Help my try to rationalize why I should ignore Nasdaq

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Carguy85
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Help my try to rationalize why I should ignore Nasdaq

Post by Carguy85 »

Will start out by saying all my equities are in SP500. Aside from the dot com bust it seems that Nasdaq has consistently and significantly outperformed sp500. I feel like I’m burying my head in the sand as to try not think that times are different and that maybe sp500 is somehow becoming more outdated like from what I’ve read by some about the Dow. I’m sure others feel they are missing out... Help me/us out please with facts/experience/etc.
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Re: Help my try to rationalize why I should ignore Nasdaq

Post by livesoft »

Things not in the S&P500 sometimes grow to end up in the S&P500. So you don't have to own a Nasdaq index fund, but you can own more than the S&P500 index fund, such as a different large-cap index fund or a total market weighted index fund. Or you can complement your S&P500 index fund with an extended market index fund or a mid/small cap index fund or a small/mip cap index fund.

Or you can do something else. Or you can do nothing. :)
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Re: Help my try to rationalize why I should ignore Nasdaq

Post by mcraepat9 »

Past performance is not indicative of future results.
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Re: Help my try to rationalize why I should ignore Nasdaq

Post by dbr »

Carguy85 wrote: Fri Sep 25, 2020 12:52 pm Will start out by saying all my equities are in SP500. Aside from the dot com bust it seems that Nasdaq has consistently and significantly outperformed sp500. I feel like I’m burying my head in the sand as to try not think that times are different and that maybe sp500 is somehow becoming more outdated like from what I’ve read by some about the Dow. I’m sure others feel they are missing out... Help me/us out please with facts/experience/etc.
If you pick different sets of stocks there will be sets with different expected returns. Meanwhile the returns that are actually realized in different periods of time will favor one set and then the other. Reliably realizing a difference in expected return if it even exists is really, really difficult. To try to play an investment game with this while measuring the results in terms that one may have missed out is futile and self-destructive.

I have no idea what you mean by the S&P 500 becoming outdated. If by that you mean that "smart" people would not hold an S&P 500 index fund, then that is certainly not true.
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Re: Help my try to rationalize why I should ignore Nasdaq

Post by arcticpineapplecorp. »

Carguy85 wrote: Fri Sep 25, 2020 12:52 pm Will start out by saying all my equities are in SP500. Aside from the dot com bust it seems that Nasdaq has consistently and significantly outperformed sp500. I feel like I’m burying my head in the sand as to try not think that times are different and that maybe sp500 is somehow becoming more outdated like from what I’ve read by some about the Dow. I’m sure others feel they are missing out... Help me/us out please with facts/experience/etc.
1. don't own the S&P500, own the total stock market index fund.
2. can you show data that shows the nasdaq has "consistently and significantly outperformed"? That's not what I'm seeing.

looking at total stock market index fund (in blue below), QQQ (in orange below) and S&P500 (in green below) back to 3/10/1999, earliest date the QQQ go back to on morningstar, the S&P500 did perform worse than the other two (overall).

but here's what you really want to look at. Look at the time periods when the QQQs did NOT consistently and significantly outperform. in fact, while the QQQ did outperform from 3/10/1999 it started UNDERPERFORMING, consistently from 2/28/2001 until 4/30/2017.

So the entire outperformance of QQQ relative to the total market since 1999 was only attributable to THE LAST THREE YEARS (4/30/2017 to present).

Your QQQ would have underperformed the market for 16 years (2/28/2001-4/29/2017).

Ask your self honestly if you would have continued to stick with a strategy that CONSISTENTLY underperformed the market for 16 years? Doubtful.

Unless that is, you don't really look at the numbers and instead want to just believe "it seems" that one index may consistently and significantly outperform another.

Image

source:
http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D

what do you think now?
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
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Re: Help my try to rationalize why I should ignore Nasdaq

Post by alex_686 »

What do you mean by S&P verse NASDAQ. S&P are large caps that trade either on the NYSE or the NASDAQ. NASDAQ 100 (which is what I assume you are saying) is 100 large cap non-financial companies that list on the NASDAQ.

I will answer by saying that the NASDAQ 100 is a poorly construed index.

It made sense 30 years ago. NYSE had high listing requirements and was dominated by large stable companies. NASDAQ was literally the 3rd rate market, with the worst listing requirements. If you were listed on NASDAQ it was a badge of dishonor stating that you really did not have a fully functional company. So NASDAQ embraced this fact and heavily solicited high risk start up to list early on the NASDAQ even if their financials didn't show a profit. And then tech boomed.

The problem is that 20 years ago there was the dot.com boom and bust. NYSE wanted to get into the action during the boom, NASDAQ had to raise their standards during the bust. Now the listing requirements have been more or less harmonized.

Does it make sense to base a index on where a company was listed 20 years ago? Sure, differences remain from that sort 30 years ago but it is diminishing.
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Re: Help my try to rationalize why I should ignore Nasdaq

Post by KlangFool »

Carguy85 wrote: Fri Sep 25, 2020 12:52 pm Will start out by saying all my equities are in SP500. Aside from the dot com bust it seems that Nasdaq has consistently and significantly outperformed sp500. I feel like I’m burying my head in the sand as to try not think that times are different and that maybe sp500 is somehow becoming more outdated like from what I’ve read by some about the Dow. I’m sure others feel they are missing out... Help me/us out please with facts/experience/etc.

