Opinions on 100% into VGT and QQQ

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knockknock
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Opinions on 100% into VGT and QQQ

Post by knockknock »

Before I get to the question, here's my current situation:

Single, 28 years old, work at a tech megacorp with an annual salary of 220k.

My portfolio:
1) maxed-out employee sponsored 401k plan with 50k invested so far in a 2055 target date fund
2) 100k in vested company stock
3) 20k in a savings account for emergencies

I have been fortunate enough to pay off my loans and am just beginning my investment journey (read naive and not weathered enough by life :)). I am glad to have found the bogleheads forum.

So here's my question. Going forward, I plan to invest most of my savings outside my 401k, along with my company stock as soon as it qualifies for long term capital gains tax into VGT and QQQ which have done quite well since inception (CAGR of 14%). I know this goes against the bogleheads way of investing and is considered performance chasing but my thinking here is that tech has become an integral part of our lives and will only continue to become even more integral as we go forward. People draw comparisons with the dotcom bust of 2000 but I am not convinced those are valid comparisons given the different natures of the two bubbles. And even if the current bubble pops and my portfolio goes down by a large amount, let's say 50%, I think I can stomach that (I live very frugally).

I plan to do this over the next 25 years. I am sure there will be recessions during this time frame but I am unable to get a good grasp on how risky my plan is and what I have at stake here. Your opinions are quite appreciated :)
asif408
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Re: Opinions on 100% into VGT and QQQ

Post by asif408 »

Considering that you all of your income is derived from the US tech sector, I would suggest putting some of your money elsewhere. The odds are when tech stocks are doing poorly (which at some point they will) the odds that you might be laid off/let go are higher too. If you want invest some money in the tech sector that is reasonable but all of it is basically putting all your eggs in one basket.
knockknock wrote: Wed Sep 16, 2020 1:02 pm I know this goes against the bogleheads way of investing and is considered performance chasing but my thinking here is that tech has become an integral part of our lives and will only continue to become even more integral as we go forward. People draw comparisons with the dotcom bust of 2000 but I am not convinced those are valid comparisons given the different natures of the two bubbles. And even if the current bubble pops and my portfolio goes down by a large amount, let's say 50%, I think I can stomach that (I live very frugally).
I will tell you I'm seen some variation of this response in other posts about going all in on US tech, so you should note your view is not unique, if anything it is the current consensus. Generally speaking the current consensus tends not to be the best investment going forward.

The other thing is that if you live frugally why take the concentration risk?
knockknock wrote: Wed Sep 16, 2020 1:02 pmI plan to do this over the next 25 years. I am sure there will be recessions during this time frame but I am unable to get a good grasp on how risky my plan is and what I have at stake here. Your opinions are quite appreciated :)
Remember during the dot com bubble QQQ went down 80% and took 15 years to get back to even. It still trails a US only stock portfolio and a diversified mix of US, developed ex-US, and EM stocks, and trailed them all significantly in the 2000s. That would be mitigated by new investments, but think long and hard about the nerve it takes to invest in something that is the most poorly performing current investment and which has lots of negative news and/or is swamped by positive news about other assets (think BRICs and commodities in mid-2000s).

Think, for instance, if you would be willing to buy more foreign stocks, energy stocks, and value stocks right now. Lots of investors who thought they could handle the underperformance in those area are now finding they can't. Might be worth sticking with the TD fund and waiting for a very rough patch in tech stocks before you decide you are ready to go all in. You've got time on your side so no need to rush.
Buy_N_Hold
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Re: Opinions on 100% into VGT and QQQ

Post by Buy_N_Hold »

knockknock wrote: Wed Sep 16, 2020 1:02 pm Before I get to the question, here's my current situation:

Single, 28 years old, work at a tech megacorp with an annual salary of 220k.

My portfolio:
1) maxed-out employee sponsored 401k plan with 50k invested so far in a 2055 target date fund
2) 100k in vested company stock
3) 20k in a savings account for emergencies

I have been fortunate enough to pay off my loans and am just beginning my investment journey (read naive and not weathered enough by life :)). I am glad to have found the bogleheads forum.

So here's my question. Going forward, I plan to invest most of my savings outside my 401k, along with my company stock as soon as it qualifies for long term capital gains tax into VGT and QQQ which have done quite well since inception (CAGR of 14%). I know this goes against the bogleheads way of investing and is considered performance chasing but my thinking here is that tech has become an integral part of our lives and will only continue to become even more integral as we go forward. People draw comparisons with the dotcom bust of 2000 but I am not convinced those are valid comparisons given the different natures of the two bubbles. And even if the current bubble pops and my portfolio goes down by a large amount, let's say 50%, I think I can stomach that (I live very frugally).

I plan to do this over the next 25 years. I am sure there will be recessions during this time frame but I am unable to get a good grasp on how risky my plan is and what I have at stake here. Your opinions are quite appreciated :)
Welcome to the Forum! You are right; most investors on this forum would suggest that what you are doing is chasing future performance based on past performance, which cannot necessarily be extrapolated into the future. In general, I would agree with that sentiment. One of the most consistent things about our world is that it is inherently unpredictable. By making such a concentrated bet, you would be opening yourself up to the possibility of under-performance of the broader market index. However, you would also be creating the opportunity to exceed the market return, depending on how the next 25 years play out.

An important point to consider is that long-term returns in the stock market are driven by more than just isolated business performance. Even if you are correct in your view that Mega-Tech will continue to dominate the business world in the US, you are still open to the possibility of sub-par returns. How? Because the price that you pay for these incredible businesses is inextricably linked to your eventual realized return.

Are you familiar with the "Nifty Fifty" craze in market history? You can read a brief summary here: https://en.wikipedia.org/wiki/Nifty_Fifty. The price you pay is a major determinant to your returns, and in general as a sector becomes more and more en vouge the resulting prices can become harder and harder to justify on a fundamental basis.

