any lessons to remember from dot com bubble?

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loukycpa
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any lessons to remember from dot com bubble?

Post by loukycpa »

I know nothing of course. Finishing up my 25th year since making a first investment in the stock market (401k) in 1996. Differences of course, but of the periods I have lived through during that 25 year time frame, current valuations and environment remind me of 1999. This causes me to think about what lessons I learned then that could benefit me now.

In the Berkshire 1999 annual report Warren Buffett included a Fortune article he had written:

https://www.berkshirehathaway.com/1999a ... gazine.pdf

I remember when I read being particularly persuaded by it then. Always been a part of my thinking since then in regards to market return expectations. I reread it today.

Whatever you think of Buffett these days, when you look at 20 year returns on the S&P 500 since he wrote it, he was dead on. What followed was a lost decade (2000-2010), then a strong decade of performance (2010-2020) bringing us to where we are today. Lots of ups and downs, but overall about a 7% total return for S&P 500 over that 20 year period.

I did another exercise that I didn't end up enjoying very much. I assumed I retired in beginning of 2000 with a $1 million nest egg, 100% US equities, and a 4% withdrawal rate (2% raise each year for inflation). FIRE style type of plan. Looks like I made it through 20 years without going broke, but it sure wasn't pretty. Nest egg in 2020 would be well below $1M, around $500k. Bottom line is retiring right before a big correction in the stock market is rough sledding.
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arcticpineapplecorp.
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Re: any lessons to remember from dot com bubble?

Post by arcticpineapplecorp. »

there are some posts about this already (don't know if you did a search or not):
viewtopic.php?f=10&t=319873
https://bogleheads.org/forum/viewtopic. ... &p=5364084
viewtopic.php?t=238111
viewtopic.php?t=51621
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
Dottie57
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Re: any lessons to remember from dot com bubble?

Post by Dottie57 »

loukycpa wrote: Wed Sep 16, 2020 3:25 pm I know nothing of course. Finishing up my 25th year since making a first investment in the stock market (401k) in 1996. Differences of course, but of the periods I have lived through during that 25 year time frame, current valuations and environment remind me of 1999. This causes me to think about what lessons I learned then that could benefit me now.

In the Berkshire 1999 annual report Warren Buffett included a Fortune article he had written:

https://www.berkshirehathaway.com/1999a ... gazine.pdf

I remember when I read being particularly persuaded by it then. Always been a part of my thinking since then in regards to market return expectations. I reread it today.

Whatever you think of Buffett these days, when you look at 20 year returns on the S&P 500 since he wrote it, he was dead on. What followed was a lost decade (2000-2010), then a strong decade of performance (2010-2020) bringing us to where we are today. Lots of ups and downs, but overall about a 7% total return over that 20 year period.

I did another exercise that I didn't end up enjoying very much. I assumed I retired in beginning of 2000 with a $1 million nest egg, 100% US equities, and a 4% withdrawal rate (2% raise each year for inflation). FIRE style type of plan. Looks like I made it through 20 years without going broke, but it sure wasn't pretty. Nest egg in 2020 would be well below $1M, around $500k. Bottom line is retiring right before a big correction in the stock market is rough sledding.
In 2008 I was about 10 yrs before retirement. The Great recession ended up being my best investing decade. I Had my highest salary during the decade. So maxing 401k contributions (including catch-up), Roth IRA and starting taxable account allowed me to buy less expensive shares up to the dayI retired. I feel like I made out like a bandit.

I started 401k in the late 80s. But my income was low and did not max contributions. So while the 90’s were a good decade for investing I didn’t accumulate that much.

So if we have a big crash. Load up on stocks to your allocation. - or maybe a bit more. Don’t stop investing.
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firebirdparts
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Re: any lessons to remember from dot com bubble?

Post by firebirdparts »

The lessons I learned you already know. You can’t pop the bubble, and you can’t outsmart the market. You have to out-luck it. So you have to invest accordingly.

I started with nothing, so for me 100% equities over the last 35 years was fine. I lost half my net worth twice in the space of 10 years, and that was fine. Next 35 years may be different.
A fool and your money are soon partners
Robot Monster
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Re: any lessons to remember from dot com bubble?

