What would it take to cause a QQQ Collapse?

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boatofcar
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What would it take to cause a QQQ Collapse?

Post by boatofcar » Fri Jul 31, 2020 10:57 am

Just what the question says. I think we have moved past issues that caused the dotcom bubble (perhaps tech is overvalued overall but not to the same extent) so I am genuinely curious about what you think could happen where investors en mass abandon the sector, and where they would move their money to?

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Re: What would it take to cause a QQQ Collapse?

Post by wackerdr » Fri Jul 31, 2020 11:04 am

QQQ is synonymous with Tech. But it is not designed to be a tech index. And QQQ by rule doesn't include financial services companies.

It is possible that Tech sector will be dominant, but top players will be replaced by the current mid-cap ones. Also possible that companies in healthcare, biotech, pharma, retail, entertainment will become more dominant than tech. If they are in Nasdaq top 100, and not in financial services, they will be part of QQQ.

Of course QQQ could become overvalued, but then so will be the VTSAX. No one can tell conclusively if it is overvalued or not. That's the beauty of markets. Isn't it. ? We will know only in the hindsight. QQQ will fall harder because of concentration of overvalued stocks.

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Re: What would it take to cause a QQQ Collapse?

Post by jarjarM » Fri Jul 31, 2020 11:19 am

When the tech companies decide that it's more profitable to stay private and use PE to raise funds. Think if FAANG stays private and there's enough fund there and secondary market for the employees to trade, then QQQ will be more or less meaningless. When can PE be big enough to support such endeavor? That's more political and off limit on this site.

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Re: What would it take to cause a QQQ Collapse?

Post by alex_686 » Fri Jul 31, 2020 11:41 am

2 things, maybe 3.

The QQQ is a horribly designed index. Almost as bad as the DJIA. So it is kind of hard to generalize on what could happen. Maybe the NASDAQ exchange goes wonky. Other tech heavy exchanges are now raising more money.

The tech companies valuations may be frothy. Maybe they don't delivery on their expected high growth. Maybe new and different tech companies come out of left field to disrupted.

And did you see the Congressional hearings this week? Maybe new regulations will come down and curb their growth.
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Re: What would it take to cause a QQQ Collapse?

Post by whodidntante » Fri Jul 31, 2020 11:51 am

If I sold all of my SCV and TSM funds and bought QQQ, it would collapse. Now, I would never do that. But for the right price, I will. What's it worth to you? :twisted:

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Re: What would it take to cause a QQQ Collapse?

Post by retired@50 » Fri Jul 31, 2020 11:51 am

How about a long lasting electrical blackout?

Without household electricity, Facebook and Google become nearly meaningless...

Regards,
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Re: What would it take to cause a QQQ Collapse?

Post by Impatience » Fri Jul 31, 2020 11:54 am

It won’t “collapse” unless the whole economy collapses. But it might begin to underperform the S&P or some other broad market segment. That will be a lot sneakier but more likely to happen.

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Re: What would it take to cause a QQQ Collapse?

Post by jarjarM » Fri Jul 31, 2020 11:55 am

whodidntante wrote:
Fri Jul 31, 2020 11:51 am
If I sold all of my SCV and TSM funds and bought QQQ, it would collapse. Now, I would never do that. But for the right price, I will. What's it worth to you? :twisted:
How about $10, I'm willing to try this since my SCV has been underperform for so long :annoyed

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Re: What would it take to cause a QQQ Collapse?

Post by Mrmetalpole » Fri Jul 31, 2020 11:56 am

boatofcar wrote:
Fri Jul 31, 2020 10:57 am
Just what the question says. I think we have moved past issues that caused the dotcom bubble (perhaps tech is overvalued overall but not to the same extent) so I am genuinely curious about what you think could happen where investors en mass abandon the sector, and where they would move their money to?
To answer your subject thread - Government regulation of big tech that inhibits growth prospects moving forward. Higher corporate taxes takes down all earnings models so it's not specific to the Qs

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Re: What would it take to cause a QQQ Collapse?

Post by nisiprius » Fri Jul 31, 2020 11:58 am

I predict that if there is a QQQ collapse, the reason will surprise us and will not be anything mentioned in this thread.

Perhaps you hope you can put together a list of everything that could endanger QQQ, and that QQQ will be perfectly safe until something on that list shows up. If so, no, it doesn't work that way.
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Re: What would it take to cause a QQQ Collapse?

Post by whodidntante » Fri Jul 31, 2020 12:15 pm

Mrmetalpole wrote:
Fri Jul 31, 2020 11:56 am
boatofcar wrote:
Fri Jul 31, 2020 10:57 am
Just what the question says. I think we have moved past issues that caused the dotcom bubble (perhaps tech is overvalued overall but not to the same extent) so I am genuinely curious about what you think could happen where investors en mass abandon the sector, and where they would move their money to?
To answer your subject thread - Government regulation of big tech that inhibits growth prospects moving forward. Higher corporate taxes takes down all earnings models so it's not specific to the Qs
Yep. I've noticed that people obviate stability. Eventually big US tech will go out of favor, and we'll pretend we saw it coming all along. I don't know if it will be what you said, but there will be some kind of narrative we can latch onto.