By investing in the S&P 500 or a Total Stock Market fund (VFIAX or VTSAX for example), you will have more protection from long-term under performance driven by speculative excess. For me, this is worth passing on the potential upside to be gained from a more concentrated investment strategy. It helps me sleep at night. :) The market return has historically been more than enough for most people to accomplish their financial goals. That is the beauty of John Bogle's insight, and a point worth considering.
“To turn $100 into $110 is work. To turn $100 million into $110 million is inevitable.” -Edgar Bronfman
illumination
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Re: Opinions on 100% into VGT and QQQ

Post by illumination »

It's not a good idea to go "all in" on one sector, especially when your job is in that same sector.

Technology and innovation has always been important to the economy, but that doesn't mean they never can do poorly. I don't think the dot com comparisons are really "fair" either, but that doesn't mean this sector is bulletproof. Regulatory risk is a big one where there seems to be a growing, bipartisan consensus that could change the landscape.

That being said, I own positions in both QQQ and VGT, but it's definitely not my entire portfolio.
TNWoods
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Re: Opinions on 100% into VGT and QQQ

Post by TNWoods »

Since you are young, and since technology (probably) isn't going away, consider doing this:

Keep track of your investments into this strategy, and keep a parallel spreadsheet that tracks as if you were investing in a typical BH-favored index fund.

As long as your strategy is doing better than, say, VTSAX, smile and pat yourself on the back at your decision.

As soon as it looks like your strategy is slowing to perform the same as, or worse than, VTSAX, transition to VTSAX. If the tech sector does slow or underperform, it is unlikely that VTSAX will not be moving in a similar fashion anyway. But if VTSAX is holding steady while your strategy is waning, transition.

You need to monitor it, so that if the unlikely event of its underperformance begins to negatively affect your overall position, (as compared to your parallel portfolio tracking), you can take corrective action, and still be ahead of where you were if you had gone all in on the approved BH strategy.

It's your money, have fun, you have plenty of time to recover if it turns out computers are a fad.

TNWoods
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Re: Opinions on 100% into VGT and QQQ

Post by MotoTrojan »

These threads are getting more and more wild...

Will tech continue to dominate our world for the rest of our lives? Absolutely. Are tech stocks priced accordingly? Absolutely.

Stocks outperform when they beat expectations, not just because that business or sector did better than other business or sectors. A company/sector can even have declining earnings and still outperform the market if they declined a lot less than expected.

If you really want to invest in growth then go with VUG, but VGT is just too extreme for my blood... but I am a value investor and don't have $1 in FAANGM.

Good luck.
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Re: Opinions on 100% into VGT and QQQ

Post by MotoTrojan »

knockknock wrote: Wed Sep 16, 2020 1:02 pm along with my company stock as soon as it qualifies for long term capital gains tax
Do you have RSUs or options? If RSUs, there is no need to hold them for a year as you pay full income tax on the value when they vest. Long term cap-gains only comes into play for any additional growth, but if your intent is to reinvest it in a more diverse holding (I think that is a good plan) then you can sell on day-1 with no tax disadvantage.

Many people misconstrue what an RSU in a public company is but it is actually identical (even in terms of taxation) to a cash bonus that the company just forces you to go and buy their stock with. If the company gave you a cash bonus would you immediately go and buy company stock with it? If the answer is "no, I'd buy VGT or QQQ" then you should sell the stock the very day it vests, and buy VGT/QQQ (or something more diverse, but that is a separate point).
snailderby
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Re: Opinions on 100% into VGT and QQQ

Post by snailderby »

MotoTrojan wrote: Wed Sep 16, 2020 2:56 pmWill tech continue to dominate our world for the rest of our lives? Absolutely. Are tech stocks priced accordingly? Absolutely.

Stocks outperform when they beat expectations, not just because that business or sector did better than other business or sectors. A company/sector can even have declining earnings and still outperform the market if they declined a lot less than expected.
+1.

The mere fact that tech "has become an integral part of our lives" is not a good reason to overweight tech stocks unless you believe that the market hasn't adequately priced in these companies' expected earnings and growth. From https://obliviousinvestor.com/what-does ... priced-in/:
At any given time, the price of a stock reflects the market’s consensus expectations about the company’s future earnings.

For example, if the market expects Google to have rapid earnings growth going forward, then Google shares will be expensive relative to companies with lower expected future earnings (i.e., Google will have a higher price-to-earnings ratio). One would say that the market’s expectations about Google’s earnings growth are “priced in” — that is, they’re already built into the price.

This is a key point for investors to understand because it means that buying shares of Google stock will only provide you with above-average returns if the company’s earnings grow faster than expected. If the company’s earnings grow quickly, but no more quickly than the market expected them to, the stock’s performance will not be any better than the performance of the rest of the market (and will probably be worse).

In other words, the performance of a given stock is not determined by whether the underlying company performs well or poorly. Rather, it is determined by whether the underlying company does better or worse than the market expected it to do. There is, therefore, little to be gained from picking individual stocks unless you know something that the rest of the market doesn’t — something that isn’t already “priced in.”
P.S. Welcome to the forum, knockknock!
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Re: Opinions on 100% into VGT and QQQ

Post by snailderby »

You didn't ask about this, but see whether you're eligible to contribute to an HSA or backdoor Roth before investing in a taxable account.
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Re: Opinions on 100% into VGT and QQQ

Post by retire2022 »

knockknock wrote: Wed Sep 16, 2020 1:02 pm
op

Like others said VTI/VTSAX should be the majority of your portfolio, along with some Bonds,

https://www.bogleheads.org/wiki/Lazy_po ... portfolios

That said, I own 1803 shares of VGT however it is 29% of my portfolio and it is volatile.

