a lot of time theorizing. See the first quote in my signature line below.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
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Re: The dot com "do over" bull market?

Post by David Jay »

Frank:

You may not have seen it, but there is a really excellent post by nisiprius about stock market risk (and trying to predict a future bubble suggests you may be trying to avoid/blunt/minimize market risk), as follows:
The stock market is risky. It is a form of greed to believe that there is some easy, effective way to get the risk premium without actually taking the risk. Many people go through a stage in which they engage in delusional thinking:
a) The stock market has had high returns. That's good, I'd like that.
b) The stock market has had high risk. I don't like that.
c) I can't accept "a" and "b" are a package deal.
d) The stock market is risky for everybody else, but not for me, because I can do something clever and get the return without the risk.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
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Re: The dot com "do over" bull market?

Post by k66 »

frankmorris wrote: ...
What am I missing? Where is the bubble? If valuations are high, where are the corresponding bad business models that usually accompany unsustainable bubbles?
...
Who knows, who cares? Stay the course (and rebalance as required).

What are we missing?
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frankmorris
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Re: The dot com "do over" bull market?

Post by frankmorris »

Thanks everyone - yes, hindsight is 20/20, and I'm not advocating a market timing strategy here - just trying to draw parallels between the book's historical perspective and present day. It seems that one should have known that the tulip craze was a bit ridiculous. It does seem that people fool themselves with the greater fool theory, and even if it doesn't make sense to try to use an understanding of market behavior in a market timing strategy, it would be at least wise to try to look at market behavior with a critical eye.

Yes, all probably just "academic" if you're a buy and hold investor, which I am/plan to be, but doesn't mean it's not interesting to think about or to try to understand.
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Re: The dot com "do over" bull market?

Post by telemark »

Juicero? Uber? There's a lot more venture capital available now, so tech-based startups can get very large on private investment before ever doing an IPO.
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Re: The dot com "do over" bull market?

Post by Theoretical »

We've had a bit of an unusual situation in that within 10 years we got slammed with 2 massive bubbles, one of which could have killed the world economy for a long stretch.

If I was going to take a guess as to a bubble right now, it's the gig economy, heavily centered in massive-cap privately held companies like Uber, AirBnb, and the like. It's got the "everyone's jumping aboard" syndrome, and it reflects a sort of reaching for yield.
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Re: The dot com "do over" bull market?

Post by countofmc »

In the spirit of spitballing, and since OP is focused on tech. I guess if I had to offer an opinion, seems like there's too many "me too" companies with business models that are easily duplicated. It's not just Uber/Lyft, but I believe there are other more local competitors. There seems to be a ton of companies offering delivery of various goods, especially food delivery. Snapchat's functionality seems to be easily duplicated by Instagram.

That being said a lot of these companies seem to be privately owned, so not sure how much of a meltdown or bubble burst would hurt the overall economy versus more localized damage in Silicon Valley.

I'd generally agree with you OP in that to me also a lot of these more mature tech companies seem to have solid business models. Apple, Google, Amazon, Netflix, etc. I think maybe an Uber and/or AirBnB could/will get there as well, but I'm not sure about all these other companies that seem to be trying to replicate those business models. Just a guess.
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Re: The dot com "do over" bull market?

Post by TheTimeLord »

frankmorris wrote:Reading through Random Walk Down Wall Street, and trying really hard to see what bubble we're in right now, if we're in one. One comment theme amongst bubbles is that some new fad (business model, technology, etc.) causes people to not see that the business models those fads are built around are NOT good.

Looking at the high flyers currently (e.g., Netflix, Amazon, etc.), they seem to have good business models. Sure, some of the PE ratios are quite high, but many of these companies seem to be built around solid business models. Online shopping is hard to see as a fad. Netflix (and other online streaming opportunities) are likely to replace TV. Even if those particular companies don't make it for some reason, it seems that the business models they're built around are solid, if imperfect.

Back in the late 90s we didn't quite get the dot.com predictions right - pets.com, etc. didn't do well because they were based on a speculative bubble that GOOD tech could make up for a BAD business model. I'm not sure the same could be said of today's market.

What am I missing? Where is the bubble? If valuations are high, where are the corresponding bad business models that usually accompany unsustainable bubbles?

(PS - I can't imagine this topic hasn't been discussed ad nauseum here, but I couldn't seem to find an exact match, so thought I'd post. Feel free to post a link to a relevant thread/topic - I'd much appreciate it.)
I think people see a bubble because they look back to 2008-2009 and see the increase from there, but go back to 2002 or 2000 and let me know if the growth of the stock market over a longer period seems unreasonably high.
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shelanman
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Re: The dot com "do over" bull market?

Post by shelanman »

There are some major tech players that obviously have the business models to make their lofty valuations not excessively bubbilicious.

But, at the same time, there's a whole category of tech company that are literally called the Unicorns. These are venture-backed, privately-held single-product businesses whose current valuation is above $1 Billion.

Some of these (Uber, for example) probably make money. Maybe they're worth their current valuation, maybe they're not -- but at least they're a real business.