A noticed an intern looking at a Robinhood screen to see how his chosen horse (a tech stock) was doing the other day. If you need a cliche for froth, there you go.

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Re: What would it take to cause a QQQ Collapse?

Post by whodidntante » Fri Jul 31, 2020 12:16 pm

jarjarM wrote:
Fri Jul 31, 2020 11:55 am
whodidntante wrote:
Fri Jul 31, 2020 11:51 am
If I sold all of my SCV and TSM funds and bought QQQ, it would collapse. Now, I would never do that. But for the right price, I will. What's it worth to you? :twisted:
How about $10, I'm willing to try this since my SCV has been underperform for so long :annoyed
Can you add an M to the end of your offer? :twisted:

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Re: What would it take to cause a QQQ Collapse?

Post by jarjarM » Fri Jul 31, 2020 12:24 pm

whodidntante wrote:
Fri Jul 31, 2020 12:16 pm
jarjarM wrote:
Fri Jul 31, 2020 11:55 am
whodidntante wrote:
Fri Jul 31, 2020 11:51 am
If I sold all of my SCV and TSM funds and bought QQQ, it would collapse. Now, I would never do that. But for the right price, I will. What's it worth to you? :twisted:
How about $10, I'm willing to try this since my SCV has been underperform for so long :annoyed
Can you add an M to the end of your offer? :twisted:
That's a bit rich :oops: But I can pay in Zimbabwe dollar, in fact I can pay in $1trillion Zimbabwe dollar :twisted:

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Re: What would it take to cause a QQQ Collapse?

Post by firebirdparts » Fri Jul 31, 2020 12:45 pm

boatofcar wrote:
Fri Jul 31, 2020 10:57 am
Just what the question says. I think we have moved past issues that caused the dotcom bubble (perhaps tech is overvalued overall but not to the same extent) so I am genuinely curious about what you think could happen where investors en mass abandon the sector, and where they would move their money to?
Well, last time, what happened was that the companies were losing money and couldn't get more money. Right now, in QQQ, there are a lot of companies that are solvent and profitable. The pandemic in fact plays to some companies in the QQQ. Some are just ridiculously overvalued due to investor popularity. There are just a few that are ruined by the pandemic. Like, just to pick a random example, expedia. QQQ is somewhat diversified today.

The only way it can significantly collapse (let's say 50%) is if there is a big change in investor philosophy. The underlying 100 companies are pretty robust.
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Re: What would it take to cause a QQQ Collapse?

Post by inbox788 » Fri Jul 31, 2020 12:53 pm

wackerdr wrote:
Fri Jul 31, 2020 11:04 am
And QQQ by rule doesn't include financial services companies..."and not in financial services"...
Interesting you should say that. There isn't a written rule is there? Is it that NYSE has more clout for financial companies or just historic? Paypal and FiServ are large Nasdaq companies (maybe that's the 2.08%), and I expect other FinTech companies will be more relevant to the financial industry going forward.

https://www.morningstar.com/etfs/xnas/qqq/portfolio

One other thing to lookout for is the hidden financial companies inside MFANG and other non-financial companies. Apple Pay/Google Pay/Libra/Amazon Gift Cards and LOC could turn into large financial companies themselves. You don't know how many other Synchrony Financial, Ally Financial, and other embedded financial companies are hiding inside these tech giants.

The overlap between QQQ and VTSMX is significant, so the collapse of one will shadow the other. The biggest worry I have (and it's not that big) is international competition. If there are more companies like Samsung and Alibaba that are competitive in some ways, or these companies figure a way to step it up, the tech giants better watch out.

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Re: What would it take to cause a QQQ Collapse?

Post by McGilicutty » Fri Jul 31, 2020 12:57 pm

If China were to close its markets to U.S. companies that would likely severely negatively impact QQQ.

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Re: What would it take to cause a QQQ Collapse?

Post by wackerdr » Fri Jul 31, 2020 1:06 pm

inbox788 wrote:
Fri Jul 31, 2020 12:53 pm
wackerdr wrote:
Fri Jul 31, 2020 11:04 am
And QQQ by rule doesn't include financial services companies..."and not in financial services"...
Interesting you should say that. There isn't a written rule is there? Is it that NYSE has more clout for financial companies or just historic? Paypal and FiServ are large Nasdaq companies (maybe that's the 2.08%), and I expect other FinTech companies will be more relevant to the financial industry going forward.

https://www.morningstar.com/etfs/xnas/qqq/portfolio

One other thing to lookout for is the hidden financial companies inside MFANG and other non-financial companies. Apple Pay/Google Pay/Libra/Amazon Gift Cards and LOC could turn into large financial companies themselves. You don't know how many other Synchrony Financial, Ally Financial, and other embedded financial companies are hiding inside these tech giants.

The overlap between QQQ and VTSMX is significant, so the collapse of one will shadow the other. The biggest worry I have (and it's not that big) is international competition. If there are more companies like Samsung and Alibaba that are competitive in some ways, or these companies figure a way to step it up, the tech giants better watch out.
QQQ is mandated not to include Financial Services. From the prospectus
"The Index is a modified capitalization-weighted index of securities issued by 100 of the largest non-financial companies listed on the NASDAQ Global Select or NASDAQ Global Market tier of NASDAQ".