I wrote it here:viewtopic.php?p=5490714#p5490714

28-67=39 years of investing

401k 19,500x39=$760,500 total contributions, at 6% compounded interest= $2,998,358.33

http://www.moneychimp.com/calculator/co ... ulator.htm
Last edited by retire2022 on Wed Sep 16, 2020 8:27 pm, edited 1 time in total.
raiderjkwong
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Re: Opinions on 100% into VGT and QQQ

Post by raiderjkwong »

I own QQQ, its a great ETF. QQQ with the S&P has been a great combination of growth the past 10 years.
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knockknock
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Re: Opinions on 100% into VGT and QQQ

Post by knockknock »

Thanks for the excellent replies everyone! You have raised a few points I had not thought of before.

After reading your replies, I have actually become a bit uncomfortable about the 100k I own in vested Apple stock. Since I also work at Apple and major downturns in Apple stock come with an increased risk of getting laid off, owning so much Apple stock seems to be a risky position to be in. Part of me now wants to sell the 100k off and diversify. But, a part of me strongly wants to keep the stock/buy even more Apple stock given the recent meteoric rise and my belief that Apple stock will continue to grow over the next 5 years. That said, I am unable to discern whether this belief stems from recency/familiarity bias. What do you all think? How does the idea of owning a large % in Apple stock while working at Apple sound to you?
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Re: Opinions on 100% into VGT and QQQ

Post by brad.clarkston »

knockknock wrote: Thu Sep 17, 2020 12:38 am Thanks for the excellent replies everyone! You have raised a few points I had not thought of before.

After reading your replies, I have actually become a bit uncomfortable about the 100k I own in vested Apple stock. Since I also work at Apple and major downturns in Apple stock come with an increased risk of getting laid off, owning so much Apple stock seems to be a risky position to be in. Part of me now wants to sell the 100k off and diversify. But, a part of me strongly wants to keep the stock/buy even more Apple stock given the recent meteoric rise and my belief that Apple stock will continue to grow over the next 5 years. That said, I am unable to discern whether this belief stems from recency/familiarity bias. What do you all think? How does the idea of owning a large % in Apple stock while working at Apple sound to you?

Is that Apple stock is in the form of a ESPP account or a flat buy option?

If it's ESPP I would sell as soon as it vests and put it in a TD or 3 fund port, that's the enter point of the program (buy at discount sell at premium).
If it's a flat stock purchase I'd have to think about it a bit more but I would still probably sell as TSM is overweight in FANG as it is.

I work in tech and yea I sell my ESPP asap.
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knockknock
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Re: Opinions on 100% into VGT and QQQ

Post by knockknock »

brad.clarkston wrote: Thu Sep 17, 2020 12:45 am
knockknock wrote: Thu Sep 17, 2020 12:38 am Thanks for the excellent replies everyone! You have raised a few points I had not thought of before.

After reading your replies, I have actually become a bit uncomfortable about the 100k I own in vested Apple stock. Since I also work at Apple and major downturns in Apple stock come with an increased risk of getting laid off, owning so much Apple stock seems to be a risky position to be in. Part of me now wants to sell the 100k off and diversify. But, a part of me strongly wants to keep the stock/buy even more Apple stock given the recent meteoric rise and my belief that Apple stock will continue to grow over the next 5 years. That said, I am unable to discern whether this belief stems from recency/familiarity bias. What do you all think? How does the idea of owning a large % in Apple stock while working at Apple sound to you?

Is that Apple stock is in the form of a ESPP account or a flat buy option?

If it's ESPP I would sell as soon as it vests and put it in a TD or 3 fund port, that's the enter point of the program (buy at discount sell at premium).
If it's a flat stock purchase I'd have to think about it a bit more but I would still probably sell as TSM is overweight in FANG as it is.

I work in tech and yea I sell my ESPP asap.
Most of the stock is in the form of vested RSU.

Btw, what are TD and TSM?
Buy_N_Hold
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Re: Opinions on 100% into VGT and QQQ

Post by Buy_N_Hold »

knockknock wrote: Thu Sep 17, 2020 1:13 am
brad.clarkston wrote: Thu Sep 17, 2020 12:45 am
knockknock wrote: Thu Sep 17, 2020 12:38 am Thanks for the excellent replies everyone! You have raised a few points I had not thought of before.

After reading your replies, I have actually become a bit uncomfortable about the 100k I own in vested Apple stock. Since I also work at Apple and major downturns in Apple stock come with an increased risk of getting laid off, owning so much Apple stock seems to be a risky position to be in. Part of me now wants to sell the 100k off and diversify. But, a part of me strongly wants to keep the stock/buy even more Apple stock given the recent meteoric rise and my belief that Apple stock will continue to grow over the next 5 years. That said, I am unable to discern whether this belief stems from recency/familiarity bias. What do you all think? How does the idea of owning a large % in Apple stock while working at Apple sound to you?

Is that Apple stock is in the form of a ESPP account or a flat buy option?

If it's ESPP I would sell as soon as it vests and put it in a TD or 3 fund port, that's the enter point of the program (buy at discount sell at premium).
If it's a flat stock purchase I'd have to think about it a bit more but I would still probably sell as TSM is overweight in FANG as it is.

I work in tech and yea I sell my ESPP asap.
Most of the stock is in the form of vested RSU.

Btw, what are TD and TSM?
TD - Target Date Fund
TSM - Total Stock Market Fund

With regards to your Apple stock, I would recommend selling at least a big chunk of it and diversifying into a much broader fund. While Apple seems to be unstoppable today, it’s hard to know how long their extraordinary success will continue. And like you said, since you already have your employment through Apple it would be a huge one-two punch if you were to lose your job and have your Apple stock significantly decline at the same time.