Post by Robot Monster »

loukycpa wrote: Wed Sep 16, 2020 3:25 pm ...current valuations and environment remind me of 1999. This causes me to think about what lessons I learned then that could benefit me now.
Have you ever heard the old adage, armies are always preparing for the last war?
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CyclingDuo
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Re: any lessons to remember from dot com bubble?

Post by CyclingDuo »

Robot Monster wrote: Thu Sep 17, 2020 8:27 am
loukycpa wrote: Wed Sep 16, 2020 3:25 pm ...current valuations and environment remind me of 1999. This causes me to think about what lessons I learned then that could benefit me now.
Have you ever heard the old adage, armies are always preparing for the last war?
Bingo!

It's healthy - for long term investors - that so much consensus is currently drawing some kind of a conclusion that today is a bubble just as 1999/2000 was. It at least affords us a healthy correction.

This is not a Pets.com period, but people sure love to draw conclusions based on recency bias and emotions from that time period.

CyclingDuo
"Save like a pessimist, invest like an optimist." - Morgan Housel
heyyou
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Re: any lessons to remember from dot com bubble?

Post by heyyou »

Each correction has a different trigger but losses are losses, from a distant view.

I agree that in the late 1990s, the high valuations were tech companies, not dissimilar to today. Yes, the high tech then, is now just another commodity offered by many sources, and whatever products are the most desirable ones today, will change over time. Michael Lewis used the phrase "The New, New Thing" as a book title.

Retiring a year or two before a correction is common since that is when workers' assets hit their retirement numbers, but those future losses are built into the histories of every withdrawal method. Adapt your retirement spending to your current asset size, instead of blindly using only your retirement day wealth level as a reference point.
MotoTrojan
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Re: any lessons to remember from dot com bubble?

Post by MotoTrojan »

loukycpa wrote: Wed Sep 16, 2020 3:25 pm

I did another exercise that I didn't end up enjoying very much. I assumed I retired in beginning of 2000 with a $1 million nest egg, 100% US equities, and a 4% withdrawal rate (2% raise each year for inflation). FIRE style type of plan. Looks like I made it through 20 years without going broke, but it sure wasn't pretty. Nest egg in 2020 would be well below $1M, around $500k. Bottom line is retiring right before a big correction in the stock market is rough sledding.
Even just 10% in US small-value made a huge difference in outcome.

Here is 100% S&P500, 75/25 S&P500/SCV, 90/10 S&P500/SCV with a 4% initial withdrawal that is adjusted for inflation, just as you setup:

https://www.portfoliovisualizer.com/bac ... tion2_3=90

If you remove the withdrawal you'll see that the ending CAGR's are pretty close to identical given value's huge drawdown in recent years, but with withdrawals it made a huge difference. Here is just a straight investment in January 2000, no withdrawals:

https://www.portfoliovisualizer.com/bac ... tion2_3=90
Normchad
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Re: any lessons to remember from dot com bubble?

Post by Normchad »

MotoTrojan wrote: Thu Sep 17, 2020 2:22 pm
loukycpa wrote: Wed Sep 16, 2020 3:25 pm

I did another exercise that I didn't end up enjoying very much. I assumed I retired in beginning of 2000 with a $1 million nest egg, 100% US equities, and a 4% withdrawal rate (2% raise each year for inflation). FIRE style type of plan. Looks like I made it through 20 years without going broke, but it sure wasn't pretty. Nest egg in 2020 would be well below $1M, around $500k. Bottom line is retiring right before a big correction in the stock market is rough sledding.
Even just 10% in US small-value made a huge difference in outcome.

Here is 100% S&P500, 75/25 S&P500/SCV, 90/10 S&P500/SCV with a 4% initial withdrawal that is adjusted for inflation, just as you setup:

https://www.portfoliovisualizer.com/bac ... tion2_3=90

If you remove the withdrawal you'll see that the ending CAGR's are pretty close to identical given value's huge drawdown in recent years, but with withdrawals it made a huge difference. Here is just a straight investment in January 2000, no withdrawals:

https://www.portfoliovisualizer.com/bac ... tion2_3=90
That is really interesting. I hadn’t seen something like that before. Definitely food for thought.

