Is there a High Tech Bubble in S&P 500 & Total Market?

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
User avatar
vineviz
Posts: 7797
Joined: Tue May 15, 2018 1:55 pm

Re: Too much tech in total stock market?

Post by vineviz »

{Thread merged into here}
FIREchief wrote: Tue Jul 23, 2019 8:45 pm Hmmm... I wonder why 1999 was chosen as the starting date? Round number (20 years)? Perhaps not! :twisted:
It’s when the funds launched.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
tibbitts
Posts: 11852
Joined: Tue Feb 27, 2007 6:50 pm

Re: Is there a High Tech Bubble in S&P 500 & Total Market?

Post by tibbitts »

HawkeyePierce wrote: Wed Jul 24, 2019 2:33 am This might be off topic. One thing I’ve noticed about the value or small/mid index funds is they have a very small number of companies.

If one is concerned about mega-cap valuations, why not an extended market fund instead?

Vanguard’s mid cap index has 371 stocks. Small cap index is about 1400. Small value index is 871.

The extended market fund has nearly 3300. Wouldn’t that be a more diversified tilt away from mega cap?
Well yes but if you combine mid and small, which you would, you get a large number of stocks. A larger number if you add international.
tibbitts
Posts: 11852
Joined: Tue Feb 27, 2007 6:50 pm

Re: Is there a High Tech Bubble in S&P 500 & Total Market?

Post by tibbitts »

FIREchief wrote: Tue Jul 23, 2019 8:54 pm
sambb wrote: Tue Jul 23, 2019 3:01 am seems like a better industry than newspapers, some car companies, malls, movie theaters, etc. volatile but game changing. maybe undervalued. who goes to a mall or retail or talks instead of texts? or to the movies? times changed
Bingo!!! Thank God the US isn't trying to win with heavy manufacturing any more. We still have a few bright spots, but there are better ways to win these days.
But many of those manufacturing businesses were the first to develop and use tech of their day. Winning in the overall market doesn't always translate to winning in the equity market.
pdavi21
Posts: 1296
Joined: Sat Jan 30, 2016 4:04 pm

Re: Is there a High Tech Bubble in S&P 500 & Total Market?

Post by pdavi21 »

Yes, there is a tech bubble.
However, it was even worse in 2013 on most valuation metrics.

Lesson: don't short tech bubbles.
"We spend a great deal of time studying history, which, let's face it, is mostly the history of stupidity." -Stephen Hawking
furnace
Posts: 336
Joined: Tue Oct 20, 2015 3:38 pm

Re: Is there a High Tech Bubble in S&P 500 & Total Market?

Post by furnace »

If you think there's a bubble, then get out of tech. For me, I'm going to keep riding this bull, and would add more if I had the extra cash :moneybag
asif408
Posts: 2185
Joined: Sun Mar 02, 2014 8:34 am
Location: Florida

Re: Is there a High Tech Bubble in S&P 500 & Total Market?

Post by asif408 »

pdavi21 wrote: Wed Jul 24, 2019 12:02 pm Yes, there is a tech bubble.
However, it was even worse in 2013 on most valuation metrics.
Can you provide specific examples.
User avatar
nisiprius
Advisory Board
Posts: 41944
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Is there a High Tech Bubble in S&P 500 & Total Market?

Post by nisiprius »

Since you ask, yes, I think there is. The question is always: so what? Believing that, what should I do?

For the record: I plan to take no actions based on this belief. I plan to stay the course. I think the bubble will burst and create a dramatic fall in S&P 500 and Total Market. I think that will be mirrored in my holdings. I think it will hurt a lot and I will feel a great deal of panicky regret and low self-esteem about it. Yes, I really think that is likely to happen, maybe the maximum-likelihood possibility, and, nevertheless, I plan to stay the course.

It is an unstated assumption in many investing circles that whenever you have high conviction about something, you ought to make a bet based on that conviction. I don't accept that assumption.
Last edited by nisiprius on Wed Jul 24, 2019 12:20 pm, edited 2 times in total.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
pdavi21
Posts: 1296
Joined: Sat Jan 30, 2016 4:04 pm

Re: Is there a High Tech Bubble in S&P 500 & Total Market?

Post by pdavi21 »

asif408 wrote: Wed Jul 24, 2019 12:11 pm
pdavi21 wrote: Wed Jul 24, 2019 12:02 pm Yes, there is a tech bubble.
However, it was even worse in 2013 on most valuation metrics.
Can you provide specific examples.
I don't know. I think AMZN, GOOG, FB (existed yet?), AAPL, NFLX mostly had higher PE ratios, lower ROCE in 2013. The tech sector may have had more favorable factors on average.

I want to say Amazon had a PE in the hundreds, GOOG was over 30, FB on IPO was very high, AAPL was around 13, and NFLX was around 150. Currently, they are around 100, 26, 23, 17, 130.

Please fact check me as I am going off memory and not actual historical multiples.

EDIT: I went ahead and checked the valuations in August 2013 for VGT (Vanguard Information Technology ETF)

Aug 2013 June 2019
PE 18.5x 23.4x
PB 3.3x 6.6x
ROCE 24.5% 22.3%
Growth 23.0% 11.5%

Looks like the bubble is somewhat worse when looking at these factors for this sector fund if that adds any value to the conversion.
Last edited by pdavi21 on Wed Jul 24, 2019 12:55 pm, edited 1 time in total.
"We spend a great deal of time studying history, which, let's face it, is mostly the history of stupidity." -Stephen Hawking
H-Town
Posts: 2868
Joined: Sun Feb 26, 2017 2:08 pm

Re: Is there a High Tech Bubble in S&P 500 & Total Market?

Post by H-Town »

To answer the question: yes there is. Maybe active management and/or sector investing will be relevant again? In any cases, it will be a bet. Do you feel lucky?
User avatar
vitaflo
Posts: 1370
Joined: Sat Sep 03, 2011 3:02 pm

Re: Is there a High Tech Bubble in S&P 500 & Total Market?