This is a deeply personal question though. Many of the great fortunes that have been made in the stock market have been made through concentrated bets like these! On the other hand, I’m sure the employees at Enron wished they would have spread their own 401(k) money much more broadly after the fact! (Although Apple is certainly not Enron) ;)
“To turn $100 into $110 is work. To turn $100 million into $110 million is inevitable.” -Edgar Bronfman
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LiveSimple
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Re: Opinions on 100% into VGT and QQQ

Post by LiveSimple »

See to design your portfolio with total stock market as a base and add tilts. Your tilt can be with the technology sector. For example 50% total stock and 50% VGT. Or some other ratios.

Mostly large cap is recommended, for tilt, or slice and dice, nowadays large cap is mostly technology as well.

I am invested in VGT for more than fifteen years and it did well, may be some luck as well.
I do believe technology will provide more returns for the next 25 years atleast.

Check out fidelity sector funds in technology as well.also ishares a few technology funds.
I have checked all these still convinced VGT is better.
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Re: Opinions on 100% into VGT and QQQ

Post by warner25 »

MotoTrojan wrote: Wed Sep 16, 2020 2:56 pm These threads are getting more and more wild...
It really feels like things are reaching a fever pitch. Every new Boglehead works in Big Tech making $200k, $400k, $800k per year; every college kid is now majoring in computer science; everyone is looking to invest 100% of their assets in US Big Tech stocks because all other assets classes and sectors and national stock markets are dead. This is clearly a bubble; the most obvious I've seen since bitcoin in late 2017, and oil in mid-2008, but it's bigger than those and it has been building for longer. Even nisiprius declared it to be a bubble. Like nisiprius said, though, I don't know what to do about it.
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Re: Opinions on 100% into VGT and QQQ

Post by nisiprius »

knockknock wrote: Wed Sep 16, 2020 1:02 pm...I know this goes against the bogleheads way of investing and is considered performance chasing...
Good. Yes, it does and it is.
...but my thinking here is that tech has become an integral part of our lives and will only continue to become even more integral as we go forward.
When has this not been true? And when have people, particularly people buying stock, not realized it?

Anybody with common sense can tell when certain new area of opportunity have opened up, and present huge opportunities... possibly even long-lasting change-the-world opportunities. But it is easy to make three mistakes.
  • Supposing that these opportunities are so good that any competent business that is in that area is sure to do well, just because it is in the "right" kind of business.
  • Not appreciating that everyone else can see what you see, and that's why the stocks have high price-to-earnings ratios.
  • Forgetting that disruption is great for the successful disrupters, but fatal to the disrupted.
"Radio," i.e. the Radio Corporation of America (RCA) was the darling of 1929, and here is what its stock price did.
Image

My point here is that RCA stock did that even though RCA was an excellent company in an excellent area up to about 1980. Just because a company really is a great company with a fantastic future doesn't make it safe. The same thing is true for industry groups and sectors. (Read about what happened with railroads in the late 1800s. Another truly-world-changing technology innovation, and a minefield for investors. The Pennsylvania Turnpike, the first modern highway, was literally built on the failure of a railroad--rails-to-trails, but with cars instead of bikes!)

As every new area opens up, it becomes populated with all kinds of businesses. Some are close to outright frauds that are created primarily to cash in on investor interest, and put more energy into creating the corporation and issuing and selling the stock than in engaging in the business they are supposed to be in. Some have the right technology but can't figure out how to make, market, and sell the product (Xerox corporation's fumbling of the work at Xerox PARC, which invented all the key elements of personal computing as we know it). Dozens perfectly credible companies that are in the business and really building cars or growing pot or whatnot, but don't have the competitive business smarts to survive the shakeout, etc.

You don't automatically get better investment results by focussing on something that everyone can see looks generally good, whether it be individual companies or whole sectors. Focussing increases risk, diversification reduces it, and improving results by focussing requires "being right" in a very specific, competitive way. You can't win by outthinking me. You have to outthink people with Bloomberg terminals who make their living out of following businesses all day every day.

Another thing you are missing is how quickly and viciously some change can come out of the blue and bite whole industry groups and sectors all at once. The same technology changes kill businesses almost as quickly as they create them. It is almost impossible for younger people to appreciate just how big and mighty Pan Am, TWA, and Eastern Airlines were--yet airline deregulation in 1978 basically killed them all off. It wasn't obvious in the crystal ball that these mighty companies couldn't adapt--but they didn't. The first desktop microcomputer-as-we-know-it, the Altair, was introduced in 1975, and within about fifteen years microcomputer chips killed off the minicomputer companies and severely damaged the mainframes. (And, dare I say "of course," the Altair and the company that created it, MITS, the company that created the Altair, MITS, didn't succeed, either).

So Apple succeeds, and if you'd had it in your portfolio and had stuck with it through several near-death moments, you would have course made money on Apple, but at the same time you'd have been losing money on the failed companies (Osborne, Tandy Radio Shack, Atari, Commodore) and the killed-off-and-crippled previous technology generation (Digital Equipment Corporation, Wang Laboratories, Data General).

Broad, clear, established definitions like "tech" don't magically include the real disruptive winners, and don't magically exclude the real disrupted losers. (I feel quite sure that new, narrow definitions of e.g. "exponential" industries won't do it, either).
I plan to do this over the next 25 years. I am sure there will be recessions during this time frame but I am unable to get a good grasp on how risky my plan is and what I have at stake here. Your opinions are quite appreciated :)
What you have at stake here is that you are increasing your risk noticeably, and almost certainly without increasing your expected return. A more serious risk is the risk that betting your whole retirement on a single sector exceeds your risk tolerance, and that you don't know it yet, and that at some point you will encounter a tech downturn so serious that you sell into the downturn--even though you feel sure today that you would never do a thing like that. Two acquaintances of mine who were 100% stocks or close did that in late 2008. I had a very conservative allocation and I don't like to think just how close I came to doing it, too.