A) You should not ignore the stocks not in SP500.

B) Buy total world market index fund and you can have all: stock in SP500, NASDAQ, and International.


C) Why should you ignore stock outside of SP500 and NASDAQ?


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Re: Help my try to rationalize why I should ignore Nasdaq

Post by Tingting1013 »

arcticpineapplecorp. wrote: Fri Sep 25, 2020 1:06 pm
Carguy85 wrote: Fri Sep 25, 2020 12:52 pm Will start out by saying all my equities are in SP500. Aside from the dot com bust it seems that Nasdaq has consistently and significantly outperformed sp500. I feel like I’m burying my head in the sand as to try not think that times are different and that maybe sp500 is somehow becoming more outdated like from what I’ve read by some about the Dow. I’m sure others feel they are missing out... Help me/us out please with facts/experience/etc.
1. don't own the S&P500, own the total stock market index fund.
2. can you show data that shows the nasdaq has "consistently and significantly outperformed"? That's not what I'm seeing.

looking at total stock market index fund (in blue below), QQQ (in orange below) and S&P500 (in green below) back to 3/10/1999, earliest date the QQQ go back to on morningstar, the S&P500 did perform worse than the other two (overall).

but here's what you really want to look at. Look at the time periods when the QQQs did NOT consistently and significantly outperform. in fact, while the QQQ did outperform from 3/10/1999 it started UNDERPERFORMING, consistently from 2/28/2001 until 4/30/2017.

So the entire outperformance of QQQ relative to the total market since 1999 was only attributable to THE LAST THREE YEARS (4/30/2017 to present).

Your QQQ would have underperformed the market for 16 years (2/28/2001-4/29/2017).

Ask your self honestly if you would have continued to stick with a strategy that CONSISTENTLY underperformed the market for 16 years? Doubtful.

Unless that is, you don't really look at the numbers and instead want to just believe "it seems" that one index may consistently and significantly outperform another.

Image

source:
http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D

what do you think now?
This is an incorrect interpretation of the data.

What you want to look at is a “telltale chart” that shows you the active return of one fund against the other at every point in time.

https://www.portfoliovisualizer.com/fun ... mark=VFINX

Click on the “Active Returns” tab.

A QQQ investor has beaten the S&P at almost every entry point since 2007.
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Re: Help my try to rationalize why I should ignore Nasdaq

Post by tibbitts »

Carguy85 wrote: Fri Sep 25, 2020 12:52 pm Will start out by saying all my equities are in SP500. Aside from the dot com bust it seems that Nasdaq has consistently and significantly outperformed sp500. I feel like I’m burying my head in the sand as to try not think that times are different and that maybe sp500 is somehow becoming more outdated like from what I’ve read by some about the Dow. I’m sure others feel they are missing out... Help me/us out please with facts/experience/etc.
So, except for when it didn't, it significantly outperformed? Why do you have only the S&P500 and not a total world fund, or total U.S. plus total international?
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Re: Help my try to rationalize why I should ignore Nasdaq

Post by SmileyFace »

arcticpineapplecorp. wrote: Fri Sep 25, 2020 1:06 pm
Your QQQ would have underperformed the market for 16 years (2/28/2001-4/29/2017).
Probably the more accurate statement would be to say that QQQ underperformed for the 16 year period 2/28/2001 - 4/29/2017.
It certainly didn't underperform the market for EACH of those 16 years - only half of them or so (reset your graph to start towards the end of 2009 and see what happens).
Certainly the LAST 16 years it has taken off - your point is valid - who knows what will occur in the next 16 years.
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Re: Help my try to rationalize why I should ignore Nasdaq

Post by asif408 »

To build on what arcticpineapple said above, QQQ underperformed US stocks in 7 of the 9 years from 2000-2008. From 2009-2019 it outperformed 10 of those 11 years. So 8 years in the last 2 decades the total stock market has outperformed and 12 years in the last two decades NASDAQ has. And 10 of those 12 years of outperformance came in the last 12 years.

I don't call 60% consistent, I call that noise and recency bias. If this was 2008 would you be saying what you are now? You are making the biggest and most common mistake of letting the most recent decade's performance sway your view of an investment. I assume you were also feeling left out when EM value stocks absolutely annihilated US tech stocks last decade?: https://www.portfoliovisualizer.com/bac ... ion2_2=100
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Carguy85
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Re: Help my try to rationalize why I should ignore Nasdaq

Post by Carguy85 »

Thanks for the replies. The portfolio visualizer was very helpful along with several of the posts...very interesting how the data can be plotted to misrepresent reality. The reality for me is that I’m in it for the long haul...only 35 and I have no crystal ball to know when to jump in or out. Without getting into politics or other philosophy I am very comfortable staying with SP500 over total US or world/ foreign.
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Re: Help my try to rationalize why I should ignore Nasdaq

Post by RickyAZ »

Again with the trick of using the Portfolio Visualizer to go back to the worst period to show 16 years of underperforming. Start in 2002 and the result is quite different.

