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When buying the dip doesn’t work: An analysis of the dot-com crash

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Re: When buying the dip doesn’t work: An analysis of the dot-com crash

#61

Post by hammock »

kmonsen wrote: post #8
daenz wrote: post #5

>Why has this strategy been so profitable and painless? Well, because stocks have been in a bull market for thirteen years. If "buy the dip" works for a bull market, does "short the peak" work for a bear market?

The problem is of course we don’t know how long bull or bear market will last. If I was a betting man I would short everything I guess, but I’m not. I’m also sure there are others with way more knowledge on when it’s going to turn around.

> If I was a betting man I would short everything

On a long enough timeline, the survival rate for everyone drops to zero

Re: When buying the dip doesn’t work: An analysis of the dot-com crash

#62

Post by JumpCrisscross »

bagacrap wrote: post #52
chii wrote: post #29

Earlier quoted context omitted.

> dissuaded capital from financing the real economy and instead encouraged herding and levering up in the financial economy for returns. i don't really agree with this - the money used to purchase financial products don't disappear, because for every product bought, there was a seller. This seller now has cash, which would be invested elsewhere. The only concern is low interest rates, which makes the hurdle for any i…

I've had this same thought, but everyone seems to be sitting in cash? No one wants to invest unless everyone else invests. Seems the emperor is suddenly naked.

> everyone seems to be sitting in cash?

What is this based on? Every indicator suggests we’re still in a risk-on mode as an economy. It’s why we have inflation.

Re: When buying the dip doesn’t work: An analysis of the dot-com crash

#63

Post by bushbaba »

SamReidHughes wrote: post #23
tyre wrote: post #16

Earlier quoted context omitted.

> The COVID fiscal canon blew growth and inflation skyward. This is not true and has wrongly given credit to people who have said, since 2020, that COVID relief would cause inflation. Our current inflation is driven by supply chain issues (unrelated to COVID relief) and rising oil (unrelated to COVID relief.)

Working class wages have increased, and that is clearly because of Covid relief. Or other Covid-related policies like halting immigration. (I should be clear, this is still supply-side, but related to Covid relief. "Stimulus" money spent unproductively by the government is also supply-side.)

Covid relief prevented deflation. Thus when things went back to normal we saw large inflation.

You also had PPP loans which went to businesses that saw growth! And those business owners got huge payouts used to buy houses and assets

Re: When buying the dip doesn’t work: An analysis of the dot-com crash

#64

Post by chii »

xeromal wrote: post #60
chii wrote: post #32

Earlier quoted context omitted.

when they say buy the dip, they refer to buying the stock market index (like S&P), not individual stocks like a tulip.

I think their analogy is that your investment in the Prussian/Holy Roman Empire/Carthage stock market can still end up ruined regardless of time.

And yes, that's true. Geographic concentration is a real risk.

if you purchased a world wide index, you will not suffer from such risk.

Re: When buying the dip doesn’t work: An analysis of the dot-com crash

#65

Post by onlyrealcuzzo »

tunesmith wrote: post #20

Another thing to look at is the CAPE ratio. Even now, it's still above 30. We've gone from around a 37 to a 32. Mean/median is in the 16-17 range. DotCom crash in 1999 topped out at around 44. Still a lot of room to fall.

The historic average for interest rates is considerably higher than it is right now.

Considering the amount of public debt outstanding - it's extremely unlikely we're returning to those levels of interest rates long-term (short-term I suppose anything can happen).

Interest rates have a huge effect on P/E. I wouldn't expect CAPE to match historic trends if interest rates don't.

Re: When buying the dip doesn’t work: An analysis of the dot-com crash

#66

Post by chii »

tsimionescu wrote: post #58
chii wrote: post #31

Earlier quoted context omitted.

> [0] Another mantra: it's not. it's the best indicator so far.

Given that global warming will cause the global economy to contract one way or another within the next 100 years (either we willingly contract to soften the blow, or keep going and producing more greenhouse gases until a massive crash), I really don't think this is the right time to think in these terms.

Why can't technological advancement stave off climate change damage? Why cant renewables replace fossil fuels, and continue human expansion? Why can't space exploration and settlement be where the future growth occurs?

Re: When buying the dip doesn’t work: An analysis of the dot-com crash

#67

Post by john_moscow »

refurb wrote: post #33
pdevr wrote: post #28

Index investing will work, if you live for a long time. The problems are, we do not live infinitely, and the average person does not have the stomach to see their investment going down for years, unless that investment is small enough to tolerate (in which case it is not enough to make a big difference, for most people). What I think will work - not claiming that it will actually work - based on history: Invest in co…

Your strategy sounds like "pick winning stocks"? A strategy which has been show to produce (on average) worse returns than index investing. Index investing has produced a ~200% return in the past 15 years (from 2007 peak to now). Not sure what you mean by "a chance of seeing a profit in your lifetime".

There's a third strategy of "index minus bullshit stocks" where you would include both INTC and AMD stocks for risk hedging, but would leave out things with questionable sustainability like Uber and Netflix that otherwise made it into the index due to the speculative value.

Re: When buying the dip doesn’t work: An analysis of the dot-com crash

#68

Post by gabereiser »

bagacrap wrote: post #52
chii wrote: post #29

Earlier quoted context omitted.

> dissuaded capital from financing the real economy and instead encouraged herding and levering up in the financial economy for returns. i don't really agree with this - the money used to purchase financial products don't disappear, because for every product bought, there was a seller. This seller now has cash, which would be invested elsewhere. The only concern is low interest rates, which makes the hurdle for any i…

I've had this same thought, but everyone seems to be sitting in cash? No one wants to invest unless everyone else invests. Seems the emperor is suddenly naked.

You should see the volume of the last 24 hours. No one is sitting on cash unless they are hobbyists.

Re: When buying the dip doesn’t work: An analysis of the dot-com crash

#69

Post by franciscop »

lokar wrote: post #39

Using QQQ here seems like cherry picking (vs SPDR).

Exactly my thoughts, the author talks about S&P500 initially (which recovered "fairly" quick after the dotcom bubble burst) and then uses a different index to exemplify how the dotcom bubble took long time to recover.

Re: When buying the dip doesn’t work: An analysis of the dot-com crash

#70

Post by refurb »

kmonsen wrote: post #51
refurb wrote: post #40

Earlier quoted context omitted.

They blamed inflation in the 1970's on supply side issues as well. Sure, the oil embargo contributed to price increases, but looking back, it was pretty clear it was fed monetary policy that drove most of it. And monetary policy by Volker that fixed it. No different today. Massively expand the money supply and you (eventually) get inflation. Add in a few supply issues and you amplify the problem. But I agree with you…

That’s the problem, in bad times you pour money into the market either directly or with interest rates. Then I’m good times the opposite is supposed to happen. But this time the good times never arrived and now we are trying to fix it in the middle of a war, pandemic and massive supply shock, including for energy. It’s too easy to get it wrong and make the problem bigger.

The situation we're in now is pretty close to what some people were warning about back in 2008 when the feds decided on their massive monetary expansion.

By the time inflation starts to heat up (it doesn't happen right away), there will be immense pressure to delay any monetary contraction for fear of dampening economic growth. Then Covid hit and the economy was goosed with another massive injection while everyone worried about a recession.

Then once inflation starts it's too damn late to put the genie back in the bottle so you just spend the next 5-10 years trying to get it under control while not entirely tanking the economy.

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