Furthermore, even over periods of 25 years, the risks of the whole stock market are quite appreciable, and the consequences for retirement savings if you start at the beginning of a bad 25 years are bad enough. For example, over the period 1957-1981 inclusive, the real return of the stock market averaged only 2.78% per year.

I don't know how to easily find similar data for sectors--tricky because sector definitions shift that the "standard" GICS classification only began in 1999.

This chart I found with a web search looks right (though I can't vouch for its accuracy). Take a look at it.

You are taking exactly the wrong lesson from this if you if say "I was right, but I just had the wrong sector." Please don't do that. The point is that things are just not as simple as you think, and that according to this chart, over the last forty years concentration in the tech sector definitely would have increased downside risk--but would have had lower average return, not higher.

Source
Image

(I added the circle and arrows because the color coding wasn't very clear. A table lower in the article helped me figure out which was which).
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Re: Opinions on 100% into VGT and QQQ

Post by CyclingDuo »

knockknock wrote: Thu Sep 17, 2020 12:38 am Thanks for the excellent replies everyone! You have raised a few points I had not thought of before.

After reading your replies, I have actually become a bit uncomfortable about the 100k I own in vested Apple stock. Since I also work at Apple and major downturns in Apple stock come with an increased risk of getting laid off, owning so much Apple stock seems to be a risky position to be in. Part of me now wants to sell the 100k off and diversify. But, a part of me strongly wants to keep the stock/buy even more Apple stock given the recent meteoric rise and my belief that Apple stock will continue to grow over the next 5 years. That said, I am unable to discern whether this belief stems from recency/familiarity bias. What do you all think? How does the idea of owning a large % in Apple stock while working at Apple sound to you?
Too many eggs in one basket from a diversity perspective.

You will not find any disagreement that technology is indeed a well established and important sector of the economy. It is here to stay. The disagreement you will hear from most of us is to question the choice of taking a large bet that focuses on only one or two sectors of the economy. Don't you want to own some of the addiction stocks (tobacco, booze, gambling, drugs, fast food, junk food, etc...)? Those products are like fish to water for millions and millions of consumers. :D

Your salary (current income stream) comes from Apple, your bonus via RSU's come in the form of Apple stock, and you have the ability to throw 10% of your income at ESPP with every paycheck. Apple also represents 5-6.x% of the cap weighted index in either the S&P 500 or Total Stock Market Index. The index fund weighting alone means that all of us are over-invested in Apple whether we want to be or not. :beer

Obviously, Apple has been good (actually golden) to you up to this point. That indeed may continue for quite some time. Nevertheless, you have a very large percentage of your net worth tied up in Apple stock, plus your current income stream from work of $220K a year comes from Apple.

Have you created your IPS (Investment Policy Statement) yet?

https://www.bogleheads.org/wiki/Investm ... uirements.

I would suggest you go through that process and decide on a percentage of your investments that you would hold in various asset classes, as well as what percentage you would hold in Apple. The good news, as an employee, even if you sell your RSU's once vested and your ESPP purchases - more will be coming to you along the way if you remain employed at Apple. In other words, what rolls out will roll right back in again over time. A disciplined investor may have a set strategy of only holding up to 5-8% (to use as an example) in one individual company stock and when their position in that stock rises above that percentage, they will trim their holdings back to get back to their pre-determined percentage. No emotions involved, just sticking to the discipline. That way, if that one position tanks - it doesn't take down the entire portfolio.

Ask those of us who went through the dot-com bust what it was like for technology stocks. Losses of 80-92% as well as many companies falling off the face of the earth. Amazon dropped from $106 to $6 a share. Cisco dropped 86%. And on and on through the sector as the bubble burst. Your desire to concentrate everything into the technology sector is again, putting too many eggs in one basket. Actually QQQ would at least have you owning Pepsi and some Financial Stocks among others, but tech represents 63% of the holdings in QQQ and Apple is currently 12% of that ETF- https://www.invesco.com/us/qqq-etf/holdings/ .

Technology represents around 26-27% of the US market + 10.x% in Communication Services (which is lower than it was during the dot-com era), but you also want to be invested in the other 63% of the US and International stock market which are the other sectors of the economy. This is why many are posting in this thread about owning the entire market via the Total Stock Market Index Fund for both US, and International. Your target date fund in your 401k does that, but you should also consider that for a percentage of your investments outside of your 401k. Going 100% VGT and QQQ outside of your 401k target fund is most likely not going to provide the best returns over the coming decades. Nothing wrong with having some percentage invested in those, but since the index funds own over 25% in technology/10% communication services in the US and international owns around 11-12% in technology + 7.x% in communication services - that's a lot of sector concentration and eggs in the same basket as it is.

I would just ask "why not be invested in all sectors of the economy for the long run"? Meanwhile, we are in the midst of a much needed and healthy correction in the technology sector. :beer

CyclingDuo
"Save like a pessimist, invest like an optimist." - Morgan Housel
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Re: Opinions on 100% into VGT and QQQ

Post by asif408 »

knockknock wrote: Thu Sep 17, 2020 12:38 am But, a part of me strongly wants to keep the stock/buy even more Apple stock given the recent meteoric rise and my belief that Apple stock will continue to grow over the next 5 years. That said, I am unable to discern whether this belief stems from recency/familiarity bias. What do you all think? How does the idea of owning a large % in Apple stock while working at Apple sound to you?
That is a normal feeling, just understand that emotions tend to be an investor's worst enemy. You'll almost always feel good about an investment that has done well recently and bad about those that haven't. The best future investments tend to be the ones that make you feel like you are going to throw up as you buy more, not the ones that are easy to add more money to because they have gone up in recent years.