Post by vitaflo »

You can always invest in international if you want large companies in other sectors.
User avatar
Carlos Danger
Posts: 155
Joined: Fri Mar 16, 2018 6:32 pm

Re: Is there a High Tech Bubble in S&P 500 & Total Market?

Post by Carlos Danger »

Amazon is the new Sears & Roebuck, and that's not even how they make their real bacon. Amazon web services is. They're the new Sears & Roebuck AND the new Union Pacific Railroad or US steel all in one.

You wanted to sell product, you needed Sears. You wanted to make product, you needed US Steel. You wanted to transport product, you needed Union Pacific.

It's the 21st century, the age of the internet. No one sells more than Amazon, no one moves more than Amazon, and oh by the way, if you want to do business on the web, you need web services, and AWS is king.

The ridiculous PE ratio doesn't seem so ridiculous when you consider what they do and where they are going. I'm shocked they haven't already become the top market cap company permanently.

As for Microsoft, Facebook, and Google, pretty reasonable valuations for Tech. And look at their books. My God.

This is not to say it can't all come crashing down. It can. And Indexers will adjust accordingly, simply by staying the course. The index will adjust for them.
User avatar
Kenkat
Posts: 6667
Joined: Thu Mar 01, 2007 11:18 am
Location: Cincinnati, OH

Re: Is there a High Tech Bubble in S&P 500 & Total Market?

Post by Kenkat »

My modestly slanted portfolio has no single stock that makes up more than 1% of my portfolio while every stock in the top 10 stocks in the Total Market Index are greater than 1%. The top 10 make up nearly 18% of the index. If there is a bubble in large cap growth, I think my portfolio will smooth some of that out as it did in 2000. I prefer the slant but don’t have an issue with just holding the market portfolio and staying the course as well.
ohai
Posts: 1327
Joined: Wed Dec 27, 2017 2:10 pm

Re: Is there a High Tech Bubble in S&P 500 & Total Market?

Post by ohai »

If the 2013 "bubble" didn't burst, it was most likely just not a bubble...
User avatar
Sandtrap
Posts: 11737
Joined: Sat Nov 26, 2016 6:32 pm
Location: Hawaii No Ka Oi , N. Arizona

Re: Is there a High Tech Bubble in S&P 500 & Total Market?

Post by Sandtrap »

Coincidentally, I had just been reading William Bernstein's thoughts on the "dot.com" bubble/burst 2000 to 2002.
Strange. . . . .
j :happy
Wiki Bogleheads Wiki: Everything You Need to Know
heyyou
Posts: 3794
Joined: Tue Feb 20, 2007 4:58 pm

Re: Is there a High Tech Bubble in S&P 500 & Total Market?

Post by heyyou »

As mentioned by others, no one is suggesting that having less, but not zero, exposure to Large Growth, is the path to impoverishment. Yes, costs matter, but the very lowest cost funds, have some issues related to letting the most popular stocks dominate your allocations. The best allocation is whatever suits you, not whatever is the public's average choice, unless that is also your choice.
lsp12
Posts: 42
Joined: Thu Dec 29, 2016 12:20 pm

Re: Is there a High Tech Bubble in S&P 500 & Total Market?

Post by lsp12 »

I will point out that there are other big differences from 2000 -- IPO's aren't happening every day at high (ridiculous) valuations, and the 'average Joe' isn't talking about the stock market and how to make a killing.

Both of those phenomena were prevalent back then; I recall them well: anyone here remember VA/Linux, a commodity hardware company that closed its first day as a public company in December 1999 with a valuation of $10B on a revenue run rate of less than $50mm?; or the parties where seemingly the only topics of conversation were the stock market, IPO's, and how to get rich (this at a party of upper middle class bureaucrats/intellectuals/technocrats)? I do.

I personally think the market is pretty darned high; I don't really understand how the current P/E is justified if one looks at future profit margins, growth rates, and likely changes in P/E ratios (as John Bogle used to do), but to compare the FAANG stocks to the 2000 bubble seems ill-considered to me.
User avatar
Topic Author
nedsaid
Posts: 13808
Joined: Fri Nov 23, 2012 12:33 pm

Re: Is there a High Tech Bubble in S&P 500 & Total Market?

Post by nedsaid »

vitaflo wrote: Wed Jul 24, 2019 1:46 pm You can always invest in international if you want large companies in other sectors.
Bingo. The best argument for adding International Stocks to an otherwise US only portfolio is better sector diversification. Thank you.
A fool and his money are good for business.
User avatar
Topic Author
nedsaid
Posts: 13808
Joined: Fri Nov 23, 2012 12:33 pm

Re: Is there a High Tech Bubble in S&P 500 & Total Market?

Post by nedsaid »

Sandtrap wrote: Wed Jul 24, 2019 2:11 pm Coincidentally, I had just been reading William Bernstein's thoughts on the "dot.com" bubble/burst 2000 to 2002.
Strange. . . . .
j :happy
I do have rather amazing psychic capabilities. :wink:
A fool and his money are good for business.
User avatar
Sandtrap
Posts: 11737
Joined: Sat Nov 26, 2016 6:32 pm
Location: Hawaii No Ka Oi , N. Arizona

Re: Is there a High Tech Bubble in S&P 500 & Total Market?

Post by Sandtrap »

nedsaid wrote: Wed Jul 24, 2019 5:54 pm
Sandtrap wrote: Wed Jul 24, 2019 2:11 pm Coincidentally, I had just been reading William Bernstein's thoughts on the "dot.com" bubble/burst 2000 to 2002.
Strange. . . . .
j :happy
I do have rather amazing psychic capabilities. :wink:
LOL :D

"Rational Expectations" by William Bernstein
page 40 "Tech Bubble".
re: Small and Value Factor Total Returns.

j
Wiki Bogleheads Wiki: Everything You Need to Know
User avatar
Topic Author
nedsaid
Posts: 13808
Joined: Fri Nov 23, 2012 12:33 pm

Re: Is there a High Tech Bubble in S&P 500 & Total Market?