I don't know what would cause a company to change its classification. if Apple Pay is created as a separate company, may be it will be a financial company or it will be Fintech. My understanding is, banks/Financial Services companies are excluded. Paypal is there, but top banks aren't.
Last edited by wackerdr on Fri Jul 31, 2020 1:09 pm, edited 1 time in total.

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Re: What would it take to cause a QQQ Collapse?

Post by arcticpineapplecorp. » Fri Jul 31, 2020 1:07 pm

looks like 103 companies would have to go out of business. That's how many are in the QQQs:
https://www.invesco.com/us-rest/content ... =investors

Of course just three of those companies Apple, Microsoft and Amazon make up 34.24% of the entire thing (source: https://www.invesco.com/us-rest/content ... =investors)

how's that for diversification. You'd lose 1/3rd of your money if just three companies went belly up.

97.36% of the fund (QQQ) is in the US so there's not much geographic diversification either.
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Re: What would it take to cause a QQQ Collapse?

Post by inbox788 » Fri Jul 31, 2020 3:03 pm

wackerdr wrote:
Fri Jul 31, 2020 1:06 pm
QQQ is mandated not to include Financial Services. From the prospectus
"The Index is a modified capitalization-weighted index of securities issued by 100 of the largest non-financial companies listed on the NASDAQ Global Select or NASDAQ Global Market tier of NASDAQ".

I don't know what would cause a company to change its classification. if Apple Pay is created as a separate company, may be it will be a financial company or it will be Fintech. My understanding is, banks/Financial Services companies are excluded. Paypal is there, but top banks aren't.
Thanks! I hadn't been paying attention to that. The NASDAQ Financial 100 companies haven't made the same splash as the big QQQ companies. Many of the top 30 are in single digit billions, and aside from CME, NDAQ, and IBKR, there are few widely recognizable names. And I would have thought companies like Z and RDFN are Tech and RE plays more than finance.

https://finance.yahoo.com/quote/%5EIXF/components/

If you go back just 15 years to 2005, only Microsoft was one of the tech stocks in the top 10 SP500 stocks. Google jump in and out in 2007, 2008, and back in in 2009 when Apple joined. With 2013 the last year in this series, FB and AMZN haven't shown up yet. TSLA should/could be if/when they're added.

https://etfdb.com/history-of-the-s-and-p-500/#2005

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Re: What would it take to cause a QQQ Collapse?

Post by Enzo IX » Fri Jul 31, 2020 3:10 pm

Nothing, Pepsi will hold it up.

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Re: What would it take to cause a QQQ Collapse?

Post by TheTimeLord » Fri Jul 31, 2020 3:12 pm

boatofcar wrote:
Fri Jul 31, 2020 10:57 am
Just what the question says. I think we have moved past issues that caused the dotcom bubble (perhaps tech is overvalued overall but not to the same extent) so I am genuinely curious about what you think could happen where investors en mass abandon the sector, and where they would move their money to?
QQQ is not a sector ETF.
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Re: What would it take to cause a QQQ Collapse?

Post by Nate79 » Fri Jul 31, 2020 3:16 pm

There was a really good podcast on QQQ June 17th Let's Talk ETFs. QQQ is not just a group of tech companies. But it really represents innovation.

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Re: What would it take to cause a QQQ Collapse?

Post by alex_686 » Fri Jul 31, 2020 3:18 pm

inbox788 wrote:
Fri Jul 31, 2020 3:03 pm
Thanks! I hadn't been paying attention to that. The NASDAQ Financial 100 companies haven't made the same splash as the big QQQ companies. Many of the top 30 are in single digit billions, and aside from CME, NDAQ, and IBKR, there are few widely recognizable names. And I would have thought companies like Z and RDFN are Tech and RE plays more than finance.

https://finance.yahoo.com/quote/%5EIXF/components/

If you go back just 15 years to 2005, only Microsoft was one of the tech stocks in the top 10 SP500 stocks. Google jump in and out in 2007, 2008, and back in in 2009 when Apple joined. With 2013 the last year in this series, FB and AMZN haven't shown up yet. TSLA should/could be if/when they're added.

https://etfdb.com/history-of-the-s-and-p-500/#2005
It helps if you know your history.

NYSE was for blue chips. i.e., The biggest and most stable companies. It had the highest listing requirements, both in terms of fees and standards for corporate governance, etc.

NASDAQ was the 3rd tier exchange. Lowest listing fee, lowest standards. So wobbly tech start ups could list even if their earnings, reporting, and corporate governance were thin.

NASDAQ was also the favored place for smaller regional banks to list. Insiders often owned large chunks. Reporting could be a bit lower. Volume tended to be lower. etc.

Now NASDAQ and NYSE have harmonized their listing standards, so the reason why QQQ's index methodology is no longer valid. 30 years ago one could make a real case that a company should graduate from NASDAQ to the NYSE when it became large and stable. Now there is no reason. And young baby companies can list on the NYSE.
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Re: What would it take to cause a QQQ Collapse?