Just because you believe Apple will grow (which I agree with you that it likely will grow) doesn't mean its stock will also perform well. The performance of Apple stock will be dictated by how much it grows relative to current expectations. At this point Apple's valuations are anywhere from 2-6x what they were 10 years ago. Based on current valuations, most investors already expect Apple to continue to outgrow the rest of the market as it has over the last several years. If Apple's growth rate simply slows down from its current rate its stock could underperform.

Also ask yourself, for instance, if you worked for GM, or CenturyLink, or ExxonMobil right now, would you feel the same way about owning company stock?: https://www.portfoliovisualizer.com/bac ... ion3_3=100. These are US large cap stocks that have done very poorly over the last decade while the overall US market has done well. This is one the risks of individual stock investing.
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Re: Opinions on 100% into VGT and QQQ

Post by 1789 »

knockknock wrote: Wed Sep 16, 2020 1:02 pm Before I get to the question, here's my current situation:

Single, 28 years old, work at a tech megacorp with an annual salary of 220k.

My portfolio:
1) maxed-out employee sponsored 401k plan with 50k invested so far in a 2055 target date fund
2) 100k in vested company stock
3) 20k in a savings account for emergencies

I have been fortunate enough to pay off my loans and am just beginning my investment journey (read naive and not weathered enough by life :)). I am glad to have found the bogleheads forum.

So here's my question. Going forward, I plan to invest most of my savings outside my 401k, along with my company stock as soon as it qualifies for long term capital gains tax into VGT and QQQ which have done quite well since inception (CAGR of 14%). I know this goes against the bogleheads way of investing and is considered performance chasing but my thinking here is that tech has become an integral part of our lives and will only continue to become even more integral as we go forward. People draw comparisons with the dotcom bust of 2000 but I am not convinced those are valid comparisons given the different natures of the two bubbles. And even if the current bubble pops and my portfolio goes down by a large amount, let's say 50%, I think I can stomach that (I live very frugally).

I plan to do this over the next 25 years. I am sure there will be recessions during this time frame but I am unable to get a good grasp on how risky my plan is and what I have at stake here. Your opinions are quite appreciated :)
You can go back 25 years in time and try to understand what happened there between 1993-1999 and 1999-2002 (critical). Lots of people will tell you that it is minimal chance the same will repeat for tech stocks. Don't believe them. GE was a very solid company and was at the top of the list (where APPLE sits now) and now you can see where they are after 20 years. Remember you cant do this because 25 years is a forever time for tech industry. Things can dramatically change even in couple years in this industry. If you really want to keep your apple stock you can do so by keeping some RSU/ESPP but you will need a written plan to execute if they shoot up. For example you can sell half if your stocks go 2x and keep 1x going.
"My conscience wants vegetarianism to win over the world. And my subconscious is yearning for a piece of juicy meat. But what do i want?" (Andrei Tarkovsky)
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knockknock
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Re: Opinions on 100% into VGT and QQQ

Post by knockknock »

TNWoods wrote: Wed Sep 16, 2020 2:43 pm As soon as it looks like your strategy is slowing to perform the same as, or worse than, VTSAX, transition to VTSAX. If the tech sector does slow or underperform, it is unlikely that VTSAX will not be moving in a similar fashion anyway. But if VTSAX is holding steady while your strategy is waning, transition.
TNWoods
That looks like buying high and selling low. Isn't it advisable to buy even more of VGT if it goes below VTSAX?
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Re: Opinions on 100% into VGT and QQQ

Post by TNWoods »

knockknock wrote: Fri Sep 18, 2020 12:40 am
TNWoods wrote: Wed Sep 16, 2020 2:43 pm As soon as it looks like your strategy is slowing to perform the same as, or worse than, VTSAX, transition to VTSAX. If the tech sector does slow or underperform, it is unlikely that VTSAX will not be moving in a similar fashion anyway. But if VTSAX is holding steady while your strategy is waning, transition.
TNWoods
That looks like buying high and selling low. Isn't it advisable to buy even more of VGT if it goes below VTSAX?
It does not look like buying high and selling low.

It looks like buying the best thing because you are performance chasing, but you keep an eye on VTSAX, because that's the benchmark to tell you that the performance you are chasing is, in fact, out performing and worth the extra risk. The moment your performance chasing begins to fail, switch to the benchmark.

Everyone here will tell you never even try to beat the benchmark. They will tell you to be happy with mediocrity, with the average, with the overall market that is full of both losers and winners.

So if you want to defy the BH philosophy, the best way to do it is to follow that performance and make your alpha, then when the alpha starts to wane, jump back to the benchmark. You are now, by definition, ahead of where you WOULD have been if you had done the BH-approved thing in the first place.

You have all the returns everyone else had through the same time period, and you also have the alpha.

If the performance you are chasing fails, and you buy more of it, that's just nuts. Now you are chasing failure, you are losing not only all the alpha you were after, and now you are even under performing the benchmark, VTSAX.

So chase performance while it IS out performing, and chase BH-approved mediocrity when the performance is waning.

If you got outside the BH philosophy and post about it, you really want to be able to point to alpha as a result. ("When you strike at the king, you must kill him.")

TNWoods
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Re: Opinions on 100% into VGT and QQQ

Post by snailderby »

TNWoods wrote: Fri Sep 18, 2020 12:50 pm It does not look like buying high and selling low.

It looks like buying the best thing because you are performance chasing, but you keep an eye on VTSAX, because that's the benchmark to tell you that the performance you are chasing is, in fact, out performing and worth the extra risk. The moment your performance chasing begins to fail, switch to the benchmark.

Everyone here will tell you never even try to beat the benchmark. They will tell you to be happy with mediocrity, with the average, with the overall market that is full of both losers and winners.

So if you want to defy the BH philosophy, the best way to do it is to follow that performance and make your alpha, then when the alpha starts to wane, jump back to the benchmark. You are now, by definition, ahead of where you WOULD have been if you had done the BH-approved thing in the first place.