But some of them... Juicero, for example, looks an awful lot like VC-bait to me.
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Re: The dot com "do over" bull market?

Post by frankmorris »

telemark wrote:Juicero? Uber? There's a lot more venture capital available now, so tech-based startups can get very large on private investment before ever doing an IPO.
Never heard of Juicero - just tried to look it up and doesn't seem to be publicly traded?

I'd argue with Uber that there is actually a business model there.
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Re: The dot com "do over" bull market?

Post by PFInterest »

This time it's different! :oops:
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Re: The dot com "do over" bull market?

Post by frankmorris »

countofmc wrote:In the spirit of spitballing, and since OP is focused on tech. I guess if I had to offer an opinion, seems like there's too many "me too" companies with business models that are easily duplicated. It's not just Uber/Lyft, but I believe there are other more local competitors. There seems to be a ton of companies offering delivery of various goods, especially food delivery. Snapchat's functionality seems to be easily duplicated by Instagram.

That being said a lot of these companies seem to be privately owned, so not sure how much of a meltdown or bubble burst would hurt the overall economy versus more localized damage in Silicon Valley.

I'd generally agree with you OP in that to me also a lot of these more mature tech companies seem to have solid business models. Apple, Google, Amazon, Netflix, etc. I think maybe an Uber and/or AirBnB could/will get there as well, but I'm not sure about all these other companies that seem to be trying to replicate those business models. Just a guess.
Good point about the duplication. I suppose those companies may be tapping into a legitimate business sector, but if the service is easily copied there may be underlying vulnerability.

I was thinking last night about a scenario in which someone massively hacked Facebook, stole a bunch of information, then used that to do some serious personal damage to people (stealing money, stealing passwords & logins to things FB uses) - if Facebook tanked overnight, that might be enough to start panic selling. I don't think the entire industry of social media would go under, but could be enough to start a crash.

AirBNB - certainly with some of the regulatory challenges they've been up against - there is certainly a vulnerability. However, I think with younger generations there is a sense of sharing of resources - not minding using their place as an AirBNB, not minding using Uber more frequently and buying a new car less frequently. I could see those as permanent cultural, social, and economic shifts.

And certainly interested in ideas about non-tech bubbles as well - just not thinking of any, save for high dividend, low growth stocks that may be vulnerable to rising interest rates.
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Re: The dot com "do over" bull market?

Post by frankmorris »

TheTimeLord wrote:I think people see a bubble because they look back to 2008-2009 and see the increase from there, but go back to 2002 or 2000 and let me know if the growth of the stock market over a longer period seems unreasonably high.
This is a really fantastic point - if you consider the last few years simply playing catch up from 2000s, it does make recent growth seem more reasonable.
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Re: The dot com "do over" bull market?

Post by countofmc »

frankmorris wrote:
countofmc wrote:In the spirit of spitballing, and since OP is focused on tech. I guess if I had to offer an opinion, seems like there's too many "me too" companies with business models that are easily duplicated. It's not just Uber/Lyft, but I believe there are other more local competitors. There seems to be a ton of companies offering delivery of various goods, especially food delivery. Snapchat's functionality seems to be easily duplicated by Instagram.

That being said a lot of these companies seem to be privately owned, so not sure how much of a meltdown or bubble burst would hurt the overall economy versus more localized damage in Silicon Valley.

I'd generally agree with you OP in that to me also a lot of these more mature tech companies seem to have solid business models. Apple, Google, Amazon, Netflix, etc. I think maybe an Uber and/or AirBnB could/will get there as well, but I'm not sure about all these other companies that seem to be trying to replicate those business models. Just a guess.
Good point about the duplication. I suppose those companies may be tapping into a legitimate business sector, but if the service is easily copied there may be underlying vulnerability.

I was thinking last night about a scenario in which someone massively hacked Facebook, stole a bunch of information, then used that to do some serious personal damage to people (stealing money, stealing passwords & logins to things FB uses) - if Facebook tanked overnight, that might be enough to start panic selling. I don't think the entire industry of social media would go under, but could be enough to start a crash.

AirBNB - certainly with some of the regulatory challenges they've been up against - there is certainly a vulnerability. However, I think with younger generations there is a sense of sharing of resources - not minding using their place as an AirBNB, not minding using Uber more frequently and buying a new car less frequently. I could see those as permanent cultural, social, and economic shifts.

And certainly interested in ideas about non-tech bubbles as well - just not thinking of any, save for high dividend, low growth stocks that may be vulnerable to rising interest rates.
I don't work in the cybersecurity field nor have that much knowledge about it, so maybe the risk is overstated, but that is one of the few things that keeps me up at night. Not necessarily something like FB, but worse, what about a major bank? A group hacks in, resets everyone's balance to zero overnight. Even if everyone is eventually made whole, I do worry about what the short-term shock/panic and the erosion of confidence in banks to protect against huge hacks would do to the overall economy. Not necessarily a direct response to your bubble issue though.

Like an Amazon or a Netflix, I do think there's a spot, a big spot even, for companies like AirBnB or Uber because of how the world and certain norms are changing. I'm just not convinced all these other companies that seem to want to compete in the same area can all survive.
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Re: The dot com "do over" bull market?