Post by TechFI » Sat Aug 01, 2020 12:41 am

Since QQQ is teach heavy, I suspect a repeat of the 2000 dot.com bust will cause it to tank.

Does anyone know if a repeat of history is likely to happen?

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Re: What would it take to cause a QQQ Collapse?

Post by alex_686 » Sat Aug 01, 2020 8:32 am

TechFI wrote:
Sat Aug 01, 2020 12:41 am
Since QQQ is teach heavy, I suspect a repeat of the 2000 dot.com bust will cause it to tank.

Does anyone know if a repeat of history is likely to happen?
This will not happen again. Every crash is unique.

The dot.com bust was a bunch of young small companies which had more potential than cash.

Now we have giants with huge cash flows and cash in the bank. Maybe still more potential than actual profits look at the P/E ratios. If they crash it will be very different.
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Re: What would it take to cause a QQQ Collapse?

Post by TechGuy365 » Sat Aug 01, 2020 8:47 am

arcticpineapplecorp. wrote:
Fri Jul 31, 2020 1:07 pm
looks like 103 companies would have to go out of business. That's how many are in the QQQs:
https://www.invesco.com/us-rest/content ... =investors

Of course just three of those companies Apple, Microsoft and Amazon make up 34.24% of the entire thing (source: https://www.invesco.com/us-rest/content ... =investors)

how's that for diversification. You'd lose 1/3rd of your money if just three companies went belly up.
QQQ and tech investors think differently of the same data - Apple, Microsoft AND Amazon will ALL have go belly up before QQQ will lose 1/3 of its money. What are the chances of Apple, Microsoft AND Amazon go bankrupt at the same time? Small to none since they are all in different businesses catering to different segments of the population, with proper global diversification and product offerings. To me QQQ is safe for a next year or so. We'll reassess in 2021 but we're good for 2020.

Even if it does go down 1/3 between now and EOY (that is, AAPL, MSFT AND AMZN ALL bankrupt by the end of 2020), TQQQ is up 31% with dividend YTD (source m*) I think people will be happy with their gain if they started with it at the beginning of 2020. Beats S&P and bonds by a little bit. Disclaimer: I don't own any TQQQ.

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Re: What would it take to cause a QQQ Collapse?

Post by nisiprius » Sat Aug 01, 2020 9:08 am

Nate79 wrote:
Fri Jul 31, 2020 3:16 pm
There was a really good podcast on QQQ June 17th Let's Talk ETFs. QQQ is not just a group of tech companies. But it really represents innovation.
It really represents an off-brand stock market.

The reason QQQ has so much tech in it is not that it "represents innovation," it is that it had, perhaps still has lower standards, and in the 1980s and 1990s, sketchy tech companies that couldn't get themselves listed on the New York Stock Exchange could meet the standards to get listed on the Nasdaq.

The word "innovation" does not appear in the Nasdaq Listing Rules. Nasdaq has no "innovation" filter.
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Re: What would it take to cause a QQQ Collapse?

Post by dmcmahon » Sat Aug 01, 2020 10:11 am

I don’t think they’ll collapse, unless they reach valuation levels comparable to 1999. So in answer to the question, it would take a rapid doubling of valuations from here. I’m talking tech generally, not QQQ specifically, which as others have noted is a badly constructed index.

A more plausible scenario is that they lag other shares. But for that to happen, we’d have to see a return of the physical economy, relative to the digital and intellectual one. I personally don’t see that happening unless we’re very successful in developing off-planet resources. We’re rapidly reaching physical limits on planet; there’s still growth to be had lifting people in the developing world out of poverty, but that’ll be slow slog IMO, and I’m not sure it’s investable.

Meanwhile, there’s essentially unbounded opportunity for growth in IP, be it biotech, gadgets, services, the arts. As Richard Feynman famously said, there’s plenty of room at the bottom.JMHO.

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Re: What would it take to cause a QQQ Collapse?

Post by firebirdparts » Sat Aug 01, 2020 12:21 pm

TechFI wrote:
Sat Aug 01, 2020 12:41 am
Since QQQ is teach heavy, I suspect a repeat of the 2000 dot.com bust will cause it to tank.

Does anyone know if a repeat of history is likely to happen?
Are you asking if people are going to stop using the internet? They might. It'll take an EMP to do it though.
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Re: What would it take to cause a QQQ Collapse?

Post by Valuethinker » Sat Aug 01, 2020 12:58 pm

firebirdparts wrote:
Sat Aug 01, 2020 12:21 pm
TechFI wrote:
Sat Aug 01, 2020 12:41 am
Since QQQ is teach heavy, I suspect a repeat of the 2000 dot.com bust will cause it to tank.

Does anyone know if a repeat of history is likely to happen?
Are you asking if people are going to stop using the internet? They might. It'll take an EMP to do it though.
Wikipedia has an entry for The Carrington Event.

Was a solar flare. Melted telegraph keys. 2850s from memory.

That intensity now would fry most electronics and probably the power grid. Would take us weeks months years to repair the damage. Planes would drop out of the sky, critical medical and utility systems would fail etc.

And it has happened in the recent past *except* the mass ejection that crossed the Earth's orbital path from the Sun happened when Earth was on the other side of the Sun so it was not even detected for months, from probe data.