You have all the returns everyone else had through the same time period, and you also have the alpha.

If the performance you are chasing fails, and you buy more of it, that's just nuts. Now you are chasing failure, you are losing not only all the alpha you were after, and now you are even under performing the benchmark, VTSAX.

So chase performance while it IS out performing, and chase BH-approved mediocrity when the performance is waning.

If you got outside the BH philosophy and post about it, you really want to be able to point to alpha as a result. ("When you strike at the king, you must kill him.")

TNWoods
Most articles that I have read discourage performance chasing.

https://www.vanguard.com/pdf/ISGQFP.pdf:
In all nine equity style boxes, the returns produced by the buy-and-hold strategy bested those of the performance-chasing strategy....
https://money.usnews.com/money/blogs/th ... o-disaster:
Chasing performance, by jumping into investments that recently posted strong gains, is generally doomed to some kind of failure. By definition, an investor who makes that move is attempting to pick winners, rather than putting the power of the entire market to work.

Those lists of top performers, whether from last year, last month or last quarter, seem like they offer a way of outwitting the broader market. But when it comes to investing, there's no foolproof way of guessing what will outperform in the future.
https://obliviousinvestor.com/performan ... -avoid-it/:
Historically, a period of above-market performance for a given fund will be followed (eventually) by a period of below-market performance. In statistics jargon, this is referred to as “reversion to the mean.”

Many investors make the mistake of thinking that a fund with a great track record over the last year, 3 years, or 5 years, is a “good fund.” So they invest heavily in the fund precisely when its risk of underperformance is highest (that is, immediately after a period of consistent overperformance).
But for a more nuanced view on performance chasing, testing out different lookback and holding periods, see https://www.factorresearch.com/research ... erformance. This article concluded that a momentum strategy that is "systematically implemented, frequently rebalanced, and has low transaction costs...can generate excess returns." Even so, the article concluded that "as a rule, performance choice is best avoided. Our analysis indicates that investors would be better off betting on mean-reversion."
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Re: Opinions on 100% into VGT and QQQ

Post by burritoLover »

TNWoods wrote: Fri Sep 18, 2020 12:50 pm The moment your performance chasing begins to fail, switch to the benchmark.
That doesn't work. If it was that easy, then millions of other investors would just arbitrage that opportunity away.
"Your money is like a bar of soap. The more you handle it, the less you’ll have." - Gene Fama
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Re: Opinions on 100% into VGT and QQQ

Post by TNWoods »

snailderby,

You need to re-read the OP.

This is not a thread about "how to performance chase and why it is awesome and all the cool kids are doing it".

OP said quite clearly that he has decided to chase performance.

The thread begins there. He did not say "I am ignorant about performance chasing and need someone to teach me about it or talk me out of it."

He made it VERY CLEAR he knows what performance chasing is, and he has decided to do it ANYWAY.

So I laid out a very clear method of how to minimize the negative effects of chasing performance, since, again, he doesn't need lessons on what it is or why it should be avoided.

I wish people would read and understand original posts, and reply IN CONTEXT instead of grabbing the soapbox to pontificate for nobody's benefit.

TNWoods
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Re: Opinions on 100% into VGT and QQQ

Post by TNWoods »

burritoLover wrote: Fri Sep 18, 2020 2:24 pm
TNWoods wrote: Fri Sep 18, 2020 12:50 pm The moment your performance chasing begins to fail, switch to the benchmark.
That doesn't work. If it was that easy, then millions of other investors would just arbitrage that opportunity away.
Read the whole OP, read my WHOLE response.

Your reply is a complete non-sequitur.

TNWoods
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Re: Opinions on 100% into VGT and QQQ

Post by burritoLover »

TNWoods wrote: Fri Sep 18, 2020 2:35 pm
burritoLover wrote: Fri Sep 18, 2020 2:24 pm
TNWoods wrote: Fri Sep 18, 2020 12:50 pm The moment your performance chasing begins to fail, switch to the benchmark.
That doesn't work. If it was that easy, then millions of other investors would just arbitrage that opportunity away.
Read the whole OP, read my WHOLE response.

Your reply is a complete non-sequitur.

TNWoods
I did - nothing of what you are proposing is going to work.
"Your money is like a bar of soap. The more you handle it, the less you’ll have." - Gene Fama
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Re: Opinions on 100% into VGT and QQQ

Post by TNWoods »

burritoLover wrote: Fri Sep 18, 2020 2:39 pm
TNWoods wrote: Fri Sep 18, 2020 2:35 pm
burritoLover wrote: Fri Sep 18, 2020 2:24 pm
TNWoods wrote: Fri Sep 18, 2020 12:50 pm The moment your performance chasing begins to fail, switch to the benchmark.
That doesn't work. If it was that easy, then millions of other investors would just arbitrage that opportunity away.
Read the whole OP, read my WHOLE response.

Your reply is a complete non-sequitur.

TNWoods
I did - nothing of what you are proposing is going to work.
Utter nonsense.

You clearly have NOT understood anything.

He is going to buy some stuff that is CURRENTLY outperforming VTSAX.

I told him if he is going to do that, he needs to keep a parallel VTSAX spreadsheet, and constantly compare the performance of the two.

The moment the stuff that is CURRENTLY OUTPERFORMING starts to wane in performance, switch over to VTSAX, which is where all of us have been all along.

There is literally no possible way to have a total account value less than if he had started with VTSAX, which is currently UNDERPERFORMING (by comparison) to the performance he is chasing.

Literally no possible way.

TNWoods
burritoLover
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Re: Opinions on 100% into VGT and QQQ

Post by burritoLover »

TNWoods wrote: Fri Sep 18, 2020 2:48 pm The moment the stuff that is CURRENTLY OUTPERFORMING starts to wane in performance, switch over to VTSAX, which is where all of us have been all along.