Post by warowits »

frankmorris wrote:
TheTimeLord wrote:I think people see a bubble because they look back to 2008-2009 and see the increase from there, but go back to 2002 or 2000 and let me know if the growth of the stock market over a longer period seems unreasonably high.
This is a really fantastic point - if you consider the last few years simply playing catch up from 2000s, it does make recent growth seem more reasonable.

I don't find this line of reasoning compelling. It is about price growth without earnings growth. If stocks double in the next year, and their earnings double, then that is perfectly reasonable. If stocks double and their earnings are fairly flat, then there is a real problem.

Have your stocks earnings kept up with their growth?
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Re: The dot com "do over" bull market?

Post by alex_686 »

frankmorris wrote:Looking at the high flyers currently (e.g., Netflix, Amazon, etc.), they seem to have good business models. Sure, some of the PE ratios are quite high, but many of these companies seem to be built around solid business models.
2 points.

Good companies does not necessarily mean a good stock price. Bad companies can have a great stock return in they manage their decline well, great companies may already have their greatness baked into their price.

PE ratios by themselves mean nothing. They are a relative gauge. The P.E of the S&P 500 is high in absolute terms but still pretty normal when using the Fed model. The Fed Model states the E/P ratio should be the 10 year treasury + some equity risk premium. Since long term rates are so low, the E/P should be high.
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Re: The dot com "do over" bull market?

Post by arcticpineapplecorp. »

David Jay wrote:
frankmorris wrote:I can't imagine this topic hasn't been discussed ad nauseum here...
I have lived through the flash crash (1987), the dot com bubble, 9/11 and the financial crisis.
Just a minor correction (more for newbies here)...the crash of 87 was actually known as Black Monday. It might have seemed like a "flash crash" because it was the greatest one day percentage loss in stock market history (22% down if memory serves). I'm assuming you were listing the crashes in chronological order. In that case it would be:

Black Monday (1987), the dot com bubble, 9/11, the financial crisis, and flash crash (2010)

But the real "flash crash" was in 2010 (and that particular crash recovered before the day was over):

https://www.google.com/search?q=flash+c ... rash+of+87
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Re: The dot com "do over" bull market?

Post by frankmorris »

warowits wrote:
frankmorris wrote:
TheTimeLord wrote:I think people see a bubble because they look back to 2008-2009 and see the increase from there, but go back to 2002 or 2000 and let me know if the growth of the stock market over a longer period seems unreasonably high.
This is a really fantastic point - if you consider the last few years simply playing catch up from 2000s, it does make recent growth seem more reasonable.

I don't find this line of reasoning compelling. It is about price growth without earnings growth. If stocks double in the next year, and their earnings double, then that is perfectly reasonable. If stocks double and their earnings are fairly flat, then there is a real problem.

Have your stocks earnings kept up with their growth?
Also a very fair point.
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Re: The dot com "do over" bull market?

Post by frankmorris »

alex_686 wrote:
frankmorris wrote:Looking at the high flyers currently (e.g., Netflix, Amazon, etc.), they seem to have good business models. Sure, some of the PE ratios are quite high, but many of these companies seem to be built around solid business models.
2 points.

Good companies does not necessarily mean a good stock price. Bad companies can have a great stock return in they manage their decline well, great companies may already have their greatness baked into their price.

PE ratios by themselves mean nothing. They are a relative gauge. The P.E of the S&P 500 is high in absolute terms but still pretty normal when using the Fed model. The Fed Model states the E/P ratio should be the 10 year treasury + some equity risk premium. Since long term rates are so low, the E/P should be high.
Very true. Here's a quote from Random Walk I'm just now reading:

“In the 1850s, the railroad was widely expected to greatly increase the efficiency of communications and commerce. It certainly did so, but it did not justify the prices of railroad stocks, which rose to enormous speculative heights before collapsing in August 1857”

So, maybe the basic assumption of "no underlying business model" isn't really true. You can have a great business, but if valuations become disconnected from growth/profits, that's also speculative. It does seem that most of the bubbles Malkiel references were, in fact, not based on solid business models though, so it does seem like an exception rather than the rule.
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Re: The dot com "do over" bull market?

Post by frankmorris »

And yet another:

“Boo.com was going to sell at full price clothes that people were not yet wearing. But my friend had seen the cover of Time with the headline “Kiss Your Mall Goodbye: Online Shopping Is Faster, Cheaper, and Better.” The prestigious firm of JP Morgan had invested millions in the company, and Fortune called it one of the “cool companies of 1999.”

Part of this trend seems to be that some ideas may actually be good IN PART, but may either be too early, go too fast, or just not have a good business MODEL, even if the concept and market would eventually be true.

Applying this logic, part of me wonders about the current AI/machine learning jargon being thrown around. I have no doubt it's the future, but there seems to be a lot of investment - perhaps by the big guys - into AI, particularly now with self-driving cars. Ford is getting into it, Google, etc. Tesla is certainly a future concept company that, while certainly selling products, is also selling a lot of "this is the future."

Space exploration?
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Re: The dot com "do over" bull market?