If you hold just the S&P 500 then owning the QQQ gives you diversity you otherwise won't have (i.e. TSLA, a bit of International). It's easily trackable, highly liquid and doesn't kick off a lot of dividends. Lets you tilt to some of the big tech names without buying them directly. Sounds like a good complement to the 500
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Re: Help my try to rationalize why I should ignore Nasdaq

Post by Fclevz »

Max drawdown -81.08% :shock:
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Re: Help my try to rationalize why I should ignore Nasdaq

Post by 000 »

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Re: Help my try to rationalize why I should ignore Nasdaq

Post by argonautI »

arcticpineapplecorp. wrote: Fri Sep 25, 2020 1:06 pm
Carguy85 wrote: Fri Sep 25, 2020 12:52 pm Will start out by saying all my equities are in SP500. Aside from the dot com bust it seems that Nasdaq has consistently and significantly outperformed sp500. I feel like I’m burying my head in the sand as to try not think that times are different and that maybe sp500 is somehow becoming more outdated like from what I’ve read by some about the Dow. I’m sure others feel they are missing out... Help me/us out please with facts/experience/etc.
1. don't own the S&P500, own the total stock market index fund.
2. can you show data that shows the nasdaq has "consistently and significantly outperformed"? That's not what I'm seeing.

looking at total stock market index fund (in blue below), QQQ (in orange below) and S&P500 (in green below) back to 3/10/1999, earliest date the QQQ go back to on morningstar, the S&P500 did perform worse than the other two (overall).

but here's what you really want to look at. Look at the time periods when the QQQs did NOT consistently and significantly outperform. in fact, while the QQQ did outperform from 3/10/1999 it started UNDERPERFORMING, consistently from 2/28/2001 until 4/30/2017.

So the entire outperformance of QQQ relative to the total market since 1999 was only attributable to THE LAST THREE YEARS (4/30/2017 to present).

Your QQQ would have underperformed the market for 16 years (2/28/2001-4/29/2017).

Ask your self honestly if you would have continued to stick with a strategy that CONSISTENTLY underperformed the market for 16 years? Doubtful.

Unless that is, you don't really look at the numbers and instead want to just believe "it seems" that one index may consistently and significantly outperform another.

Image

source:
http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D

what do you think now?
I am not sure this is necessarily the right way to look at this. You are looking at absolute returns at a fixed amount invested in one lump sum at one time. Your graph is what happens to $10,000 invested in 1998. I would imagine that most people would invest over time. So it may be better to calculate return based on annual returns year by year based what you invested each year to calculate your absolute returns.

Carguy85, if you look at year by year (below), the annual return per year actually was higher for nasdaq most of the time. Now whether you get higher absolute returns will obviously depend on when you invested (you will need to do the calculation yourself). If you go down one year by 50%, it will make gains of more 50% to get your original money back. My point is that looking at $10,000 at one moment in time is probably not an accurate way to calculate the returns and can be quite misleading.

-----------nasdaq -- sp500-- winner
12/29/1995 39.92 34.11 nasdaq
12/31/1996 22.71 20.26 nasdaq
12/31/1997 21.64 31.01 sp500
12/31/1998 39.63 26.67 nasdaq
12/31/1999 85.59 19.53 nasdaq
12/29/2000 -39.29 -10.14 sp500
12/31/2001 -21.05 -13.04 sp500
12/31/2002 -31.53 -23.37 sp500
12/31/2003 50.01 26.38 nasdaq
12/31/2004 8.59 8.99 sp500
12/30/2005 1.37 3 sp500
12/29/2006 9.52 13.62 sp500
12/31/2007 9.81 3.53 nasdaq
12/31/2008 -40.54 -38.49 sp500
12/31/2009 43.89 23.45 nasdaq
12/31/2010 16.91 12.78 nasdaq
12/30/2011 -1.8 0 sp500
12/31/2012 15.91 13.41 nasdaq
12/31/2013 38.32 29.6 nasdaq
12/31/2014 13.4 11.39 nasdaq
12/31/2015 5.73 -0.73 nasdaq
12/30/2016 7.5 9.54 sp500
12/29/2017 28.24 19.42 nasdaq
12/31/2018 -3.88 -6.24 nasdaq
12/31/2019 35.23 128.88 nasdaq
9/25/2020 21.7 2.09 nasdaq

Source is from macrotrends.
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Re: Help my try to rationalize why I should ignore Nasdaq

Post by LadyGeek »

This thread is now in the Investing - Theory, News & General forum (general discussion).

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Re: Help my try to rationalize why I should ignore Nasdaq

Post by whereskyle »

Carguy85 wrote: Fri Sep 25, 2020 12:52 pm Will start out by saying all my equities are in SP500. Aside from the dot com bust it seems that Nasdaq has consistently and significantly outperformed sp500. I feel like I’m burying my head in the sand as to try not think that times are different and that maybe sp500 is somehow becoming more outdated like from what I’ve read by some about the Dow. I’m sure others feel they are missing out... Help me/us out please with facts/experience/etc.
Look into the criteria for inclusion in the Nasdaq 100 and decide if you think that those criteria are what will determine outperformance for the rest of your investment horizon.