My lasting take away is, just keep doing what you’re doing. Don’t deviate from your plan, and you’ll be just fine. As somebody said “when you’re going through hell, keep going!”

But now is a good time to look at what you’re doing, and make sure it makes sense. If you’re 50/50 Gold and Tesla, reconsider.
columbia
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Re: any lessons to remember from dot com bubble?

Post by columbia »

Don't buy individual stocks.
MotoTrojan
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Re: any lessons to remember from dot com bubble?

Post by MotoTrojan »

Normchad wrote: Thu Sep 17, 2020 2:44 pm
MotoTrojan wrote: Thu Sep 17, 2020 2:22 pm
loukycpa wrote: Wed Sep 16, 2020 3:25 pm

I did another exercise that I didn't end up enjoying very much. I assumed I retired in beginning of 2000 with a $1 million nest egg, 100% US equities, and a 4% withdrawal rate (2% raise each year for inflation). FIRE style type of plan. Looks like I made it through 20 years without going broke, but it sure wasn't pretty. Nest egg in 2020 would be well below $1M, around $500k. Bottom line is retiring right before a big correction in the stock market is rough sledding.
Even just 10% in US small-value made a huge difference in outcome.

Here is 100% S&P500, 75/25 S&P500/SCV, 90/10 S&P500/SCV with a 4% initial withdrawal that is adjusted for inflation, just as you setup:

https://www.portfoliovisualizer.com/bac ... tion2_3=90

If you remove the withdrawal you'll see that the ending CAGR's are pretty close to identical given value's huge drawdown in recent years, but with withdrawals it made a huge difference. Here is just a straight investment in January 2000, no withdrawals:

https://www.portfoliovisualizer.com/bac ... tion2_3=90
That is really interesting. I hadn’t seen something like that before. Definitely food for thought.

My lasting take away is, just keep doing what you’re doing. Don’t deviate from your plan, and you’ll be just fine. As somebody said “when you’re going through hell, keep going!”

But now is a good time to look at what you’re doing, and make sure it makes sense. If you’re 50/50 Gold and Tesla, reconsider.
Yeah I mean this is certainly cherry-picking to an extent as sequence-of-returns gets helped a lot if you have better returns early on, but still goes to show that end-to-end CAGR is not the whole story when looking at strategies.
MotoTrojan
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Re: any lessons to remember from dot com bubble?

Post by MotoTrojan »

columbia wrote: Thu Sep 17, 2020 2:46 pm Don't buy individual stocks.
CSCO still had a decade-long 40% CAGR even at the bottom of it's 80%+ drawdown :twisted: :greedy .
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Nicolas
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Re: any lessons to remember from dot com bubble?

Post by Nicolas »

The lesson I learned then was to not chase performance. I’m still struggling with that desire even though I don’t need the money.
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CyclingDuo
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Re: any lessons to remember from dot com bubble?

Post by CyclingDuo »

Nicolas wrote: Thu Sep 17, 2020 3:43 pm The lesson I learned then was to not chase performance. I’m still struggling with that desire even though I don’t need the money.
So you're not going all in on Ford and GE? :mrgreen:
"Save like a pessimist, invest like an optimist." - Morgan Housel
Fishing50
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Re: any lessons to remember from dot com bubble?

Post by Fishing50 »

Irrational exuberance was declared in 1996 (I think??) well before the peak.
2yrs from military pension. 80 equites / 20 bonds for life, ZERO emergency fund, 100% taxable in equities (dividends in cash). | Gone Fishing At 52yrs old!
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Nicolas
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Re: any lessons to remember from dot com bubble?

Post by Nicolas »

CyclingDuo wrote: Thu Sep 17, 2020 8:12 pm
Nicolas wrote: Thu Sep 17, 2020 3:43 pm The lesson I learned then was to not chase performance. I’m still struggling with that desire even though I don’t need the money.
So you're not going all in on Ford and GE? :mrgreen:
My recent temptations have been the ARK ETFs which, thanks to Bogleheads, I was recently made aware of. I have resisted.
Last edited by Nicolas on Fri Sep 18, 2020 7:42 pm, edited 1 time in total.
NoRegret
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Re: any lessons to remember from dot com bubble?