Post by whodidntante »

The thing about bubbles is you can't see them from the inside.
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Re: The dot com "do over" bull market?

Post by nisiprius »

whodidntante wrote:The thing about bubbles is you can't see them from the inside.
Agreed. All the debates in which some say it's a bubble and some say it's not are sterile. They don't lead to any reliable actions you can take. Stay the course using a stock allocation that's low enough that you can bear to stay the course.
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Re: The dot com "do over" bull market?

Post by TheTimeLord »

warowits wrote:
frankmorris wrote:
TheTimeLord wrote:I think people see a bubble because they look back to 2008-2009 and see the increase from there, but go back to 2002 or 2000 and let me know if the growth of the stock market over a longer period seems unreasonably high.
This is a really fantastic point - if you consider the last few years simply playing catch up from 2000s, it does make recent growth seem more reasonable.

I don't find this line of reasoning compelling. It is about price growth without earnings growth. If stocks double in the next year, and their earnings double, then that is perfectly reasonable. If stocks double and their earnings are fairly flat, then there is a real problem.

Have your stocks earnings kept up with their growth?
While I wouldn't agree you view stocks in a vacuum like that here is a chart and I will let you decide if earnings since 2000 have roughly kept up or not.
Image

https://www.advisorperspectives.com/dsh ... rket-cheap
Last edited by TheTimeLord on Tue May 23, 2017 10:17 pm, edited 1 time in total.
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Re: The dot com "do over" bull market?

Post by Independent George »

whodidntante wrote:The thing about bubbles is you can't see them from the inside.
The other thing about bubbles is that after they collapse, scavengers can pick and choose the best bits from the remains and consolidate.

Yeah, a lot of money got wasted during the tech bubble. But not all of it (or even most of it) was a waste, and what's left are a big part of the economy today. Netflix wouldn't work without the massive improvements in bandwidth & infrastructure that began in the 90s. Today's e-commerce relies on UPS' investments in logistics & tracking twenty years ago, which, in turn, relied upon the dramatic, then-current improvements in hardware & software.

The nature of capitalism is that it doesn't matter that ninety-nine attempts failed for each success, because we all reap the benefit of them having tried.
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Re: The dot com "do over" bull market?

Post by GoldenFinch »

TheTimeLord wrote:
warowits wrote:
frankmorris wrote:
TheTimeLord wrote:I think people see a bubble because they look back to 2008-2009 and see the increase from there, but go back to 2002 or 2000 and let me know if the growth of the stock market over a longer period seems unreasonably high.
This is a really fantastic point - if you consider the last few years simply playing catch up from 2000s, it does make recent growth seem more reasonable.

I don't find this line of reasoning compelling. It is about price growth without earnings growth. If stocks double in the next year, and their earnings double, then that is perfectly reasonable. If stocks double and their earnings are fairly flat, then there is a real problem.

Have your stocks earnings kept up with their growth?
While I wouldn't agree you view stocks in a vacuum like that here is a chart and I will let you decide if earnings since 2000 have roughly kept up or not.
Image
This chart is compelling.
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Re: The dot com "do over" bull market?

Post by btenny »

I think we are way over computerized for too much stuff with little security or hacking protection. We are just one coordinated cyber attack from people not having enough to eat or correct medical treatment or correct bank accounts. We are being complacent all over the place. Yes most of the people here do keep some protections but I am not sure it the right protection. Sony spent $35M last year for the single 2014 attack. The IRS is unsure if they lost 100K or 500K taxpayer files. Forbes estimates business will spend $2T on cyber costs by 2019. So lots of hits are happening regularly but someone or several are going to suffer a BIG hit soon. Get ready.... And yes that is Trillion....

https://www.forbes.com/sites/stevemorga ... 6b2c013a91

https://www.itgovernanceusa.com/blog/ir ... 0-million/
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Re: The dot com "do over" bull market?

Post by AlohaJoe »

frankmorris wrote:Reading through Random Walk Down Wall Street, and trying really hard to see what bubble we're in right now, if we're in one.
In 2016 Fama said
For bubbles, I want a systematic way of identifying them. It’s a simple proposition. You have to be able to predict that there is some end to it. All the tests people have done trying to do that don’t work. Statistically, people have not come up with ways of identifying bubbles
From the February 2017 paper "Bubbles For Fama".
We evaluate Eugene Fama’s claim that stock prices do not exhibit price bubbles. Based on US industry returns 1926-2014 and international sector returns 1985-2014, we present four findings: (1) Fama is correct in that a sharp price increase of an industry portfolio does not, on average, predict unusually low returns going forward; (2) such sharp price increases predict a substantially heightened probability of a crash; (3) attributes of the price run-up, including volatility, turnover, issuance, and the price path of the run-up can all help forecast an eventual crash and future returns; and (4) some of these characteristics can help investors earn superior returns by timing the bubble. Results hold similarly in US and international samples.
The paper has lots of good data & information on the challenges around "bubbles".
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Re: The dot com "do over" bull market?