Post by nedsaid »

Sandtrap wrote: Wed Jul 24, 2019 6:01 pm
nedsaid wrote: Wed Jul 24, 2019 5:54 pm
Sandtrap wrote: Wed Jul 24, 2019 2:11 pm Coincidentally, I had just been reading William Bernstein's thoughts on the "dot.com" bubble/burst 2000 to 2002.
Strange. . . . .
j :happy
I do have rather amazing psychic capabilities. :wink:
LOL :D

"Rational Expectations" by William Bernstein
page 40 "Tech Bubble".
re: Small and Value Factor Total Returns.

j
Perhaps you could make a few comments on this topic based upon what you read in Bernstein's book. It would be interesting.
A fool and his money are good for business.
User avatar
Sandtrap
Posts: 11737
Joined: Sat Nov 26, 2016 6:32 pm
Location: Hawaii No Ka Oi , N. Arizona

Re: Is there a High Tech Bubble in S&P 500 & Total Market?

Post by Sandtrap »

nedsaid wrote: Wed Jul 24, 2019 6:04 pm
Sandtrap wrote: Wed Jul 24, 2019 6:01 pm
nedsaid wrote: Wed Jul 24, 2019 5:54 pm
Sandtrap wrote: Wed Jul 24, 2019 2:11 pm Coincidentally, I had just been reading William Bernstein's thoughts on the "dot.com" bubble/burst 2000 to 2002.
Strange. . . . .
j :happy
I do have rather amazing psychic capabilities. :wink:
LOL :D

"Rational Expectations" by William Bernstein
page 40 "Tech Bubble".
re: Small and Value Factor Total Returns.

j
Perhaps you could make a few comments on this topic based upon what you read in Bernstein's book. It would be interesting.
Will go one better. Just emailed Bill Bernstein and asked him.

"It's starting to smell that way, but things are not as far along as they were in the late 90s." (Bernstein).

What a great guy with a quick response.
j
Wiki Bogleheads Wiki: Everything You Need to Know
User avatar
HanSolo
Posts: 138
Joined: Thu Jul 19, 2012 3:18 am

Re: Is there a High Tech Bubble in S&P 500 & Total Market?

Post by HanSolo »

bantam222 wrote: Tue Jul 23, 2019 2:46 am Think about the scope of what these companies do and the impact they have on your life.
I'm aware that they're all the rage (FAANG), but they have little effect on my life, especially economically. It's just my personal lifestyle preference.

I don't invest in Total Market for precisely the cited reason, that is, high concentration in Big Tech, along with the possibility of overvaluation and/or higher volatility in same. it's just my personal investing preference.

Cheers,
Han Solo
User avatar
Topic Author
nedsaid
Posts: 13808
Joined: Fri Nov 23, 2012 12:33 pm

Re: Is there a High Tech Bubble in S&P 500 & Total Market?

Post by nedsaid »

Sandtrap wrote: Wed Jul 24, 2019 6:17 pm
nedsaid wrote: Wed Jul 24, 2019 6:04 pm
Sandtrap wrote: Wed Jul 24, 2019 6:01 pm
nedsaid wrote: Wed Jul 24, 2019 5:54 pm
Sandtrap wrote: Wed Jul 24, 2019 2:11 pm Coincidentally, I had just been reading William Bernstein's thoughts on the "dot.com" bubble/burst 2000 to 2002.
Strange. . . . .
j :happy
I do have rather amazing psychic capabilities. :wink:
LOL :D

"Rational Expectations" by William Bernstein
page 40 "Tech Bubble".
re: Small and Value Factor Total Returns.

j
Perhaps you could make a few comments on this topic based upon what you read in Bernstein's book. It would be interesting.
Will go one better. Just emailed Bill Bernstein and asked him.

"It's starting to smell that way, but things are not as far along as they were in the late 90s." (Bernstein).

What a great guy with a quick response.
j
That is my take as well. Thank you.
A fool and his money are good for business.
User avatar
JoMoney
Posts: 9763
Joined: Tue Jul 23, 2013 5:31 am

Re: Is there a High Tech Bubble in S&P 500 & Total Market?

Post by JoMoney »

nedsaid wrote: Wed Jul 24, 2019 5:53 pm
vitaflo wrote: Wed Jul 24, 2019 1:46 pm You can always invest in international if you want large companies in other sectors.
Bingo. The best argument for adding International Stocks to an otherwise US only portfolio is better sector diversification. Thank you.
Better how? For what purpose is it "better sector diversification", lower risk? higher returns?

I think it's worth pointing out that international is as high in financial stocks as the U.S. is in tech, and the U.S. market certainly isn't low in the finance sector as it is.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
User avatar
jhfenton
Posts: 4659
Joined: Sat Feb 07, 2015 11:17 am
Location: Ohio

Re: Is there a High Tech Bubble in S&P 500 & Total Market?

Post by jhfenton »

ohai wrote: Tue Jul 23, 2019 11:27 am My point is that these stocks do not have to be grouped tightly together at all, even in something like "high tech/internet", which can mean anything. Walmart gets half its sales from internet, but you wouldn't call it an "internet company". So, why associate Amazon with Facebook but not Walmart?
Walmart gets nothing like half of its sales online. It's between 3% and 4% at this point. It's online revenue has been growing at 30-40% per year, compared to ~3% growth in retail stores, but it's still a relatively small contributor to Walmart's total revenue given Walmart's enormous physical retail footprint.
User avatar
Sandtrap
Posts: 11737
Joined: Sat Nov 26, 2016 6:32 pm
Location: Hawaii No Ka Oi , N. Arizona

Re: Is there a High Tech Bubble in S&P 500 & Total Market?

Post by Sandtrap »

jhfenton wrote: Thu Jul 25, 2019 9:26 am
ohai wrote: Tue Jul 23, 2019 11:27 am My point is that these stocks do not have to be grouped tightly together at all, even in something like "high tech/internet", which can mean anything. Walmart gets half its sales from internet, but you wouldn't call it an "internet company". So, why associate Amazon with Facebook but not Walmart?
Walmart gets nothing like half of its sales online. It's between 3% and 4% at this point. It's online revenue has been growing at 30-40% per year, compared to ~3% growth in retail stores, but it's still a relatively small contributor to Walmart's total revenue given Walmart's enormous physical retail footprint.
Good point.
IMHO: random musings.