Post by NoRegret »

loukycpa wrote: Wed Sep 16, 2020 3:25 pm I know nothing of course. Finishing up my 25th year since making a first investment in the stock market (401k) in 1996. Differences of course, but of the periods I have lived through during that 25 year time frame, current valuations and environment remind me of 1999. This causes me to think about what lessons I learned then that could benefit me now.

In the Berkshire 1999 annual report Warren Buffett included a Fortune article he had written:

https://www.berkshirehathaway.com/1999a ... gazine.pdf

I remember when I read being particularly persuaded by it then. Always been a part of my thinking since then in regards to market return expectations. I reread it today.

Whatever you think of Buffett these days, when you look at 20 year returns on the S&P 500 since he wrote it, he was dead on. What followed was a lost decade (2000-2010), then a strong decade of performance (2010-2020) bringing us to where we are today. Lots of ups and downs, but overall about a 7% total return for S&P 500 over that 20 year period.

I did another exercise that I didn't end up enjoying very much. I assumed I retired in beginning of 2000 with a $1 million nest egg, 100% US equities, and a 4% withdrawal rate (2% raise each year for inflation). FIRE style type of plan. Looks like I made it through 20 years without going broke, but it sure wasn't pretty. Nest egg in 2020 would be well below $1M, around $500k. Bottom line is retiring right before a big correction in the stock market is rough sledding.
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Enzo IX
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Re: any lessons to remember from dot com bubble?

Post by Enzo IX »

Don't get greedy on high multiple small cap tech stocks, if you hold on too long you might lose all your gains and then some.

Especially the ones that don't have and E in the P/E.
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Re: any lessons to remember from dot com bubble?

Post by rossington »

CyclingDuo wrote: Thu Sep 17, 2020 8:31 am
Bingo!

It's healthy - for long term investors - that so much consensus is currently drawing some kind of a conclusion that today is a bubble just as 1999/2000 was. It at least affords us a healthy correction.

This is not a Pets.com period, but people sure love to draw conclusions based on recency bias and emotions from that time period.

CyclingDuo
Not sure I agree. Then ('99/'00) it was a speculation bubble. The only recency bias I see today is based on "if I don't wear a mask the world is going to end"...no bubble but an irrationality behavior based on fear that is holding many investors back from entering the market when there is no reason not to do so. This is disturbing for many reasons.
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.
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Re: any lessons to remember from dot com bubble?

Post by Valuethinker »

loukycpa wrote: Wed Sep 16, 2020 3:25 pm I know nothing of course. Finishing up my 25th year since making a first investment in the stock market (401k) in 1996. Differences of course, but of the periods I have lived through during that 25 year time frame, current valuations and environment remind me of 1999. This causes me to think about what lessons I learned then that could benefit me now.

In the Berkshire 1999 annual report Warren Buffett included a Fortune article he had written:

https://www.berkshirehathaway.com/1999a ... gazine.pdf

I remember when I read being particularly persuaded by it then. Always been a part of my thinking since then in regards to market return expectations. I reread it today.

Whatever you think of Buffett these days, when you look at 20 year returns on the S&P 500 since he wrote it, he was dead on. What followed was a lost decade (2000-2010), then a strong decade of performance (2010-2020) bringing us to where we are today. Lots of ups and downs, but overall about a 7% total return for S&P 500 over that 20 year period.

I did another exercise that I didn't end up enjoying very much. I assumed I retired in beginning of 2000 with a $1 million nest egg, 100% US equities, and a 4% withdrawal rate (2% raise each year for inflation). FIRE style type of plan. Looks like I made it through 20 years without going broke, but it sure wasn't pretty. Nest egg in 2020 would be well below $1M, around $500k. Bottom line is retiring right before a big correction in the stock market is rough sledding.
1. both the Bubble, and the Crash, lasted a lot longer and went a lot further than I believed possible. In 1998 tech stocks were overvalued, but they had another 2 years to run. In 2006 banks were overvalued, but they had another 18 months to run.

"Safe" tech stocks like Cisco, HP, Dell, Oracle, Lucent etc were not safe when it hit the fan.