Post by frankmorris »

btenny wrote:I think we are way over computerized for too much stuff with little security or hacking protection. We are just one coordinated cyber attack from people not having enough to eat or correct medical treatment or correct bank accounts. We are being complacent all over the place. Yes most of the people here do keep some protections but I am not sure it the right protection. Sony spent $35M last year for the single 2014 attack. The IRS is unsure if they lost 100K or 500K taxpayer files. Forbes estimates business will spend $2T on cyber costs by 2019. So lots of hits are happening regularly but someone or several are going to suffer a BIG hit soon. Get ready.... And yes that is Trillion....

https://www.forbes.com/sites/stevemorga ... 6b2c013a91

https://www.itgovernanceusa.com/blog/ir ... 0-million/
Which could turn into big business if it doesn't collapse it first.
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Re: The dot com "do over" bull market?

Post by frankmorris »

TheTimeLord wrote:
warowits wrote:
frankmorris wrote:
TheTimeLord wrote:I think people see a bubble because they look back to 2008-2009 and see the increase from there, but go back to 2002 or 2000 and let me know if the growth of the stock market over a longer period seems unreasonably high.
This is a really fantastic point - if you consider the last few years simply playing catch up from 2000s, it does make recent growth seem more reasonable.

I don't find this line of reasoning compelling. It is about price growth without earnings growth. If stocks double in the next year, and their earnings double, then that is perfectly reasonable. If stocks double and their earnings are fairly flat, then there is a real problem.

Have your stocks earnings kept up with their growth?
While I wouldn't agree you view stocks in a vacuum like that here is a chart and I will let you decide if earnings since 2000 have roughly kept up or not.
Image
I have to admit I don't fully understand the take home message here. Would you mind explaining your understanding of the implications?
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JoMoney
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Re: The dot com "do over" bull market?

Post by JoMoney »

frankmorris wrote:...What am I missing? Where is the bubble? If valuations are high, where are the corresponding bad business models that usually accompany unsustainable bubbles?...
Warren Buffett: “If I had an easy way, and a non-risk way, of shorting a whole lot of 20- or 30-year bonds, I’d do it ... But that’s not my game, and it can’t be done in the kind of quantity that would make sense for us. But I think that bonds are very overvalued, I’ll put it that way.”

Inflation is going to pickup eventually. People have been looking for it to pick up since the quantitative easing started in the GEC. It hasn't really happened, and probably won't happen on a schedule that anyone expects... but when it does, the interest rates demanded will rise, and there could be some kerfuffle as people fight to get out of commitments priced at very low long term rates.
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Dominic
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Re: The dot com "do over" bull market?

Post by Dominic »

I think the difference is that valuations are high across the board because the discount rate is very low.

Companies like Netflix and Amazon are just growth companies. They happen to be tech companies, but growth stocks in general are a constant. In the past, companies such as Ford would trade with the types of ludicrous earnings multiples we are seeing among today's growth companies.

There are hundreds or thousands of stocks in your portfolio, so don't be concerned about a handful being overvalued. It balances out.

That's not to say that the market won't correct. Inevitably, it will. But it probably won't correct for the same reason it did 15 years ago.
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TheTimeLord
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Re: The dot com "do over" bull market?

Post by TheTimeLord »

frankmorris wrote:
TheTimeLord wrote:
warowits wrote:
frankmorris wrote:
TheTimeLord wrote:I think people see a bubble because they look back to 2008-2009 and see the increase from there, but go back to 2002 or 2000 and let me know if the growth of the stock market over a longer period seems unreasonably high.
This is a really fantastic point - if you consider the last few years simply playing catch up from 2000s, it does make recent growth seem more reasonable.

I don't find this line of reasoning compelling. It is about price growth without earnings growth. If stocks double in the next year, and their earnings double, then that is perfectly reasonable. If stocks double and their earnings are fairly flat, then there is a real problem.

Have your stocks earnings kept up with their growth?
While I wouldn't agree you view stocks in a vacuum like that here is a chart and I will let you decide if earnings since 2000 have roughly kept up or not.
Image
I have to admit I don't fully understand the take home message here. Would you mind explaining your understanding of the implications?
Lots of people seem to believe you can look at the PE to tell if the market is expensive or in a bubble. Also the question was asked about if earnings per share had grown in a ratio similar to the amount the market went up. Well here is a long term chart of the market PE, I will let people draw their own conclusions.

https://www.advisorperspectives.com/dsh ... rket-cheap
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SGM
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Re: The dot com "do over" bull market?

Post by SGM »

While others were investing in dot.coms I was observing indications we were in a bubble. I was often the recipient of requests to fund new ventures with no record of any income by a new acquaintance. Another made headlines in the WSJ and sold his hot new company for $1 billion in stock. Before he was allowed to unload the stock its value went to zero. It was a very heady time, but local happenings in one of America's most affluent suburbs were very indicative of a bubble prior to the bubble bursting.

I stayed 100% invested during this era, but not in dot.coms. My individual stocks mostly became dividend "aristocrats". They were value stocks. I also held the Vanguard 500 index fund. I agree that one should pick an AA that would allow you to remain invested in a down turn. I also feel that if you are young you should invest mostly if not all in stocks and don't panic sell under any circumstance if you are a long term investor, i.e. investing for a distant retirement.
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frankmorris
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Re: The dot com "do over" bull market?