Because I don't know the criteria that will determine outperformance for the rest of my investment horizon, I buy total market index funds.
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle
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Re: Help my try to rationalize why I should ignore Nasdaq

Post by grabiner »

The problem with following the Nasdaq index is that the criteria for inclusion aren't relevant to investors. You might want to invest in small stocks, or value stocks, or stocks in a particular industry, or stocks in a particular country; any of these have a reason to perform differently. But there is no reason to expect stocks to perform differently because they are listed on the NYSE versus the Nasdaq.

If you want to invest in technology stocks, it makes more sense to invest in a fund which holds specifically those stocks. I don't see any reason to do this; technology stocks might outperform investors' current expectations, but it's just as likely that oil, banks, or mining will outperform. (Note "outperform investors' current expectations". The stocks which are most profitable are not necessarily the best investments, since stock traders are willing to pay more for their expected future profits.)
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Re: Help my try to rationalize why I should ignore Nasdaq

Post by grabiner »

argonautl, welcome to the forum!
argonautI wrote: Sat Sep 26, 2020 10:49 am I am not sure this is necessarily the right way to look at this. You are looking at absolute returns at a fixed amount invested in one lump sum at one time. Your graph is what happens to $10,000 invested in 1998. I would imagine that most people would invest over time. So it may be better to calculate return based on annual returns year by year based what you invested each year to calculate your absolute returns.

Carguy85, if you look at year by year (below), the annual return per year actually was higher for nasdaq most of the time. Now whether you get higher absolute returns will obviously depend on when you invested (you will need to do the calculation yourself). If you go down one year by 50%, it will make gains of more 50% to get your original money back. My point is that looking at $10,000 at one moment in time is probably not an accurate way to calculate the returns and can be quite misleading.

-----------nasdaq -- sp500-- winner
12/29/1995 39.92 34.11 nasdaq
12/31/1996 22.71 20.26 nasdaq
12/31/1997 21.64 31.01 sp500
12/31/1998 39.63 26.67 nasdaq
12/31/1999 85.59 19.53 nasdaq
12/29/2000 -39.29 -10.14 sp500
12/31/2001 -21.05 -13.04 sp500
12/31/2002 -31.53 -23.37 sp500
12/31/2003 50.01 26.38 nasdaq
12/31/2004 8.59 8.99 sp500
12/30/2005 1.37 3 sp500
12/29/2006 9.52 13.62 sp500
12/31/2007 9.81 3.53 nasdaq
12/31/2008 -40.54 -38.49 sp500
12/31/2009 43.89 23.45 nasdaq
12/31/2010 16.91 12.78 nasdaq
12/30/2011 -1.8 0 sp500
12/31/2012 15.91 13.41 nasdaq
12/31/2013 38.32 29.6 nasdaq
12/31/2014 13.4 11.39 nasdaq
12/31/2015 5.73 -0.73 nasdaq
12/30/2016 7.5 9.54 sp500
12/29/2017 28.24 19.42 nasdaq
12/31/2018 -3.88 -6.24 nasdaq
12/31/2019 35.23 28.88 nasdaq
9/25/2020 21.7 2.09 nasdaq

Source is from macrotrends.
(2019 typo corrected)

This table shows the change in index values, which do not include dividends. Since the S&P has a higher dividend yield, S&P investors did a bit better relative to Nasdaq investors every year than the table indicates.

This table also illustrates that the Nasdaq has been significantly riskier than the S&P 500. When the market fell (2000, 2001, 2002, and to a lesser extent in 2008) the Nasdaq fell more; when it boomed, the Nasdaq rose more. Thus, for a given risk level, you would have to hold more bonds if your stock holdings were in the Nasdaq, and this would reduce the outperformance.

I checked this on Portfolio Visualizer (going back to 1999, the inception of QQQ). A portfolio of 2/3 QQQ and 1/3 Total Bond Market Index had the same standard deviation as the S&P 500 index, so it was just as risky. The 1999-2019 returns were also just about equal; the portfolio with QQQ pulled ahead in 2020.
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Re: Help my try to rationalize why I should ignore Nasdaq

Post by arcticpineapplecorp. »

Fclevz wrote: Fri Sep 25, 2020 10:03 pm Max drawdown -81.08% :shock:
+1

and this is a reason I think very few can stick with a strategy when they see it perform worse than another index like a S&P500 index fund, which had a max drawdown of -50.97% (https://www.portfoliovisualizer.com/fun ... mark=VFINX) or or better yet, total market index fund with -50.84% max drawdown (https://www.portfoliovisualizer.com/fun ... sisResults)

people can't even hold onto the market index or S&P500 when the market falls 20%-30% but we honestly believe these same people will hold on when the nasdaq falls 80%? never gonna happen.

people seem to change their portfolios more often than they change their underwear.

to the OP, if you really have the intestinal fortitude to hang on despite an -81.08% drawdown, then go for it!

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Post by nisiprius »

Carguy85 wrote: Fri Sep 25, 2020 12:52 pm... Aside from the dot com bust it seems that Nasdaq has consistently and significantly outperformed sp500...
But aside from that, Mrs. Lincoln, how did you like the play?

Why on earth would you ignore the dot com bust?

Of course, any investment is going to look great if you throw out the times when it was terrible.