Following the lead of Amazon, commerce is breaking new ground. This is not an "either or" but a hybrid evolution between Walmart's "brick and mortar" presence and digital revenue. IMHO over time, there will be less and less of a differentiation between "High Tech" as it refers to "digital commerce" and "physical commerce". It's inevitable. Companies that do not evolve toward an Amazon model (or break ground on thier own) are not going to thrive.

The same can be said for the FAANG presence. They will have to evolve into new business models to retain their front positions. You can see them trying and expanding, keeping what works, discarding what doesn't, losing ground in some outdated. It's this speed of change that seperates the winners from the losers. And, how well they adapt to and predict to market and customer demands.

Here's another quandary, customers nowadays don't know what they want. For example: Everyone's surprised by the plethora of "self checkout" registers in the stores. And, little by little, we are "trained and educated" to adapt in turn. And, perhaps, trained to "like it" or at least endure in silence.

In summary, over time, there's no differentiation between a "high tech bubble" and the S&P 500 or Total Market. It will all simply be, "The Market".

How is all this actionable to a Boglehead, as far as personal investment finance?
Good question.
Factors, tilts, alternatives, value, growth, . . . et al?
Or simply "stay the course" with time tested basics (3 fund and done)?
Or, set one's allocation on a glide slope while paying attention to the ability of the underlying funds to adapt to how the market evolves?

Thoughts?

j :happy
Wiki Bogleheads Wiki: Everything You Need to Know
asif408
Posts: 2185
Joined: Sun Mar 02, 2014 8:34 am
Location: Florida

Re: Is there a High Tech Bubble in S&P 500 & Total Market?

Post by asif408 »

Sandtrap wrote: Thu Jul 25, 2019 9:47 am How is all this actionable to a Boglehead, as far as personal investment finance?
Good question.
Factors, tilts, alternatives, value, growth, . . . et al?
Or simply "stay the course" with time tested basics (3 fund and done)?
Or, set one's allocation on a glide slope while paying attention to the ability of the underlying funds to adapt to how the market evolves?

Thoughts?

j :happy
Seems that the simplest, but not easiest actionable item (which is at the beginning of the actual paper but not mentioned at all in the article of even much considered in this post) is to invest more in foreign markets (particularly the emerging markets) and tilt toward value there. Basically buying more into what has done the worst for the last decade. Here's an illustration: https://www.portfoliovisualizer.com/ass ... &months=36

Returns since 2010 (ETF that approximates this asset class in parentheses):
Tech stocks (QQQ): 17.2%
US stock market (VTI): 13.0%
Developed ex-US (VEA): 5.2%
Developed ex-US value (SFNNX): 4.4%
Emerging markets (VWO): 2.9%
Emerging markets value (SFENX): 2.5%
Total Bond Market (BND): 3.5%

Basically buying more of what has underperformed. Kind of hard to get people excited about emerging markets when it has done 15% worse annually vs. US tech stocks, and about 10% worse annually than the overall US market, plus trailed the returns of a boring old bond index fund.

If you can't stomach doing that then you should probably do nothing.
User avatar
alpine_boglehead
Posts: 409
Joined: Fri Feb 17, 2017 9:51 am
Location: Austria

Re: Is there a High Tech Bubble in S&P 500 & Total Market?

Post by alpine_boglehead »

lsp12 wrote: Wed Jul 24, 2019 5:52 pm I will point out that there are other big differences from 2000 -- IPO's aren't happening every day at high (ridiculous) valuations, and the 'average Joe' isn't talking about the stock market and how to make a killing.

Both of those phenomena were prevalent back then; I recall them well: anyone here remember VA/Linux, a commodity hardware company that closed its first day as a public company in December 1999 with a valuation of $10B on a revenue run rate of less than $50mm?; or the parties where seemingly the only topics of conversation were the stock market, IPO's, and how to get rich (this at a party of upper middle class bureaucrats/intellectuals/technocrats)? I do.

I personally think the market is pretty darned high; I don't really understand how the current P/E is justified if one looks at future profit margins, growth rates, and likely changes in P/E ratios (as John Bogle used to do), but to compare the FAANG stocks to the 2000 bubble seems ill-considered to me.
It's different this time :D

We don't have the same really off-the-scale companies with no revenue, 5 C-level executives, 5 admin assistants, 5 Porsches and 3 software developers. Yet.
The list of unicorn companies (startups valued at more than one billion) on Wikipedia is interesting ... I'm wondering how much of these will be still around in a decade. In comparison, FAANG is probably a safe bet.
Silence Dogood
Posts: 1429
Joined: Tue Feb 01, 2011 9:22 pm

Re: Is there a High Tech Bubble in S&P 500 & Total Market?

Post by Silence Dogood »

I have no idea if there is a high tech bubble in the S&P 500 and Total U.S. Stock Market.

I think the big takeaway for me is that's it's probably better to be in Total U.S Stock Market than the S&P 500.

Probably a good idea to invest in Total International Stock Market, too.
heyyou
Posts: 3794
Joined: Tue Feb 20, 2007 4:58 pm

Re: Is there a High Tech Bubble in S&P 500 & Total Market?

Post by heyyou »

I'm willing to accept the growth of the rest of the market, without the FAANG exposure. Others are welcome to do whatever suits them.
User avatar
nisiprius
Advisory Board
Posts: 41944
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Is there a High Tech Bubble in S&P 500 & Total Market?

Post by nisiprius »

jhfenton wrote: Thu Jul 25, 2019 9:26 am...Walmart gets nothing like half of its sales online. It's between 3% and 4% at this point. It's online revenue has been growing at 30-40% per year, compared to ~3% growth in retail stores, but it's still a relatively small contributor to Walmart's total revenue given Walmart's enormous physical retail footprint...
Walmart is having serious problems trying to adapt.