Post by frankmorris »

JoMoney wrote:Inflation is going to pickup eventually. People have been looking for it to pick up since the quantitative easing started in the GEC. It hasn't really happened, and probably won't happen on a schedule that anyone expects... but when it does, the interest rates demanded will rise, and there could be some kerfuffle as people fight to get out of commitments priced at very low long term rates.
I was curious how bond values would hold up in market/economy swings or shifts, and it seems that intermediate or total bond funds do tend to swing up and down, but not by more than 5% or so. Of course, it may be different this time, but it seems there is at least some degree of stability.
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Re: The dot com "do over" bull market?

Post by IlliniDave »

Regarding stocks and just operating on gut feel, I don't sense a bubble to this bull market. Bubbles usually come with some sort of emotional component, an irrational exuberance as has been said. Despite a fairly long bull market, there still seems to be a big dose of skepticism out there. It's virtually certain we'll encounter a bear market at some point in time, of course, and it might reveal in hindsight where we were less mistrustful than we should have been.
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CurlyDave
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Re: The dot com "do over" bull market?

Post by CurlyDave »

I think that the US has had years of quantitive easing, i.e. printing money with no backing, and yet no appreciable official inflation.

There is a huge amount of pent-up inflation waiting in the wings for the economy to get better. I think stocks are running up because the market realizes this.

I don't think this is a bubble, it is a normal reaction to the idea that dollar bills are not really worth what they were previously, and that future winners are going to be companies with the power to increase prices.

The unofficial inflation I see in our monthly expenditures over the last two years is a lot higher than the 0% and 0.3% increase in SS. I am not complaining, just observing. We have inflation-protected investments and income streams and are doing fine.

If stock prices go up because of a mismatch between CPI and what people feel in their pockets is that a bubble?
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Re: The dot com "do over" bull market?

Post by NibbanaBanana »

CurlyDave wrote:I think that the US has had years of quantitive easing, i.e. printing money with no backing, and yet no appreciable official inflation.

There is a huge amount of pent-up inflation waiting in the wings for the economy to get better. I think stocks are running up because the market realizes this.

I don't think this is a bubble, it is a normal reaction to the idea that dollar bills are not really worth what they were previously, and that future winners are going to be companies with the power to increase prices.

The unofficial inflation I see in our monthly expenditures over the last two years is a lot higher than the 0% and 0.3% increase in SS. I am not complaining, just observing. We have inflation-protected investments and income streams and are doing fine.

If stock prices go up because of a mismatch between CPI and what people feel in their pockets is that a bubble?
I agree with what you've said except the inflation-protected securities are protected by exactly the entity who is producing the inflation. And they don't seem to count it in their data. So I'm not sure about the benefit of these. To me, the cost of living is increasing a lot. Noticeably, my costs just keep going up but the governor says there's no inflation. I don't know what they're counting but it's not my real world expenses.

edit: I might ad what some very wise person pointed out in another thread. They raised the SS full retirement age from 65 to 67. How much inflation does this represent?
Bendee
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Re: The dot com "do over" bull market?

Post by Bendee »

I think there is a tech bubble, but not as bad as the one in 2000. I see 2 things: one is companies that are not yet profitable (Uber, Snap, etc) having insane 60B and 30B valuations, respectively. This seems to be people pricing in growth potential but severely underestimating the risk. I have faith that Uber **could** be a $60B company one day if it plays it's cards right, but it definitely isn't there yet. Add in the lack of user/driver 'stickiness' (one can literally open another app for a similar service if they want to switch) and the numerous players in the autonomous vehicle market right now and it becomes very apparent people are likely overvaluing Uber.

The second is major established tech companies relying too much on one product line. As much as $670B Google has seen success with Nest, Pixels, etc., advertising is still 85% of their revenue stream. Apple is worth $800B yet 2/3rds of their revenue comes from one product line(iPhone), and the majority of their other revenue comes from products that depend on their iPhone sales (iPads, Apple Music, etc.). Those iPhones, BTW, are not seeing much unit growth YoY.

I don't see tech causing a major stock market bubble due to most being privately-held, but I think these companies don't have risk priced in as much as they should, especially for the ones that have multi-billion dollar valuations but have yet to turn a profit. Luckily, most of the craziest ones are funded by private VC money and shouldn't drag the market down​ too much if they fail, although I expect to see some correction in the future.
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Re: The dot com "do over" bull market?

Post by wolf359 »

frankmorris wrote: What am I missing? Where is the bubble? If valuations are high, where are the corresponding bad business models that usually accompany unsustainable bubbles?
Tesla is currently producing 84,000 cars a year. Ford is currently producing 7 million.
Tesla has annual revenues of $7 billion. Ford has annual revenues of $151.8 billion.
Tesla is not profitable, and loses $675 million a year. Ford makes $4.6 billion a year.
Tesla has no dividend. Ford has a 5.3% dividend.