All of which is scary but manageable. We would cobble together backup systems. Millions might die, but life would go on.

The scary part is that various nuclear alarm systems could not distinguish between this and a hostile attack. The temptation to unleash EMP hardened missiles and bombers would be very great.

The Russian Federation has a system called Perimeter which automatically fires missiles if it cannot contact the Kremlin leadership. A literal Doomsday Device.

That is the really scary part. That we would finish off the job something else had begun.

And yes, the Nasdaq would crash ;-).

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Re: What would it take to cause a QQQ Collapse?

Post by texasfight » Sat Aug 01, 2020 1:09 pm

Everyone loves showing the Nasdaq/Russell or Nasdaq/S&P 500 chart to show how it is going to crash. But they are completely overlooking the most important underlying factors. Get ready for it - This time IS different. It has everything to do with falling real interest rates (due to deflationary forces in the global and US economy and monetary policy encourage lower real interest rates to fight these forces) causing P/E multiple expansion. Growth stocks (not just tech, amazon is in here as well (consumer discretionary), not to mention VISA and mastercard, benefit much more than value stocks from multiple expansion due to their earnings being further out in the future (this is duration and convexity of cash flows). I suggest you read the following to get a better understanding of why I see no reason for value to outperform growth in the long term (in the short I do, once we get rising real interest rates as an opening plan gets more clear).

https://twitter.com/CapitalCompoun2/sta ... 02818?s=20

https://seekingalpha.com/article/435865 ... this-trend

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Re: What would it take to cause a QQQ Collapse?

Post by Nate79 » Sat Aug 01, 2020 2:32 pm

nisiprius wrote:
Sat Aug 01, 2020 9:08 am
Nate79 wrote:
Fri Jul 31, 2020 3:16 pm
There was a really good podcast on QQQ June 17th Let's Talk ETFs. QQQ is not just a group of tech companies. But it really represents innovation.
It really represents an off-brand stock market.

The reason QQQ has so much tech in it is not that it "represents innovation," it is that it had, perhaps still has lower standards, and in the 1980s and 1990s, sketchy tech companies that couldn't get themselves listed on the New York Stock Exchange could meet the standards to get listed on the Nasdaq.

The word "innovation" does not appear in the Nasdaq Listing Rules. Nasdaq has no "innovation" filter.
One of the major pushes by Invesco for their QQQ fund is that the companies in QQQ represent innovation because they spend a significant more money on R&D vs the S&P500:

https://www.invesco.com/us/qqq-etf/a-lo ... nvestment/

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Re: What would it take to cause a QQQ Collapse?

Post by nisiprius » Sat Aug 01, 2020 3:00 pm

Nate79 wrote:
Sat Aug 01, 2020 2:32 pm
nisiprius wrote:
Sat Aug 01, 2020 9:08 am
Nate79 wrote:
Fri Jul 31, 2020 3:16 pm
There was a really good podcast on QQQ June 17th Let's Talk ETFs. QQQ is not just a group of tech companies. But it really represents innovation.
It really represents an off-brand stock market.... The word "innovation" does not appear in the Nasdaq Listing Rules. Nasdaq has no "innovation" filter.
One of the major pushes by Invesco for their QQQ fund is that the companies in QQQ represent innovation because they spend a significant more money on R&D vs the S&P500:

https://www.invesco.com/us/qqq-etf/a-lo ... nvestment/
And there isn't any sharper way to focus on high R&D companies than by looking at the stock market they list on?
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Re: What would it take to cause a QQQ Collapse?

Post by Slick8503 » Sat Aug 01, 2020 3:09 pm

texasfight wrote:
Sat Aug 01, 2020 1:09 pm
Everyone loves showing the Nasdaq/Russell or Nasdaq/S&P 500 chart to show how it is going to crash. But they are completely overlooking the most important underlying factors. Get ready for it - This time IS different. It has everything to do with falling real interest rates (due to deflationary forces in the global and US economy and monetary policy encourage lower real interest rates to fight these forces) causing P/E multiple expansion. Growth stocks (not just tech, amazon is in here as well (consumer discretionary), not to mention VISA and mastercard, benefit much more than value stocks from multiple expansion due to their earnings being further out in the future (this is duration and convexity of cash flows). I suggest you read the following to get a better understanding of why I see no reason for value to outperform growth in the long term (in the short I do, once we get rising real interest rates as an opening plan gets more clear).

https://twitter.com/CapitalCompoun2/sta ... 02818?s=20

https://seekingalpha.com/article/435865 ... this-trend
Amazon is a cloud company. I believe roughly half of their operating profit comes from aws.

illumination
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Re: What would it take to cause a QQQ Collapse?

Post by illumination » Sat Aug 01, 2020 7:08 pm

I say this as someone that owns QQQ, but I see a growing, bipartisan consensus both in the US and worldwide that "Big Tech" has too much power and that being wrangled in the coming years. Also more privacy laws could really take away the value some of these companies create.

These things wouldn't "collapse" QQQ but I could see investors significantly "cooling" to it.