I've bought online through walmart.com several times and the experience every time has been "eh, can't really complain, but oh boy this is so not Amazon." Overpackaging is far worse than Amazon. Ability to combine several items into the same shipment is almost nonexistent. Worst of all, the relation between promised and actual arrival is nonexistent, both ways--items arrive earlier as well as later than promised. Amazon's reassuring predictability isn't there.

So earlier this year, another "eh, can't really complain but," experience. We flew to Tucson for a camping trip, and looking at shipping costs and other things, had the brainstorm of just buying cheap camping gear, ordering online for in-store pickup. First time we tried "order online and pickup in store." Again, no concrete complaints but the ordering experience was awful. The website had serious trouble dealing with the existence of multiple Walmarts in Tucson and constantly kept defaulting our pickup location into a store fifteen miles from the one we wanted. When we arrived, we found that pickup is done from a store area with a big locker you cannot open yourself; we had to enter a bunch of stuff on a touchscreen and wait fifteen minutes for an employee. We had ordered fourteen items. When she arrived, she opened a locker, handed us two items, and smiled. We said "what about the rest?" She rummaged around somewhere in a computer system, and then opened another locker and handed us a box, which, when opened, had seven more items. We said "what about the rest?" She placed a phone call, vanished somewhere into the back of the store, and ten minute later came back with another box containing the remaining items. It didn't really take all that long. Can't really complain, but.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
ohai
Posts: 1327
Joined: Wed Dec 27, 2017 2:10 pm

Re: Is there a High Tech Bubble in S&P 500 & Total Market?

Post by ohai »

jhfenton wrote: Thu Jul 25, 2019 9:26 am
ohai wrote: Tue Jul 23, 2019 11:27 am My point is that these stocks do not have to be grouped tightly together at all, even in something like "high tech/internet", which can mean anything. Walmart gets half its sales from internet, but you wouldn't call it an "internet company". So, why associate Amazon with Facebook but not Walmart?
Walmart gets nothing like half of its sales online. It's between 3% and 4% at this point. It's online revenue has been growing at 30-40% per year, compared to ~3% growth in retail stores, but it's still a relatively small contributor to Walmart's total revenue given Walmart's enormous physical retail footprint.
Ok, maybe use a different example then. What I am trying to express is that the line between "internet company" or "tech company" and normal company is not distinct now. Let's say JPM does more online banking than branch banking, or will in the future. At what point do they become a "fintech" company? What if Walmart eventually accomplishes 50% online revenue? Would you then call them a tech company? What if all large retailers migrate to 50% online sales?

Peoples' tendency is to group several large companies together as "tech companies" and say therefore, tech is overweight in the market. However, it probably makes sense to split these companies into different sectors altogether based on their diverse operations, and the fact that internet and technology are central to all companies today, not just "tech companies".
User avatar
Topic Author
nedsaid
Posts: 13808
Joined: Fri Nov 23, 2012 12:33 pm

Re: Is there a High Tech Bubble in S&P 500 & Total Market?

Post by nedsaid »

JoMoney wrote: Thu Jul 25, 2019 8:30 am
nedsaid wrote: Wed Jul 24, 2019 5:53 pm
vitaflo wrote: Wed Jul 24, 2019 1:46 pm You can always invest in international if you want large companies in other sectors.
Bingo. The best argument for adding International Stocks to an otherwise US only portfolio is better sector diversification. Thank you.
Better how? For what purpose is it "better sector diversification", lower risk? higher returns?

I think it's worth pointing out that international is as high in financial stocks as the U.S. is in tech, and the U.S. market certainly isn't low in the finance sector as it is.
What would you say if you were a Canadian Investor? Their market is like 4 sectors.
A fool and his money are good for business.
User avatar
vineviz
Posts: 7797
Joined: Tue May 15, 2018 1:55 pm

Re: Is there a High Tech Bubble in S&P 500 & Total Market?

Post by vineviz »

alpine_boglehead wrote: Thu Jul 25, 2019 10:41 am
lsp12 wrote: Wed Jul 24, 2019 5:52 pmI personally think the market is pretty darned high; I don't really understand how the current P/E is justified if one looks at future profit margins, growth rates, and likely changes in P/E ratios (as John Bogle used to do), but to compare the FAANG stocks to the 2000 bubble seems ill-considered to me.
It's different this time :D

We don't have the same really off-the-scale companies with no revenue, 5 C-level executives, 5 admin assistants, 5 Porsches and 3 software developers. Yet.

To me, one worrying characteristic of the FAANG-era (something that makes 2019 feel more than a little like the dot com bubble era) is just how little impact the FAANG stocks have had on actual economic activity.

If the rise of FAANG signals a "new era", this seems like a pretty unremarkable era shift relative to past regime changes. FAANG companies are often described as innovative, but this so-called innovation hasn't (yet?) translated into economic productivity.

The average rate of productivity growth this decade (2010 to 2018 so far ) is a measly 0.9%. The average rate over the past six decades is more like 2.2%, and up until now the worst 10-year period was 1973-1982 at 1.1%.

The FAANG stocks might have more revenue and even cash flow than the bubble stocks of 1999-2000, but if that doesn't translate into economic productivity then this bull market might not end any less badly than that one did.

Anyone interested in reading a little more about this should check out the University of Chicago blog post "The “Biggest Puzzle in Economics”: Why the “Superstar Economy” Lacks Any Actual Superstars" from March, which describes some research on this subject. Link
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
Wakefield1
Posts: 1059
Joined: Mon Nov 14, 2016 10:10 pm

Re: Is there a High Tech Bubble in S&P 500 & Total Market?

Post by Wakefield1 »

Maybe if there is a bubble in the "FAANG" then the other side of it is the small cap value space and/or the stocks represented in the "Mid Cap Index Fund" .
User avatar
Taylor Larimore
Advisory Board
Posts: 29941
Joined: Tue Feb 27, 2007 8:09 pm
Location: Miami FL

Total Market Index Fund?