Tesla stock is now valued greater than Ford's. To justify this price, Tesla has to grow their production by 6-7 times by next year. Given that it's Elon Musk, I wouldn't necessarily bet against him, but that sounds pretty bubbly to me.

====

Snapchat has a stock governing structure in which control by the founders is absolute. All Class A stocks sold to the public are non-voting. The company hasn't been profitable in its 6 years of existence, has no anticipated profits in the near future, has no stated long-term strategy, and management has absolutely no accountability to the owners. Yet the IPO was highly successful. People are buying without thinking. This is also the sign of a bubble.

====

The stock market climbed during the elections every time Clinton was ahead, and dropped when it looked like Trump would win. Then Trump actually won, and the stock market went bananas in the positive direction. Then, after he actually became President, the bull market started stalling when it looks like he gets bad news, but then still recovers and comes back. As recently as last week, there was talk of impeachment and the market dropped as much as 6%. It's now back to flirting with new highs, but nothing has changed. This market is biased in a positive direction, and I'm not sure what's driving it.

====

No, things aren't as crazy as they got in the 90's, but there are some signs of bubbly behavior. I'm just holding on for the ride. Back in the 90's, the big bubble actually developed at the tail end. I don't know if we're quite there yet.

What we also could have had is simply recovery from the Great Recession, where the real bull market hasn't started yet. The Fed hasn't actually unwound from their defensive measures taken in 2008-2011. The Fed has actually been propping up the mortgage market by buying securitized home loans, which had the effect of dropping mortgage interest rates. When they start selling their securities, mortgage rates will go up, and housing prices will drop. For things to return to normal, the mortgage market should be operating normally, without props, and interest rates should be normal, and not near zero.

One factor arguing for the continuation of the bull market is that this market is extremely tenuous. As long as everyone is waiting for the other shoe to drop, there are buyers holding back. When everybody goes all in, there are no buyers left, and then the market tanks.
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TheTimeLord
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Re: The dot com "do over" bull market?

Post by TheTimeLord »

wolf359 wrote:
frankmorris wrote: What am I missing? Where is the bubble? If valuations are high, where are the corresponding bad business models that usually accompany unsustainable bubbles?
Tesla is currently producing 84,000 cars a year. Ford is currently producing 7 million.
Tesla has annual revenues of $7 billion. Ford has annual revenues of $151.8 billion.
Tesla is not profitable, and loses $675 million a year. Ford makes $4.6 billion a year.
Tesla has no dividend. Ford has a 5.3% dividend.

Tesla stock is now valued greater than Ford's. To justify this price, Tesla has to grow their production by 6-7 times by next year. Given that it's Elon Musk, I wouldn't necessarily bet against him, but that sounds pretty bubbly to me.

====

Snapchat has a stock governing structure in which control by the founders is absolute. All Class A stocks sold to the public are non-voting. The company hasn't been profitable in its 6 years of existence, has no anticipated profits in the near future, has no stated long-term strategy, and management has absolutely no accountability to the owners. Yet the IPO was highly successful. People are buying without thinking. This is also the sign of a bubble.

====

The stock market climbed during the elections every time Clinton was ahead, and dropped when it looked like Trump would win. Then Trump actually won, and the stock market went bananas in the positive direction. Then, after he actually became President, the bull market started stalling when it looks like he gets bad news, but then still recovers and comes back. As recently as last week, there was talk of impeachment and the market dropped as much as 6%. It's now back to flirting with new highs, but nothing has changed. This market is biased in a positive direction, and I'm not sure what's driving it.

====

No, things aren't as crazy as they got in the 90's, but there are some signs of bubbly behavior. I'm just holding on for the ride. Back in the 90's, the big bubble actually developed at the tail end. I don't know if we're quite there yet.

What we also could have had is simply recovery from the Great Recession, where the real bull market hasn't started yet. The Fed hasn't actually unwound from their defensive measures taken in 2008-2011. The Fed has actually been propping up the mortgage market by buying securitized home loans, which had the effect of dropping mortgage interest rates. When they start selling their securities, mortgage rates will go up, and housing prices will drop. For things to return to normal, the mortgage market should be operating normally, without props, and interest rates should be normal, and not near zero.

One factor arguing for the continuation of the bull market is that this market is extremely tenuous. As long as everyone is waiting for the other shoe to drop, there are buyers holding back. When everybody goes all in, there are no buyers left, and then the market tanks.
Ramping up production of the Model 3 sedan, which has a waiting list of about 400,000 people who each put down a $1,000 reservation fee, poses a considerable engineering challenge for the company. Equity analysts generally have mixed views on whether the new car will launch on schedule in the third quarter of 2017 and the likelihood of Tesla achieving an overall production rate of 500,000 vehicles per year in 2018 and 1 million annually in 2020.

Tesla is also still completing its sprawling $5 billion Gigafactory battery plant near Reno, Nevada, an essential ingredient to achieve Musk’s vision of vastly expanded production of lithium-ion cells needed for both vehicle battery packs and stationary power storage units paired with SolarCity solar panels.
https://www.forbes.com/sites/alanohnsma ... a3961b776b

Snapchat IPO a success? Question is snapchat a business on the cutting edge of AR or niche product no moat.
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CurlyDave
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Re: The dot com "do over" bull market?