The stock market itself is subject to big booms and crashes, but, generally speaking, if you concentrate your holdings into less and less of the stock market, you will see boomier booms and crashier crashes, particularly if it if your concentration leads you to focus on one industry sector or another. We're having a tech boom so a tech focus is good, we're having an energy bust so an energy focus is bad. But there would have been times when people would have been willing to swear up and down that an energy focus was a sure thing.

Funds like the Vanguard Total Stock Market Index Fund really do cover virtually all of the stock market, over 99%. The S&P 500 covers 80%, so while it is not quite as diversified it is hardly concentrated.

But the NASDAQ Composite has a total market capitalization of about $10 billion, so it is only about 28% of the market, and it is heavily overweighted in the tech sector. The NASDAQ-100 is only about $7.5 billion, so it is only about 21% of the market.

It is not at all surprising that the NASDAQ will be more volatile than the total stock market, and therefore will have more pronounced booms and busts. And unless you are confident that you can tell, reasonably accurately, when those booms and busts will occur, you probably aren't going to get any benefit in the long run.

Why on earth would you think that the choice of what stock market to list on would somehow lead you to a superior group of stocks?

And if you personally have a strong conviction that the technology sector is somehow magically better than all the others, now and in the future, why would you want to choose a stock market that happens to be tech-heavy, rather than choosing a technology sector fund or ETF? If you want frozen peas, why would you buy a bag of frozen carrots-and-peas when there is a bag of frozen peas sitting right next to it?
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Re: Help my try to rationalize why I should ignore Nasdaq

Post by HawkeyePierce »

IMO the Nasdaq 100 is just a silly basis for an index.

There's a very simple answer to the question of "how do I own a broader set of US stocks than those in the S&P500?" and that answer is a total market index.
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Re: Help my try to rationalize why I should ignore Nasdaq

Post by langlands »

nisiprius wrote: Sat Sep 26, 2020 12:37 pm
Carguy85 wrote: Fri Sep 25, 2020 12:52 pm... Aside from the dot com bust it seems that Nasdaq has consistently and significantly outperformed sp500...
But aside from that, Mrs. Lincoln, how did you like the play?

Why on earth would you ignore the dot com bust?

Of course, any investment is going to look great if you throw out the times when it was terrible.

The stock market itself is subject to big booms and crashes, but, generally speaking, if you concentrate your holdings into less and less of the stock market, you will see boomier booms and crashier crashes, particularly if it if your concentration leads you to focus on one industry sector or another. We're having a tech boom so a tech focus is good, we're having an energy bust so an energy focus is bad. But there would have been times when people would have been willing to swear up and down that an energy focus was a sure thing.

Funds like the Vanguard Total Stock Market Index Fund really do cover virtually all of the stock market, over 99%. The S&P 500 covers 80%, so while it is not quite as diversified it is hardly concentrated.

But the NASDAQ Composite has a total market capitalization of about $10 billion, so it is only about 28% of the market, and it is heavily overweighted in the tech sector. The NASDAQ-100 is only about $7.5 billion, so it is only about 21% of the market.

It is not at all surprising that the NASDAQ will be more volatile than the total stock market, and therefore will have more pronounced booms and busts. And unless you are confident that you can tell, reasonably accurately, when those booms and busts will occur, you probably aren't going to get any benefit in the long run.

Why on earth would you think that the choice of what stock market to list on would somehow lead you to a superior group of stocks?

And if you personally have a strong conviction that the technology sector is somehow magically better than all the others, now and in the future, why would you want to choose a stock market that happens to be tech-heavy, rather than choosing a technology sector fund or ETF? If you want frozen peas, why would you buy a bag of frozen carrots-and-peas when there is a bag of frozen peas sitting right next to it?
Regarding ignoring the dot com bust, the underlying implication I think is that it was an avoidable disaster for an investor. Unlike the 2008 crash or the 2020 crash where the stock market crashed as a result of things that happened in the economy, the 2000 crash was a self-inflicted wound by the stock market. I'll confess to being too young to know what it was really like around 1998-1999, but it does seem that that frenzy will never be duplicated, or if it will be, a level headed investor would know to get out (as Bogle did partially). But what do I know, maybe we are in such a tech bubble again as we speak and you can never see the forest for the trees in the moment.

About QQQ specifically, yes the ETF has an ad-hoc construction. But it contains 100 names that don't rotate particularly quickly, so one can see exactly what he's buying. Is it not possible that due to historical accident and/or cultural reasons of the time, QQQ happened to get a collection of particularly exceptional companies? If you pick a fund like VGT, you're not going to get TSLA or COST. Think of it as picking a fund manager who is really lazy and rarely turns over his portfolio and charges a correspondingly moderate expense ratio. The closest substitutes I can think of are ARKK and IGM. Both have significantly higher expense ratios. IGM in particular is very similar to QQQ but charges 0.46% while QQQ charges 0.2%. There's a reason QQQ has the largest AUM of all the tech ETF's. The market isn't that dumb.
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Re: Help my try to rationalize why I should ignore Nasdaq

Post by guyinlaw »

QQQ has 3.7% in TSLA. This would be enough reason not to hold QQQ. It is a company that lost 2/3rd it's value last year and then increased 10X. Won't be surprised if it happens again.