Post by Taylor Larimore »

Forester wrote:But just holding the total market index has also been a consistently sub-optimal idea.
Forester:

I can't imagine where you got that idea. Are you aware:

* Vanguard's Total U.S. Stock Market Index Fund has never had below average returns (Small-Cap Value is now ranked last in Morningstar's 14 Style Boxes).

* TSM has one of the lowest turnover rates (hidden costs) in the industry --3%.

* TSM is one of the lowest-cost funds available anywhere.

* TSM is the most diversified U.S. stock fund.

* TSM is the largest stock fund in the world. Investors must like it.

* Morningstar analysts give it their highest GOLD rating.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "The beauty of owning the market is that you eliminate individual stock risk, you eliminate market sector risk, and you eliminate manager risk. -- In my view, owning the market and holding it forever is the ultimate strategy for winners." -- "My preferred index fund happens to be the total stock market which includes large, medium, and small stocks."
"Simplicity is the master key to financial success." -- Jack Bogle
Howard Donnelly
Posts: 548
Joined: Tue Dec 14, 2010 3:19 pm

Re: Is there a High Tech Bubble in S&P 500 & Total Market?

Post by Howard Donnelly »

Thank you, Taylor. Excellent points.
garlandwhizzer
Posts: 2984
Joined: Fri Aug 06, 2010 3:42 pm

Re: Is there a High Tech Bubble in S&P 500 & Total Market?

Post by garlandwhizzer »

Technology is a two edged sword. Automation and tech advances have allowed us to produce more with fewer workers. It created a few very high paying jobs while it killed many low paying jobs. AMZN poses a survival threat to mom and pop retail and to other industries as well. Self-driving cars will pose a survival threat to taxis, trucking, and transport in general. A time may come when many folks don't even purchase a car and instead use self-driving taxis to get where they want to go. Urban Millennials want to do that now. Machines can work 24 hours a day, not just 8 hour shifts, and they don't need vacations, meal breaks, bathroom breaks, sick time (except for maintenance), health care insurance or retirement plans. This allows automation to do things cheaper and has killed a lot of well paying jobs not just in manufacturing but throughout the economy. Many have been forced to take lower paying jobs.

Artificial intelligence, the next tech tidal wave, is already happening and its impact will accelerate exponentially going forward IMO. It will not only threaten low skill jobs but will be an existential threat to high skill fields like radiology (a computer can be armed with a data base hundreds of time deeper than any radiologist has ever seen and tremendous computing power can then diagnose instantly even exceptionally rare problems). Bank lending? Who better to objectively assess a borrower's credit worthiness than a strong computer with an incredibly detailed data base on everyone which is something that firms like GOOGLE are already accumulating. The investing and financial industries are also in AI's crosshairs. With large enough computing power and deep enough historical data base, AI will be able to separate the wheat from the chaff in the field of equity performance and portfolio construction likely better than even greats like Fama and French. AI recently defeated the world champion chess player. At first the champion won but the computer added its mistakes/defeats to its data base and reprogrammed itself. After a few losses it repeatedly beat the champion until he gave up.

Efficiency is increased in a sense with tech but what about this question: How does it affect our population and economy? Real wages in DMs have hardly budged since 1992 (US 1% real/yr., Japan and Italy essentially zero). Real pay for most DM workers has been pretty flat for 25 years or more and aggregate demand, the chief thing that drives economic growth, hasn't shown robust growth in the last 20 years except for the inflation of the 2 bubbles that burst, tech and real estate. The tech explosion has hooked us all with computers, smart phones, online shopping, instant information about anything, social media, streaming media at home with amazing visual graphics. We are addicted but the economic benefit seems to flow mostly to the high end and bypass many.

The relationship between tech advances on the one hand and on the other hand things like average worker wages, worker productivity, economic growth, and societal benefit is complicated. I don't know if we'll ever go back to the days long ago when the US had robust economic growth, consistently increasing real wages, substantial and consistent worker productivity growth, 10 year Treasuries that yielded 2% more than inflation, and houses that were affordable for a 1 worker household. A lot has changed over the last 4 or 5 decades, and it's not all due to tech (globalization, aging demographics, massive levels of debt among other factors). But tech has played a role and is likely to play an even bigger one in the future. We live in interesting times. Change is the only constant.

Garland Whizzer
User avatar
imak
Posts: 58
Joined: Fri Mar 22, 2019 5:18 pm
Location: Austin, TX

Re: Is there a High Tech Bubble in S&P 500 & Total Market?

Post by imak »

An alternative/orthogonal way to think about Tech sector in general is to consider its contribution to "operational efficiency" of any organization. Operational efficiency is improved radically by deploying software in traditionally non-software operations (e.g. delivery, warehousing, inventory management, etc).

Below article by venture capitalist Marc Andreeson describes in detail this phenomenon:
"Why software is eating the world"
https://a16z.com/2011/08/20/why-softwar ... the-world/
AA: 30% FNDX, 30% FNDA, 10% FNDF, 10% FNDC, 10% REET+VWO+DGS, 10% TMF; EF = VTEB; "Discipline matters more than allocation" ~ W Bernstein
Alchemist
Posts: 556
Joined: Sat Aug 30, 2014 6:35 am

Re: Is there a High Tech Bubble in S&P 500 & Total Market?

Post by Alchemist »

The Price to Earnings multiple for the S&P 500 reached 32 in 1999, and topped out at 46 at the bottom on the bear market in 2002. Currently it is 22.

https://www.multpl.com/s-p-500-pe-ratio/table/by-year

The Total Stock Market is 20 (as measured by VTI).

These are certainly not low valuations, but far from bubble territory. They were higher in both January 2018 and 2016. I have no idea where the market is going from here; but would be rather shocked if this is considered a bubble several years from now. It would be the lowest PE bubble on record if that were to become the case.
User avatar
Topic Author
nedsaid
Posts: 13808
Joined: Fri Nov 23, 2012 12:33 pm

Re: Is there a High Tech Bubble in S&P 500 & Total Market?