Post by CurlyDave »

NibbanaBanana wrote:
CurlyDave wrote:...The unofficial inflation I see in our monthly expenditures over the last two years is a lot higher than the 0% and 0.3% increase in SS. I am not complaining, just observing. We have inflation-protected investments and income streams and are doing fine...
I agree with what you've said except the inflation-protected securities are protected by exactly the entity who is producing the inflation. And they don't seem to count it in their data. So I'm not sure about the benefit of these. To me, the cost of living is increasing a lot. Noticeably, my costs just keep going up but the governor says there's no inflation. I don't know what they're counting but it's not my real world expenses.

edit: I might ad what some very wise person pointed out in another thread. They raised the SS full retirement age from 65 to 67. How much inflation does this represent?
When I say "inflation-protected investments" I do not mean TIPS or inflation protected annuities, I said inflation protected investments, not securities. We don't have any of either of those for exactly the reason you mention. As we have both noticed, the real cost of living has outpaced the CPI substantially.

My inflation-protected investments are in brick and mortar rental real estate. The "CurlyDave Price Index" is up by about 30% over the past two years (CAGR 14%) and the rents we get track that pretty well.

The "CurlyDave Price Index" is based on the amount of cash I take out of the bank each week. Very unscientific, very subjective, but I can quantify it.

Life expectancy of a 65 year old is about 17 years. I make out cutting 2 years off SS is 2/17 or an 11.8% decrease.
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Re: The dot com "do over" bull market?

Post by niners9088 »

Just my two cents is that the old business model companies + the new business model companies = too high a combined segment valuation. I think some industries have/are recognizing this while others are just catching on. I've include some examples below but I think some of these companies will disappear or pivot to a new focus in the years to come.

Consumer Electronics --> Circuit City, HH Greg, Best Buy + Amazon, newegg, ebay, etc
Clothing --> JC Penny's, Sears, Macy's, etc. + Amazon, online retail, etc.
Automotive --> GM, Ford, Toyota, Honda + Tesla, Apple, Waymo (Alphabet)
Television --> Comcast, TimeWarner, etc + Netflix, Apple, Amazon

I generally think the dot.com bust was because the tech didn't have the business models right. Now I think they are better at this and the next bubble or drop will be the reverse where the old tech finally pops. An example back to pet.com, I now buy almost all of my pet supplies except for food online.

The plus side for investors is this could be gradual segment by segment over a longer time. Also one would assume that the new business models would have lower operating costs and once the old tech is gone could then raise price thus increasing margins. This would give more profit and a higher overall market cap to the segment.
wolf359
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Re: The dot com "do over" bull market?

Post by wolf359 »

[quote="TheTimeLord]
Ramping up production of the Model 3 sedan, which has a waiting list of about 400,000 people who each put down a $1,000 reservation fee, poses a considerable engineering challenge for the company. Equity analysts generally have mixed views on whether the new car will launch on schedule in the third quarter of 2017 and the likelihood of Tesla achieving an overall production rate of 500,000 vehicles per year in 2018 and 1 million annually in 2020.

Tesla is also still completing its sprawling $5 billion Gigafactory battery plant near Reno, Nevada, an essential ingredient to achieve Musk’s vision of vastly expanded production of lithium-ion cells needed for both vehicle battery packs and stationary power storage units paired with SolarCity solar panels.
https://www.forbes.com/sites/alanohnsma ... a3961b776b

Snapchat IPO a success? Question is snapchat a business on the cutting edge of AR or niche product no moat.[/quote]

The Snapchat IPO raised billions of dollars, exceeding its IPO price, and going up more than 40% on its first full trading day after the IPO. That made the IPO a success. The founders got to cash out without diluting their control. The fact that the IPO achieved its goals has nothing to do with the ultimate success of the company.

The market has priced in that Tesla will achieve its goal of producing 500K cars in 2018, which is a 6X increase over current production numbers. A lot has to go right.
Alkan
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Re: The dot com "do over" bull market?

Post by Alkan »

If you want to look at a bubble in action, take a look at cryptocurrencies. Really any cryptocurrency over the last couple months, although ETH is the one that comes to mind. It's like watching the south sea bubble or tulip mania live.
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David Jay
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Re: The dot com "do over" bull market?

Post by David Jay »

niners9088 wrote:I generally think the dot.com bust was because tech didn't have the business models right.
Any business model that includes the two words "burn rate" is suspect.
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heyyou
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Re: The dot com "do over" bull market?

Post by heyyou »

I'm sure that I do not know about future prices in the stock market. I'm a passive, passive investor.
jdb
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Re: The dot com "do over" bull market?

Post by jdb »

David Jay wrote:
niners9088 wrote:I generally think the dot.com bust was because tech didn't have the business models right.
Any business model that includes the two words "burn rate" is suspect.
Be careful of generalizations. It is also known as capital expenditures and capital investments. Was used as pejorative (along with lack of profits) for Amazon for over 20 years. Sometimes it succeeds. I think Tesla is in that category now.
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