I am glad I don't have to own TSLA in my SP500 holdings. Want to avoid the boom/bust that was discussed by others.
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Re:

Post by hoops777 »

nisiprius wrote: Sat Sep 26, 2020 12:37 pm
Carguy85 wrote: Fri Sep 25, 2020 12:52 pm... Aside from the dot com bust it seems that Nasdaq has consistently and significantly outperformed sp500...
But aside from that, Mrs. Lincoln, how did you like the play?

Why on earth would you ignore the dot com bust?

Of course, any investment is going to look great if you throw out the times when it was terrible.

The stock market itself is subject to big booms and crashes, but, generally speaking, if you concentrate your holdings into less and less of the stock market, you will see boomier booms and crashier crashes, particularly if it if your concentration leads you to focus on one industry sector or another. We're having a tech boom so a tech focus is good, we're having an energy bust so an energy focus is bad. But there would have been times when people would have been willing to swear up and down that an energy focus was a sure thing.

Funds like the Vanguard Total Stock Market Index Fund really do cover virtually all of the stock market, over 99%. The S&P 500 covers 80%, so while it is not quite as diversified it is hardly concentrated.

But the NASDAQ Composite has a total market capitalization of about $10 billion, so it is only about 28% of the market, and it is heavily overweighted in the tech sector. The NASDAQ-100 is only about $7.5 billion, so it is only about 21% of the market.

It is not at all surprising that the NASDAQ will be more volatile than the total stock market, and therefore will have more pronounced booms and busts. And unless you are confident that you can tell, reasonably accurately, when those booms and busts will occur, you probably aren't going to get any benefit in the long run.

Why on earth would you think that the choice of what stock market to list on would somehow lead you to a superior group of stocks?

And if you personally have a strong conviction that the technology sector is somehow magically better than all the others, now and in the future, why would you want to choose a stock market that happens to be tech-heavy, rather than choosing a technology sector fund or ETF? If you want frozen peas, why would you buy a bag of frozen carrots-and-peas when there is a bag of frozen peas sitting right next to it?
A very persuasive argument :D
K.I.S.S........so easy to say so difficult to do.
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Re: Help my try to rationalize why I should ignore Nasdaq

Post by rockstar »

DaftInvestor wrote: Fri Sep 25, 2020 1:29 pm
arcticpineapplecorp. wrote: Fri Sep 25, 2020 1:06 pm
Your QQQ would have underperformed the market for 16 years (2/28/2001-4/29/2017).
Probably the more accurate statement would be to say that QQQ underperformed for the 16 year period 2/28/2001 - 4/29/2017.
It certainly didn't underperform the market for EACH of those 16 years - only half of them or so (reset your graph to start towards the end of 2009 and see what happens).
Certainly the LAST 16 years it has taken off - your point is valid - who knows what will occur in the next 16 years.
And during a good portion of this period, ten year treasuries outperformed the S&P 500.
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Re: Help my try to rationalize why I should ignore Nasdaq

Post by rockstar »

arcticpineapplecorp. wrote: Sat Sep 26, 2020 12:26 pm
Fclevz wrote: Fri Sep 25, 2020 10:03 pm Max drawdown -81.08% :shock:
+1

and this is a reason I think very few can stick with a strategy when they see it perform worse than another index like a S&P500 index fund, which had a max drawdown of -50.97% (https://www.portfoliovisualizer.com/fun ... mark=VFINX) or or better yet, total market index fund with -50.84% max drawdown (https://www.portfoliovisualizer.com/fun ... sisResults)

people can't even hold onto the market index or S&P500 when the market falls 20%-30% but we honestly believe these same people will hold on when the nasdaq falls 80%? never gonna happen.

people seem to change their portfolios more often than they change their underwear.

to the OP, if you really have the intestinal fortitude to hang on despite an -81.08% drawdown, then go for it!

investor know thyself.
I'm not a fan of buy and forget. When ETFs break through certain moving averages, I bail. I'm not going to watch my money go down 80%.
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Re: Help my try to rationalize why I should ignore Nasdaq

Post by langlands »

guyinlaw wrote: Sat Sep 26, 2020 3:00 pm QQQ has 3.7% in TSLA. This would be enough reason not to hold QQQ. It is a company that lost 2/3rd it's value last year and then increased 10X. Won't be surprised if it happens again.

I am glad I don't have to own TSLA in my SP500 holdings. Want to avoid the boom/bust that was discussed by others.
That's your choice, and a perfectly fine one. But I'm not exactly sure what you're saying- are you saying TSLA is overvalued or that it is highly volatile? If you're saying it is overvalued, then naturally you wouldn't want to own it. If you're just saying that it is highly volatile, note that a 2/3 drop in TSLA would only result in a 2% drop in QQQ. That's the benefit of owning an index of 100 stocks- idiosyncratic risk gets diversified away.
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Re: Help my try to rationalize why I should ignore Nasdaq

Post by rascott »

1) QQQ gets mocked a lot, but it's beaten the pants off SPY for 17 years and counting.