If QQQ truly collapses in value, the S&P500 will also. I don't think the .com bust where the NASDAQ lost like 90% of its value is really a plausible scenario unless the entire US economy goes down with it and we have another Great Depression. It's just too intertwined with the rest of the US economy now.

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Re: What would it take to cause a QQQ Collapse?

Post by texasfight » Sat Aug 01, 2020 7:26 pm

Slick8503 wrote:
Sat Aug 01, 2020 3:09 pm
texasfight wrote:
Sat Aug 01, 2020 1:09 pm
Everyone loves showing the Nasdaq/Russell or Nasdaq/S&P 500 chart to show how it is going to crash. But they are completely overlooking the most important underlying factors. Get ready for it - This time IS different. It has everything to do with falling real interest rates (due to deflationary forces in the global and US economy and monetary policy encourage lower real interest rates to fight these forces) causing P/E multiple expansion. Growth stocks (not just tech, amazon is in here as well (consumer discretionary), not to mention VISA and mastercard, benefit much more than value stocks from multiple expansion due to their earnings being further out in the future (this is duration and convexity of cash flows). I suggest you read the following to get a better understanding of why I see no reason for value to outperform growth in the long term (in the short I do, once we get rising real interest rates as an opening plan gets more clear).

https://twitter.com/CapitalCompoun2/sta ... 02818?s=20

https://seekingalpha.com/article/435865 ... this-trend
Amazon is a cloud company. I believe roughly half of their operating profit comes from aws.
I'm just saying what sector it is in, but yes I agree that amazon is more tech than anything else, but is also a titan of decimating competitors with scale

000
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Re: What would it take to cause a QQQ Collapse?

Post by 000 » Sat Aug 01, 2020 7:26 pm

Very unlikely in my opinion, unless "collapse" is hyperbolic.

Possibilities:
1. Anti-tech social movement
2. Anti-oligopoly social movement
3. Nationalization of tech companies
4. EMP

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TechGuy365
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Re: What would it take to cause a QQQ Collapse?

Post by TechGuy365 » Sat Aug 01, 2020 7:29 pm

Slick8503 wrote:
Sat Aug 01, 2020 3:09 pm
texasfight wrote:
Sat Aug 01, 2020 1:09 pm
Everyone loves showing the Nasdaq/Russell or Nasdaq/S&P 500 chart to show how it is going to crash. But they are completely overlooking the most important underlying factors. Get ready for it - This time IS different. It has everything to do with falling real interest rates (due to deflationary forces in the global and US economy and monetary policy encourage lower real interest rates to fight these forces) causing P/E multiple expansion. Growth stocks (not just tech, amazon is in here as well (consumer discretionary), not to mention VISA and mastercard, benefit much more than value stocks from multiple expansion due to their earnings being further out in the future (this is duration and convexity of cash flows). I suggest you read the following to get a better understanding of why I see no reason for value to outperform growth in the long term (in the short I do, once we get rising real interest rates as an opening plan gets more clear).

https://twitter.com/CapitalCompoun2/sta ... 02818?s=20

https://seekingalpha.com/article/435865 ... this-trend
Amazon is a cloud company. I believe roughly half of their operating profit comes from aws.
Yes - a little more than half. According to CNBC, around 57% of Amazon's operating profit comes from AWS (source: https://www.cnbc.com/2020/07/30/aws-ear ... -2020.html).

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market timer
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Re: What would it take to cause a QQQ Collapse?

Post by market timer » Sat Aug 01, 2020 9:27 pm

The last decade has been something of a gold rush in bringing the physical world online. New habits have been created: how you shop, how you date, etc. New brands have been created: Uber, Tinder, etc. As with any gold rush, the people selling the tools get rich. Those tools are largely marketing (Google and Facebook mostly) and cloud services (all of big tech). This gold rush will end once consumers have settled into their new behavior. Brand loyalty is terrible for Google and Facebook. They thrive on building new brands and behaviors.
texasfight wrote:
Sat Aug 01, 2020 1:09 pm
This time IS different. It has everything to do with falling real interest rates (due to deflationary forces in the global and US economy and monetary policy encourage lower real interest rates to fight these forces) causing P/E multiple expansion
Falling real interest rates is a key part of the current rally. Tech stocks would suffer if real interest rates moved up from here (see December 2018). Not only would valuations of the big 5 get hammered by rising real rates, but many of their clients, which are growth companies, would have difficulty raising capital to spend on marketing and the cloud.
Last edited by market timer on Sat Aug 01, 2020 10:01 pm, edited 1 time in total.

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Re: What would it take to cause a QQQ Collapse?

Post by SB1234 » Sat Aug 01, 2020 9:57 pm

boatofcar wrote:
Fri Jul 31, 2020 10:57 am
Just what the question says. I think we have moved past issues that caused the dotcom bubble (perhaps tech is overvalued overall but not to the same extent) so I am genuinely curious about what you think could happen where investors en mass abandon the sector, and where they would move their money to?
Define 'collapse'. Without it any discussion is meaningless.
anecdotes are not data

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Re: What would it take to cause a QQQ Collapse?

Post by garlandwhizzer » Sat Aug 01, 2020 10:01 pm

It is hard now to see exactly why tech dominance will collapse anytime soon. The same could have been said in 1999.