Post by nedsaid »

Gosh Garland, what will happen when the machines figure out they don't need us anymore?
A fool and his money are good for business.
User avatar
willthrill81
Posts: 20819
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: Is there a High Tech Bubble in S&P 500 & Total Market?

Post by willthrill81 »

HawkeyePierce wrote: Tue Jul 23, 2019 2:58 am Those companies all throw off mind-boggling amounts of free cash flow. The same can’t be said of tech in 1999.
I'm not so sure. Of the top ten companies in the S&P 500 in the year 2000, Microsoft, Cisco, Intel, IBM, AOL, Oracle, Dell, Sun, Qualcomm, and HP, which represented a whopping 25% of the S&P 500, several at least were producing massive cash flow. Microsoft had $9.4 billion of net income in 2000, Intel had $10.5 billion, Cisco had $2.7 billion, IBM had $8.1 billion, etc. And yet for all of that, not a single one of these ten firms beat the S&P 500 over the next decade. I started a thread about it last year.
“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
User avatar
Topic Author
nedsaid
Posts: 13808
Joined: Fri Nov 23, 2012 12:33 pm

Re: Is there a High Tech Bubble in S&P 500 & Total Market?

Post by nedsaid »

Again, let me reiterate some things so that I am not misunderstood here.

First, I did put a "buy" recommendation on US Large Value, US Mid Value, and US Small Value last month. I even did my best Cramer imitation and hit the "buy" button with all the sound effects. But this was mostly in jest as stlutz sort of put me up to it. As the good book says, ask and you shall receive. But yet, I was half serious about it and suggested that this would be a good time for us Small/Value tilters to re-tilt their portfolios with Growth to Value rebalancing.

Second, I am concerned about the FAANG stocks and the High Tech/Internet part of the market. But while there are a lot of similarities to 1999, valuations aren't near as high as they were back then and also I am not seeing euphoria in the markets. No one is quitting their job to day trade stocks now as they were in the late 1990's. I am not putting a "sell" signal on the S&P 500 or the US Total Market. Just saying we should pause and think about where we are. Starting to smell like 1999 as Bill Bernstein said but we aren't there yet.

Third, if you were concerned about FAANG and High Tech/Internet, the most I would recommend would be to sell 30% of your Total Market Index/S&P 500 funds and put that money into Value Indexes. For now, I am doing more modest Growth to Value rebalancing. Not sure, I would get to exchanging 10% of Total Stock Market Index for Value Indexes. That's me, cautious and timid. If I saw euphoria in High Tech/Internet, I would get more aggressive. But baby steps for now.

Fourth, if you are a 3 fund type of guy or gal, just stick with what you have. Just be prepared for Value to outperform the broad indexes for a few years when market leadership changes. As they say, you need to dance with the gal who brought you to the dance. Also not predicting doom for the 3 fund portfolio.

If you are a factors person, you ought to consider what I have been talking about. Just think it prudent to be invested across more factors than one.

I know I have been repeating myself here, but I want it 100% clear where I stand, what I am doing and thinking about doing, and why I am doing it. Don't want my comments to be misunderstood or misinterpreted.
A fool and his money are good for business.
CurlyDave
Posts: 1969
Joined: Thu Jul 28, 2016 11:37 am

Re: Is there a High Tech Bubble in S&P 500 & Total Market?

Post by CurlyDave »

nisiprius wrote: Thu Jul 25, 2019 12:03 pm
...So earlier this year, another "eh, can't really complain but," experience. We flew to Tucson for a camping trip, and looking at shipping costs and other things, had the brainstorm of just buying cheap camping gear, ordering online for in-store pickup. First time we tried "order online and pickup in store." Again, no concrete complaints but the ordering experience was awful. The website had serious trouble dealing with the existence of multiple Walmarts in Tucson and constantly kept defaulting our pickup location into a store fifteen miles from the one we wanted. When we arrived, we found that pickup is done from a store area with a big locker you cannot open yourself; we had to enter a bunch of stuff on a touchscreen and wait fifteen minutes for an employee. We had ordered fourteen items. When she arrived, she opened a locker, handed us two items, and smiled. We said "what about the rest?" She rummaged around somewhere in a computer system, and then opened another locker and handed us a box, which, when opened, had seven more items. We said "what about the rest?" She placed a phone call, vanished somewhere into the back of the store, and ten minute later came back with another box containing the remaining items. It didn't really take all that long. Can't really complain, but.
I have had similar experiences with ordering online at Walmart for pickup in my one local store. Sort of OK, but I had to wait a long time for life to appear in the pickup area, and it was not an easy experience.

Home Depot has improved a lot recently and my last experiences with them have been good.

But, Amazon is still the go-to place for online retail. And they are constantly improving.
User avatar
Topic Author
nedsaid
Posts: 13808
Joined: Fri Nov 23, 2012 12:33 pm

Re: Is there a High Tech Bubble in S&P 500 & Total Market?

Post by nedsaid »

willthrill81 wrote: Thu Jul 25, 2019 10:27 pm
HawkeyePierce wrote: Tue Jul 23, 2019 2:58 am Those companies all throw off mind-boggling amounts of free cash flow. The same can’t be said of tech in 1999.
I'm not so sure. Of the top ten companies in the S&P 500 in the year 2000, Microsoft, Cisco, Intel, IBM, AOL, Oracle, Dell, Sun, Qualcomm, and HP, which represented a whopping 25% of the S&P 500, several at least were producing massive cash flow. Microsoft had $9.4 billion of net income in 2000, Intel had $10.5 billion, Cisco had $2.7 billion, IBM had $8.1 billion, etc. And yet for all of that, not a single one of these ten firms beat the S&P 500 over the next decade. I started a thread about it last year.
Great companies can be bid up in price so high that they become lousy investments. One reason I have posted about the Four Horsemen of Underperformance in my own individual stock portfolio: AIG, GE, Microsoft, and Pfizer. Microsoft has been a fantastic investment in the last 3-4 years but was dead money for the first seven years I owned it. I have dubbed GE as Our Lady of Perpetual Disappointment, it might be too much of a lost cause even for St. Jude. AIG, well I keep it so I have something to write about. Pfizer has picked up a bit but has not been a lucrative investment.