2) it would be considered a Large cap growth fund, if you want a purer growth fund index, use VUG or something along that line.
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Re: Help my try to rationalize why I should ignore Nasdaq

Post by Robot Monster »

rascott wrote: Sat Sep 26, 2020 4:55 pm 1) QQQ gets mocked a lot, but it's beaten the pants off SPY for 17 years and counting.
According to argonautI's post further up this thread, SPY successfully kept its pants on in 2004, 2005, 2006, 2008, 2011, and 2016. Admittedly, most of that 17 year period SPY had its pants off, which was uncomfortable for everyone.
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Re: Help my try to rationalize why I should ignore Nasdaq

Post by mrspock »

Carguy85 wrote: Fri Sep 25, 2020 12:52 pm Will start out by saying all my equities are in SP500. Aside from the dot com bust it seems that Nasdaq has consistently and significantly outperformed sp500. I feel like I’m burying my head in the sand as to try not think that times are different and that maybe sp500 is somehow becoming more outdated like from what I’ve read by some about the Dow. I’m sure others feel they are missing out... Help me/us out please with facts/experience/etc.
It’s 1910, industrials are all the rage.

It’s 1980, financials, oil and gas is all the rage.

It’s 1988, everything Japan is all the rage.

It’s 1999, everything dot com is all the rage.

It’s 2007, everything home home finance, builder/home Reno is all the rage.

Imagine if those investors piled into an index around those sectors? Ya that’s right... it wouldn’t have ended well. Combine that with the pathetic heuristics most humans have such as anchoring, sunk cost fallacy, recency bias and they are a complete utter mess when it comes to knowing when to pivot to a new sector.

Know your limits, know your weaknesses. Diversify.
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Re: Help my try to rationalize why I should ignore Nasdaq

Post by rockstar »

There's also this idea that if you buy what's not doing well that it will magically do well. I can't wrap my head around this one. It's like the other one. If you buy what's going well, it will magically not do well.
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Re: Help my try to rationalize why I should ignore Nasdaq

Post by grabiner »

rockstar wrote: Sat Sep 26, 2020 6:11 pm There's also this idea that if you buy what's not doing well that it will magically do well. I can't wrap my head around this one. It's like the other one. If you buy what's going well, it will magically not do well.
Neither of these is true. If you buy what has done well in the past, it is just as likely to do badly or well as anything else. By holding a diversified portfolio, you are guaranteed to have some share of whatever will do well in the future, rather than taking your chances on holding the best or worst part of the market.

The rationale for rebalancing is different: the purpose is to manage risk and return. If your risk tolerance says that 60% stocks and 40% bonds is appropriate, and then the stock market booms and you have 70% stocks and 30% bonds, you should sell some stock. The stock market isn't any more likely to decline just because it went up, but your new portfolio is too risky for you.
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Re: Help my try to rationalize why I should ignore Nasdaq

Post by Robot Monster »

rockstar wrote: Sat Sep 26, 2020 6:11 pm There's also this idea that if you buy what's not doing well that it will magically do well. I can't wrap my head around this one. It's like the other one. If you buy what's going well, it will magically not do well.
If you're going to buy a car, sure you can go for the shiny "reliable" one, but it makes more sense, don't you think, to get the rusty, dented, used car that's puffing black smoke. That one's on discount!
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Re: Help my try to rationalize why I should ignore Nasdaq

Post by nisiprius »

VTI = Vanguard Total Stock Market index fund, also available as a mutual fund
QQQ = PowerShares QQQ Trust, later Invesco QQQ Trust, ETF tracking the NASDAQ-100 index

This doesn't really mean anything but for the record:

I don't have the exact dates it was added, but on December 31, 2010, VTI was holding Tesla Motors stock, and it was valued at about $27/share.

On September 30, 2012, QQQ was not holding any Tesla stock.

On September 30, 2013, it was holding Tesla, and it was valued at about $194 per share.

So I was holding Tesla stock from 2010, if not earlier. If you were invested in QQQ, you did not own it until sometime in 2013, and you missed out on holding it while it was growing from $26 to $194.

It doesn't matter, of course. I'm too lazy to do the research and the math to figure out what percentage of the each fund it was, but even by 2013 it wasn't a large enough percentage of either fund to matter.

But I do like the idea that I was holding the kewl stuff three years before QQQ investors were.

In general, holding Total Stock gives you your best chance to hold all the ten-baggers long before anyone knows they are going to be ten-baggers.
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Re: Help my try to rationalize why I should ignore Nasdaq

Post by langlands »

nisiprius wrote: Sat Sep 26, 2020 7:00 pm VTI = Vanguard Total Stock Market index fund, also available as a mutual fund
QQQ = PowerShares QQQ Trust, later Invesco QQQ Trust, ETF tracking the NASDAQ-100 index

This doesn't really mean anything but for the record:

I don't have the exact dates it was added, but on December 31, 2010, VTI was holding Tesla Motors stock, and it was valued at about $27/share.

On September 30, 2012, QQQ was not holding any Tesla stock.

On September 30, 2013, it was holding Tesla, and it was valued at about $194 per share.

So I was holding Tesla stock from 2010, if not earlier. If you were invested in QQQ, you did not own it until sometime in 2013, and you missed out on holding it while it was growing from $26 to $194.

It doesn't matter, of course. I'm too lazy to do the research and the math to figure out what percentage of the each fund it was, but even by 2013 it wasn't a large enough percentage of either fund to matter.