2. your employer's stock is not an equity investment. It is a form of deferred compensation -- and you can lose 90% of it

3. until you experience it, you have no idea of the world of psychological pain that is caused by a long bear market - each quarter you have less than the previous quarter, except then you have the quarter where the market recovers, only to plunge even further the quarter after. It seems to be endless

4. markets may not again reach the highs they reached in 2000. For the UK stock market, 20 years later, they still haven't

5. thus dividend yield is a much larger component of your total return picture than you might think

6. it's very hard to keep investing in a bear market, putting money into the market and then losing that new money in valuation falls on your portfolio - really only the end of the tax year made me do it, and some years I did not fully exploit my opportunities to use non-taxed funds

7. diversification of stocks does not save you. More of a lesson of 2008/9 than of 2000-03 to be fair - developed and emerging markets, small cap, etc all went down together (banks & other financials went down by more). When a storm comes, nowhere is safe
Topic Author
loukycpa
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Re: any lessons to remember from dot com bubble?

Post by loukycpa »

I am no oracle. I don't think I have the knowledge/skill to value/pick individual stocks, especially tech. But I am considering a value tilt in this environment (from VTI to VTV is what I am considering with a portion of my US equity allocation). When I look at the largest stocks by market cap in 99/00 versus today. Cisco, Intel, HP, Oracle, AOL, Qualcom, Lucent, etc. Some were and continue to be great businesses. Yes technological disruptors. But they weren't good investments at 99/00 values. There was a painful adjustment period required.

What stinks about today versus 99/00 is that then one could hide in a 6% CD. An allocation to REITs yielding 7 or 8%. I bonds and TIPS with decent real yields. Prepay my 6% mortgage (or whatever it was I don't remember). Fast forward to today. A guaranteed negative real return on bonds is a hard pill to swallow. Bonds are more overvalued than stocks IMO.

I am no oracle, but I'll make a call anyways :). Somewhere 5 to 10 years out from now, I expect value will be well ahead of growth due to another one of those adjustment periods (primarily for FAANG, software, etc.) we will have to go through. I also think international returns will be ahead of US.
Last edited by loukycpa on Fri Sep 18, 2020 9:27 am, edited 2 times in total.
Valuethinker
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Re: any lessons to remember from dot com bubble?

Post by Valuethinker »

loukycpa wrote: Fri Sep 18, 2020 9:03 am I am no oracle. I don't think I have the knowledge/skill to value/pick individual stocks, especially tech. But I am considering a value tilt in this environment (from VTI to VTV is what I am considering with a portion of my US equity allocation). When I look at the largest stocks by market cap in 99/00 versus today. Cisco, Intel, HP, Oracle, AOL, Qualcom, Lucent, etc. Some were and continue to be great businesses. Yes technical disruptors. But they weren't good investments at 99/00 values. There was a painful adjustment period required.

What stinks about today versus 99/00 is that then one could hide in a 6% CD. An allocation to REITs yielding 7 or 8%. I bonds and TIPS with decent real yields. Fast forward to today. A guaranteed negative real return on bonds is a hard pill to swallow. Bonds are more overvalued than stocks IMO.

I am no oracle, but I'll make a call anyways :). Somewhere 5 to 10 years out from now, I expect value will be well ahead of growth due to another one of those adjustment periods (primarily for FAANG, software, etc.) we will have to go through. I also think international returns will be ahead of US.
I have been c 25% value wtd in my VG account (UK) w I opened in 2018

It has underperformed since then by c 30%

I shall be right some day ;-)
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Nicolas
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Re: any lessons to remember from dot com bubble?

Post by Nicolas »

Valuethinker wrote: Fri Sep 18, 2020 6:20 am 3. until you experience it, you have no idea of the world of psychological pain that is caused by a long bear market - each quarter you have less than the previous quarter, except then you have the quarter where the market recovers, only to plunge even further the quarter after. It seems to be endless
This is a strong argument for taking your pension as an annuity rather than a lump sum. Getting that guaranteed pension deposit into your account every month would make a protracted bear survivable psychologically speaking.

That feeling of security is really priceless.
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