So I have kicked Microsoft out of my "anti-index" and now my Four Horsemen are AIG, Ford, GE, and Pfizer. They are sort of like St. Paul's thorn in the flesh, pretty much to keep me humble. Grace, I suppose, is sufficient for me.
A fool and his money are good for business.
User avatar
willthrill81
Posts: 20819
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: Is there a High Tech Bubble in S&P 500 & Total Market?

Post by willthrill81 »

CurlyDave wrote: Thu Jul 25, 2019 10:34 pm But, Amazon is still the go-to place for online retail. And they are constantly improving.
As a consumer, I love Amazon. As an investor, I'm still somewhat skeptical. After more than 20 years in the market, Amazon's net profit margin last year was 4.2%. That's half the profit margin of the S&P 500 in total. Clearly, the market is betting that they will eventually throw off huge amounts of earnings, but they still haven't yet.
“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
User avatar
willthrill81
Posts: 20819
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: Is there a High Tech Bubble in S&P 500 & Total Market?

Post by willthrill81 »

nedsaid wrote: Thu Jul 25, 2019 10:38 pm
willthrill81 wrote: Thu Jul 25, 2019 10:27 pm
HawkeyePierce wrote: Tue Jul 23, 2019 2:58 am Those companies all throw off mind-boggling amounts of free cash flow. The same can’t be said of tech in 1999.
I'm not so sure. Of the top ten companies in the S&P 500 in the year 2000, Microsoft, Cisco, Intel, IBM, AOL, Oracle, Dell, Sun, Qualcomm, and HP, which represented a whopping 25% of the S&P 500, several at least were producing massive cash flow. Microsoft had $9.4 billion of net income in 2000, Intel had $10.5 billion, Cisco had $2.7 billion, IBM had $8.1 billion, etc. And yet for all of that, not a single one of these ten firms beat the S&P 500 over the next decade. I started a thread about it last year.
Great companies can be bid up in price so high that they become lousy investments. One reason I have posted about the Four Horsemen of Underperformance in my own individual stock portfolio: AIG, GE, Microsoft, and Pfizer. Microsoft has been a fantastic investment in the last 3-4 years but was dead money for the first seven years I owned it. I have dubbed GE as Our Lady of Perpetual Disappointment, it might be too much of a lost cause even for St. Jude. AIG, well I keep it so I have something to write about. Pfizer has picked up a bit but has not been a lucrative investment.

So I have kicked Microsoft out of my "anti-index" and now my Four Horsemen are AIG, Ford, GE, and Pfizer. They are sort of like St. Paul's thorn in the flesh, pretty much to keep me humble. Grace, I suppose, is sufficient for me.
YTD, Pfizer was the only one of those four that didn't outpace the market. Aside from it, your 'anti-index' has done pretty well of late.
“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
User avatar
Topic Author
nedsaid
Posts: 13808
Joined: Fri Nov 23, 2012 12:33 pm

Re: Is there a High Tech Bubble in S&P 500 & Total Market?

Post by nedsaid »

willthrill81 wrote: Thu Jul 25, 2019 10:46 pm
nedsaid wrote: Thu Jul 25, 2019 10:38 pm
willthrill81 wrote: Thu Jul 25, 2019 10:27 pm
HawkeyePierce wrote: Tue Jul 23, 2019 2:58 am Those companies all throw off mind-boggling amounts of free cash flow. The same can’t be said of tech in 1999.
I'm not so sure. Of the top ten companies in the S&P 500 in the year 2000, Microsoft, Cisco, Intel, IBM, AOL, Oracle, Dell, Sun, Qualcomm, and HP, which represented a whopping 25% of the S&P 500, several at least were producing massive cash flow. Microsoft had $9.4 billion of net income in 2000, Intel had $10.5 billion, Cisco had $2.7 billion, IBM had $8.1 billion, etc. And yet for all of that, not a single one of these ten firms beat the S&P 500 over the next decade. I started a thread about it last year.
Great companies can be bid up in price so high that they become lousy investments. One reason I have posted about the Four Horsemen of Underperformance in my own individual stock portfolio: AIG, GE, Microsoft, and Pfizer. Microsoft has been a fantastic investment in the last 3-4 years but was dead money for the first seven years I owned it. I have dubbed GE as Our Lady of Perpetual Disappointment, it might be too much of a lost cause even for St. Jude. AIG, well I keep it so I have something to write about. Pfizer has picked up a bit but has not been a lucrative investment.

So I have kicked Microsoft out of my "anti-index" and now my Four Horsemen are AIG, Ford, GE, and Pfizer. They are sort of like St. Paul's thorn in the flesh, pretty much to keep me humble. Grace, I suppose, is sufficient for me.
YTD, Pfizer was the only one of those four that didn't outpace the market. Aside from it, your 'anti-index' has done pretty well of late.
This is not a recommendation for the Nedsaid "Anti-Index." :wink:
A fool and his money are good for business.
CurlyDave
Posts: 1969
Joined: Thu Jul 28, 2016 11:37 am

Re: Is there a High Tech Bubble in S&P 500 & Total Market?

Post by CurlyDave »

willthrill81 wrote: Thu Jul 25, 2019 10:41 pm
...As a consumer, I love Amazon. As an investor, I'm still somewhat skeptical...
The AMZN I bought a little over 2 years ago is up 241%. My skepticism has been dispelled.
User avatar
willthrill81
Posts: 20819
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: Is there a High Tech Bubble in S&P 500 & Total Market?

Post by willthrill81 »

CurlyDave wrote: Thu Jul 25, 2019 10:57 pm
willthrill81 wrote: Thu Jul 25, 2019 10:41 pm
...As a consumer, I love Amazon. As an investor, I'm still somewhat skeptical...
The AMZN I bought a little over 2 years ago is up 241%. My skepticism has been dispelled.
I know, I'm a weirdo, but it just feels like Bitcoin to me, a lot of promises for the future that haven't yet come to pass.
“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
Post Reply