There is literally no possible way to have a total account value less than if he had started with VTSAX, which is currently UNDERPERFORMING (by comparison) to the performance he is chasing.

Literally no possible way.

TNWoods
Yep, that's utter non-sense right there.
"Your money is like a bar of soap. The more you handle it, the less you’ll have." - Gene Fama
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knockknock
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Re: Opinions on 100% into VGT and QQQ

Post by knockknock »

TNWoods wrote: Fri Sep 18, 2020 2:48 pm
He is going to buy some stuff that is CURRENTLY outperforming VTSAX.
Yes, this indeed what I plan to do.
TNWoods wrote: Fri Sep 18, 2020 2:48 pm
I told him if he is going to do that, he needs to keep a parallel VTSAX spreadsheet, and constantly compare the performance of the two.

The moment the stuff that is CURRENTLY OUTPERFORMING starts to wane in performance, switch over to VTSAX, which is where all of us have been all along.
Is there a recommended way I track waning in performance? Should I wait until the performance goes down to that of VTSAX (in which case there would be no difference compared to the scenario where I had simply started with VTSAX)? Or should I wait until I lose a certain % of my edge over VTSAX?
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Re: Opinions on 100% into VGT and QQQ

Post by TNWoods »

knockknock wrote: Fri Sep 18, 2020 3:26 pm
TNWoods wrote: Fri Sep 18, 2020 2:48 pm
He is going to buy some stuff that is CURRENTLY outperforming VTSAX.
Yes, this indeed what I plan to do.
TNWoods wrote: Fri Sep 18, 2020 2:48 pm
I told him if he is going to do that, he needs to keep a parallel VTSAX spreadsheet, and constantly compare the performance of the two.

The moment the stuff that is CURRENTLY OUTPERFORMING starts to wane in performance, switch over to VTSAX, which is where all of us have been all along.
Is there a recommended way I track waning in performance? Should I wait until the performance goes down to that of VTSAX (in which case there would be no difference compared to the scenario where I had simply started with VTSAX)? Or should I wait until I lose a certain % of my edge over VTSAX?
The idea is that the performance "this week" seems to be leveling out, or dropping, while the same time period VTSAX's performance is "better".

And I'm talking "performance", not "value". Your "value" should still be above the parallel account VTSAX value when you notice the "performance" is waning. That way you switch to VTSAX while you still have those sweet gainz. That's the whole point of keeping the two accounts side-by-side, and also checking performance constantly.

Outperformers outperform until they don't. So if you are determined to do this, keep a very close eye on everything so that when you inevitably decide it is time to come back to the fold, you can come back with some alpha and not whatever greek letter means you lost money.

But "this week" is up to you to choose, could be 2 days in a row, could be 2 weeks, or a month. A shorter time period is better, because you want to stay on top of things. You don't want to get a nasty surprise and see that all your hard earned alpha has disappeared, and now you really should have listened to all of us saying "be satisfied with VTSAX, you can buy it and forget it".

As far as the specific percentage of alpha you want to keep before you come back and ask burritolover's forgiveness...that's your call.

<edit>
It could be as simple as keeping a spreadsheet with the daily value of both, and a "delta" column. Day 1 the delta would naturally be zero. Then every day, enter the share price, let your spreadsheet multiply by the number of shares you started with, and then subtract VTSAX parallel account value from your actual account's value. The bigger the number, the better your outperforming account is outperforming. And hopefully it is getting bigger every day. But when it starts to stay the same from one day to the next, that means you are now performing the same. And when it starts to get smaller, VTSAX is performing better. So with this method you can just see the actual dollar amount at play, and you also get to use another greek letter.
</edit>

TNWoods
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knockknock
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Re: Opinions on 100% into VGT and QQQ

Post by knockknock »

TNWoods wrote: Fri Sep 18, 2020 3:50 pm
The idea is that the performance "this week" seems to be leveling out, or dropping, while the same time period VTSAX's performance is "better".

And I'm talking "performance", not "value". Your "value" should still be above the parallel account VTSAX value when you notice the "performance" is waning. That way you switch to VTSAX while you still have those sweet gainz. That's the whole point of keeping the two accounts side-by-side, and also checking performance constantly.

Outperformers outperform until they don't. So if you are determined to do this, keep a very close eye on everything so that when you inevitably decide it is time to come back to the fold, you can come back with some alpha and not whatever greek letter means you lost money.

But "this week" is up to you to choose, could be 2 days in a row, could be 2 weeks, or a month. A shorter time period is better, because you want to stay on top of things. You don't want to get a nasty surprise and see that all your hard earned alpha has disappeared, and now you really should have listened to all of us saying "be satisfied with VTSAX, you can buy it and forget it".

As far as the specific percentage of alpha you want to keep before you come back and ask burritolover's forgiveness...that's your call.

<edit>
It could be as simple as keeping a spreadsheet with the daily value of both, and a "delta" column. Day 1 the delta would naturally be zero. Then every day, enter the share price, let your spreadsheet multiply by the number of shares you started with, and then subtract VTSAX parallel account value from your actual account's value. The bigger the number, the better your outperforming account is outperforming. And hopefully it is getting bigger every day. But when it starts to stay the same from one day to the next, that means you are now performing the same. And when it starts to get smaller, VTSAX is performing better. So with this method you can just see the actual dollar amount at play, and you also get to use another greek letter.
</edit>

TNWoods
Gotcha, alright, I will try this. Chances are I will find daily/weekly monitoring too stressful and in a couple of months have decided to go all into VTSAX. Let's see :).

Thanks!
Topic Author
knockknock
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Re: Opinions on 100% into VGT and QQQ

Post by knockknock »

CyclingDuo wrote: Thu Sep 17, 2020 7:42 am
Have you created your IPS (Investment Policy Statement) yet?
I have not but this sounds like a great idea.
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