Risks include bubble valuations totally divorced from reality. TSLA IMO is there now, but most tech darlings haven't gotten there yet, still offering robust growth as the economy and other sectors wither. Another potential problem is increasing governmental regulation which can adversely affect FB and Google (privacy issues with advertiser profiling, truth issues with content), AMZN (which is driving bricks and mortar retail out of business, creating political problems), and Microsoft/Apple dominance produce potential monopoly issues in Europe and US.

In addition there is a growing populist backlash worldwide against globalization which may manifest in high tariffs that create substantial supply chain problems for tech manufacturers. Governments may also restrict the importation of high skill tech workers from lower wage foreign sources. If the US tech mega caps had to depend on US domestic workers only for production that would create problems for them. These things, more expensive components and more expensive labor increase production costs and mean higher end prices which in turn reduces end consumer demand.

Finally there is the question of competition. Just like the US, China intends to dominate tech innovation long term. The US graduates 70,000 engineers each year. Sounds like a lot until you realize that China graduates 600,000/yr and India 350,000/yr. I have spent time in Asia and I can testify that high skill labor in Asia is much more available and much cheaper than in the US. One of the major problems that US SC companies complain of is lack of skilled labor applicants. That is not a problem in Asia IMO. We certainly have many more skilled lawyers than China or India but relatively fewer skilled engineers and information technicians. Silicon Valley is the world leader in innovation now but its dominance will get more and more challenged from Asia. There's a reason why Silicon Valley firms love to recruit Asian talent. I'm not saying China is going to take over the tech lead from the US. I don't believe it will. But China like the US is an innovative culture not just a manufacturing one like Japan. There will be more and more competition for tech leadership with China in the future in artificial intelligence and other areas.

So things look great for US tech now and its future will also likely be good, but historically sector stock dominance does not last forever. No one knows when it will turn but I prefer broad diversification rather than loading up on recent winners like tech. For my taste tech's large exposure in TSM is enough at this point.

Garland Whizzer

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Re: What would it take to cause a QQQ Collapse?

Post by CurlyDave » Sun Aug 02, 2020 1:30 am

Impatience wrote:
Fri Jul 31, 2020 11:54 am
It won’t “collapse” unless the whole economy collapses. But it might begin to underperform the S&P or some other broad market segment. That will be a lot sneakier but more likely to happen.
But, if that happens all of my money in tax-advantaged space can be switched back to SPY with the only penalty being a few months of underperformance. OTOH, the years of overperformance I have enjoyed by being in QQQ instead of SPY take a lot of the sting out of that.

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Re: What would it take to cause a QQQ Collapse?

Post by RXfiles » Sun Aug 02, 2020 1:41 am

CurlyDave wrote:
Sun Aug 02, 2020 1:30 am
Impatience wrote:
Fri Jul 31, 2020 11:54 am
It won’t “collapse” unless the whole economy collapses. But it might begin to underperform the S&P or some other broad market segment. That will be a lot sneakier but more likely to happen.
But, if that happens all of my money in tax-advantaged space can be switched back to SPY with the only penalty being a few months of underperformance. OTOH, the years of overperformance I have enjoyed by being in QQQ instead of SPY take a lot of the sting out of that.
How will you know its happening?

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Re: What would it take to cause a QQQ Collapse?

Post by CurlyDave » Sun Aug 02, 2020 2:22 am

RXfiles wrote:
Sun Aug 02, 2020 1:41 am
CurlyDave wrote:
Sun Aug 02, 2020 1:30 am
Impatience wrote:
Fri Jul 31, 2020 11:54 am
It won’t “collapse” unless the whole economy collapses. But it might begin to underperform the S&P or some other broad market segment. That will be a lot sneakier but more likely to happen.
But, if that happens all of my money in tax-advantaged space can be switched back to SPY with the only penalty being a few months of underperformance. OTOH, the years of overperformance I have enjoyed by being in QQQ instead of SPY take a lot of the sting out of that.
How will you know its happening?
Either by using Portfolio Visualizer or the performance tools my brokerage (TDA) has which allow me to compare the performance of anything vs. the S&P 500 over time periods of 20 years down to the past quarter.

My observation is that QQQ and SPY are behemoths that do not "turn on a dime", and that very infrequently switch relative performance. Right now much of our family portfolio is in QQQ and has been for over a decade. I check every few months, and if SPY starts to deliver better performance for a year or so, I will move the portfolio to SPY. Many brokerages, including TDA, have reduced commissions to zero, so the cost of doing this is nothing.

You can call this "performance chasing" if you want, but I smile all the way to the bank.

Cookie Dough
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Re: What would it take to cause a QQQ Collapse?

Post by Cookie Dough » Sun Aug 02, 2020 3:16 am

National legislation to restore digital privacy, and the end of MMT :moneybag

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Re: What would it take to cause a QQQ Collapse?

Post by columbia » Sun Aug 02, 2020 6:59 am

If folks are looking for a "new economy" ETF, I would think that iShares Expanded Tech Sector fund IGM would be a better play.

(That's not an endorsement of owning IGM.)
If you leave your head in the sand for too long, you might get run over by a Jeep.

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Re: What would it take to cause a QQQ Collapse?