But I do like the idea that I was holding the kewl stuff three years before QQQ investors were.

In general, holding Total Stock gives you your best chance to hold all the ten-baggers long before anyone knows they are going to be ten-baggers.
Yes if you hold the whole market, you're by definition holding all the potential ten-baggers. What matters of course is the concentration in which you hold them. I've seen countless exchanges where someone asks whether they should add asset X (where X is utilities, value, growth, REITs etc.) to a portfolio and inevitably someone replies I already own X because I bought the "whole haystack." Well, yes of course but the whole question is about tilting towards X. Owning 0.01% of X because it's nominally represented in VTI doesn't really move the dial.
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Re: Help my try to rationalize why I should ignore Nasdaq

Post by Robot Monster »

langlands wrote: Sat Sep 26, 2020 7:39 pm
nisiprius wrote: Sat Sep 26, 2020 7:00 pm VTI = Vanguard Total Stock Market index fund, also available as a mutual fund
QQQ = PowerShares QQQ Trust, later Invesco QQQ Trust, ETF tracking the NASDAQ-100 index

This doesn't really mean anything but for the record:

I don't have the exact dates it was added, but on December 31, 2010, VTI was holding Tesla Motors stock, and it was valued at about $27/share.

On September 30, 2012, QQQ was not holding any Tesla stock.

On September 30, 2013, it was holding Tesla, and it was valued at about $194 per share.

So I was holding Tesla stock from 2010, if not earlier. If you were invested in QQQ, you did not own it until sometime in 2013, and you missed out on holding it while it was growing from $26 to $194.

It doesn't matter, of course. I'm too lazy to do the research and the math to figure out what percentage of the each fund it was, but even by 2013 it wasn't a large enough percentage of either fund to matter.

But I do like the idea that I was holding the kewl stuff three years before QQQ investors were.

In general, holding Total Stock gives you your best chance to hold all the ten-baggers long before anyone knows they are going to be ten-baggers.
Yes if you hold the whole market, you're by definition holding all the potential ten-baggers. What matters of course is the concentration in which you hold them. I've seen countless exchanges where someone asks whether they should add asset X (where X is utilities, value, growth, REITs etc.) to a portfolio and inevitably someone replies I already own X because I bought the "whole haystack." Well, yes of course but the whole question is about tilting towards X. Owning 0.01% of X because it's nominally represented in VTI doesn't really move the dial.
There's not really that much of a difference between the performance of any individual stock VTI owns, and VTI, itself. For instance, take Monster Energy Corporation (MNST). Between Jan 1996 - Aug 2020, VTI transformed $10K into $89,661, while MNST transformed that same exact 10K into $58,549,527. Wait...wait...um...
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Re: Help my try to rationalize why I should ignore Nasdaq

Post by 000 »

Robot Monster wrote: Sat Sep 26, 2020 7:54 pm There's not really that much of a difference between the performance of any individual stock VTI owns, and VTI, itself. For instance, take Monster Energy Corporation (MNST). Between Jan 1996 - Aug 2020, VTI transformed $10K into $89,661, while MNST transformed that same exact 10K into $58,549,527. Wait...wait...um...
Put another way, $15.32 into MNST returned the same as $10,000.00 into VTI (VTSMX).

Next question: can I build a time machine for less than $9984.68? :P
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Re: Help my try to rationalize why I should ignore Nasdaq

Post by rockstar »

langlands wrote: Sat Sep 26, 2020 7:39 pm
nisiprius wrote: Sat Sep 26, 2020 7:00 pm VTI = Vanguard Total Stock Market index fund, also available as a mutual fund
QQQ = PowerShares QQQ Trust, later Invesco QQQ Trust, ETF tracking the NASDAQ-100 index

This doesn't really mean anything but for the record:

I don't have the exact dates it was added, but on December 31, 2010, VTI was holding Tesla Motors stock, and it was valued at about $27/share.

On September 30, 2012, QQQ was not holding any Tesla stock.

On September 30, 2013, it was holding Tesla, and it was valued at about $194 per share.

So I was holding Tesla stock from 2010, if not earlier. If you were invested in QQQ, you did not own it until sometime in 2013, and you missed out on holding it while it was growing from $26 to $194.

It doesn't matter, of course. I'm too lazy to do the research and the math to figure out what percentage of the each fund it was, but even by 2013 it wasn't a large enough percentage of either fund to matter.

But I do like the idea that I was holding the kewl stuff three years before QQQ investors were.

In general, holding Total Stock gives you your best chance to hold all the ten-baggers long before anyone knows they are going to be ten-baggers.
Yes if you hold the whole market, you're by definition holding all the potential ten-baggers. What matters of course is the concentration in which you hold them. I've seen countless exchanges where someone asks whether they should add asset X (where X is utilities, value, growth, REITs etc.) to a portfolio and inevitably someone replies I already own X because I bought the "whole haystack." Well, yes of course but the whole question is about tilting towards X. Owning 0.01% of X because it's nominally represented in VTI doesn't really move the dial.
If the haystack is too big, then you dilute all of the winners. You eventually reach a point, where it might be better to hold the long bond to maturity than invest in equities.
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