Post by midareff » Sun Aug 02, 2020 7:02 am

Nuclear war should do it and quickly.

texasfight
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Re: What would it take to cause a QQQ Collapse?

Post by texasfight » Sun Aug 02, 2020 8:16 am

market timer wrote:
Sat Aug 01, 2020 9:27 pm
The last decade has been something of a gold rush in bringing the physical world online. New habits have been created: how you shop, how you date, etc. New brands have been created: Uber, Tinder, etc. As with any gold rush, the people selling the tools get rich. Those tools are largely marketing (Google and Facebook mostly) and cloud services (all of big tech). This gold rush will end once consumers have settled into their new behavior. Brand loyalty is terrible for Google and Facebook. They thrive on building new brands and behaviors.
texasfight wrote:
Sat Aug 01, 2020 1:09 pm
This time IS different. It has everything to do with falling real interest rates (due to deflationary forces in the global and US economy and monetary policy encourage lower real interest rates to fight these forces) causing P/E multiple expansion
Falling real interest rates is a key part of the current rally. Tech stocks would suffer if real interest rates moved up from here (see December 2018). Not only would valuations of the big 5 get hammered by rising real rates, but many of their clients, which are growth companies, would have difficulty raising capital to spend on marketing and the cloud.
And remember, it's not just rising nominal rates, it's rising real rates.

wackerdr
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Re: What would it take to cause a QQQ Collapse?

Post by wackerdr » Sun Aug 02, 2020 8:41 am

market timer wrote:
Sat Aug 01, 2020 9:27 pm
The last decade has been something of a gold rush in bringing the physical world online. New habits have been created: how you shop, how you date, etc. New brands have been created: Uber, Tinder, etc. As with any gold rush, the people selling the tools get rich. Those tools are largely marketing (Google and Facebook mostly) and cloud services (all of big tech). This gold rush will end once consumers have settled into their new behavior. Brand loyalty is terrible for Google and Facebook. They thrive on building new brands and behaviors.
texasfight wrote:
Sat Aug 01, 2020 1:09 pm
This time IS different. It has everything to do with falling real interest rates (due to deflationary forces in the global and US economy and monetary policy encourage lower real interest rates to fight these forces) causing P/E multiple expansion
Falling real interest rates is a key part of the current rally. Tech stocks would suffer if real interest rates moved up from here (see December 2018). Not only would valuations of the big 5 get hammered by rising real rates, but many of their clients, which are growth companies, would have difficulty raising capital to spend on marketing and the cloud.
The current growth environment based on social and e-commerce that drives marketing and tech spend will settle down. But one thing that separates this generation of companies FAANGM is the ability and willingness to cannibalize their own revenue streams and business models. Their vision and execution is overall very good. They are able to innovate, or acquire innovative companies or follow fast. That’s what gives me confidence that they are positioned well for medium term at least. Being in tech does not automatically mean success. IBM, HP, Oracle, Cisco have stagnated in innovation and it shows in their stock prices too. Microsoft was like that for a long time, until they got back on the innovation and execution.Apple was at risk with Steve Jobs death, but they could continue really well.

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TechGuy365
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Re: What would it take to cause a QQQ Collapse?

Post by TechGuy365 » Sun Aug 02, 2020 10:09 am

CurlyDave wrote:
Sun Aug 02, 2020 2:22 am
RXfiles wrote:
Sun Aug 02, 2020 1:41 am
CurlyDave wrote:
Sun Aug 02, 2020 1:30 am
Impatience wrote:
Fri Jul 31, 2020 11:54 am
It won’t “collapse” unless the whole economy collapses. But it might begin to underperform the S&P or some other broad market segment. That will be a lot sneakier but more likely to happen.
But, if that happens all of my money in tax-advantaged space can be switched back to SPY with the only penalty being a few months of underperformance. OTOH, the years of overperformance I have enjoyed by being in QQQ instead of SPY take a lot of the sting out of that.
How will you know its happening?
Either by using Portfolio Visualizer or the performance tools my brokerage (TDA) has which allow me to compare the performance of anything vs. the S&P 500 over time periods of 20 years down to the past quarter.

My observation is that QQQ and SPY are behemoths that do not "turn on a dime", and that very infrequently switch relative performance. Right now much of our family portfolio is in QQQ and has been for over a decade. I check every few months, and if SPY starts to deliver better performance for a year or so, I will move the portfolio to SPY. Many brokerages, including TDA, have reduced commissions to zero, so the cost of doing this is nothing.

You can call this "performance chasing" if you want, but I smile all the way to the bank.
Exactly. Same here and I'm glad I did the same for SCV. I held SCV for a good 10++ years when it did well. Once it started underperforming, I gave it a couple of years and bailed. I never fully understood why performance chasing is a bad thing - maybe I'm just lucky for the past 30 years. Be it SVC/Large Growth or US/International, by looking at the charts, once the lines cross and they would diverge for a long time (3-15 years) before converge and cross again ("do not turn on a dime, and that very infrequently switch relative performance" as you put it.). I have a fiduciary to myself not to hold the dogs through thick and thin.

It's completely true that nobody can predict the market, so I'm all in for reacting to long-term market trends.

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