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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

#111

Post by shawnz »

tedunangst wrote: post #84
fny wrote: post #10

Look at a chart of the S&P 500 from 1920 to 2008 and you'll notice something rather curious: the stock market has gone parabolic ever since the financial crisis. What made this period so unique? Tremendously low interest rates coupled with quantitative easing dissuaded capital from financing the real economy and instead encouraged herding and levering up in the financial economy for returns. At ever dip, it was an op…

Every even modestly exponential curve has the same shape. https://www.wolframalpha.com/input?i=y+%3D+1.05%5Ex+from+1+t...

This time is different, every time

See for example this nice video from Ben Felix: https://www.youtube.com/watch?v=Jh9Gn58r9Fw

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

#112

Post by mercy_dude »

adam_arthur wrote: post #104

If interest rates continue to increase, the market is in for a very rough time. COST is about 40 PE right now which implies 2.5% trailing yield. You can get 3.1% on a 10y treasury risk free right now. Of course equities have growth potential, but also risk, typically the spread between risk free rate and equity yields is much higher. Plenty of 30-40 PE companies at index level with close to 0 growth. Companies like N…

> You can get 3.1% on a 10y treasury risk free right now

I am a noob of how yields work and the math behind the 2.5% . I don’t buy treasury directly but through VUSTX and VUTY. I am actually DOWN, not up. At least that’s what my Schwab portal shows. I have COST on the other hand, bought prepandemic. I am up at least 20%.

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

#113

Post by ryl00 »

franciscop wrote: post #69
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.

While the peak-to-trough drop wasn't as bad as QQQ's, the S&P 500 still managed to fall something like 40% from its dot com peak in 2000 over two years, and didn't fully recover until 2007. (And of course 2008 sent it right back down again for another five-ish years).

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

#114

Post by dannyw »

mercy_dude wrote: post #112
adam_arthur wrote: post #104

If interest rates continue to increase, the market is in for a very rough time. COST is about 40 PE right now which implies 2.5% trailing yield. You can get 3.1% on a 10y treasury risk free right now. Of course equities have growth potential, but also risk, typically the spread between risk free rate and equity yields is much higher. Plenty of 30-40 PE companies at index level with close to 0 growth. Companies like N…

> You can get 3.1% on a 10y treasury risk free right now I am a noob of how yields work and the math behind the 2.5% . I don’t buy treasury directly but through VUSTX and VUTY. I am actually DOWN, not up. At least that’s what my Schwab portal shows. I have COST on the other hand, bought prepandemic. I am up at least 20%.

The yield is for new buyers. Your bonds, bought when yield are lower, is worth less.

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

#115

Post by landemva »

kmonsen wrote: post #108
landemva wrote: post #105

Earlier quoted context omitted.

>>> the good times never arrived First two years of Trump were economically pretty good. Low unemployment - particularly for minorities. The Fed was raising rates!

Mostly we spent it on tax cuts for the rich instead. You don't cut taxes in good times, that more than offset the minor rate hikes.

Spent what? I don't see economic growth as a reason to expand government spending, though many disagree.

The economy was good, unemployment was low, rates were rising.

USA was still spending it's treasure protecting Afghanistan poppy fields.

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

#116

Post by dannyw »

onlyrealcuzzo wrote: post #65
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.

1. Nominal interest rates are pretty normal right now. 3.3% on a 10y, that's not bad in history.

2. The government's debt is fixed. Only new deficit is on higher rates.

3. Completely agree, my thesis is that interest rates are going to continue to go up (IMHO 4%, 4.5%)

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

#117

Post by DantesKite »

anonporridge wrote: post #46
nathanvanfleet wrote: post #18

Sad to think that investing in the stock market, which I have only been able to financially over the last 5 years might have been much riskier than I might have previously thought. What I previously thought as "okay I just leave it in the stock market for a bit of time to recoup" is something I am now realizing would likely have to be 10+ years. It's kind of funny because I was getting shaky about having money in the…

Are you ignoring dividend reinvestment creating compounding growth? Even god couldn't beat dollar cost averaging, https://ofdollarsanddata.com/even-god-couldnt-beat-dollar-co...

Damn thanks for the great read. This is just what I was looking for.

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

#118

Post by leehuffman »

300bps wrote: post #13
kmonsen wrote: post #11

Earlier quoted context omitted.

I honestly think that’s not the main reason we have inflation now. Since every country in the world is seeing similar inflation I would think it’s supply side and not something any central bank can fight. I’ve always been Keynesian, but it faces the same problem as everything else, you need to be able to predict the future to do it well.

Fed balance sheet is about $9 trillion. This article gives details on $5 trillion in government stimulus. https://www.nytimes.com/interactive/2022/03/11/us/how-covid-... To put those numbers in perspective, the market cap of the entire S&P 500 is about $40 trillion. I hear what you’re saying about supply-side inflation but you don’t think flooding the economy with so much unearned money might be driving up demand a b…

Love your relatively simple (that’s a compliment - I’m sure you can go deeper) yet 100% accurate (IMO) take on this topic.

Just want to mention that we shouldn’t forget that the fed’s balance sheet ballooning started with the 2008 crisis. If I recall correctly, they had _just_ started to lightly unload all the things they gobbled up like fiends during that period before COVID smacked. Of course they hard turned 180 degrees and got on the throttle again, going in to stabilize the usual markets along with new additions people never would have anticipated they’d touch, ever.

I guess my point is this has been very very long running and is another data point that says (to me) it’s not just a supply side issue that’s driving what we’re seeing.

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

#119

Post by grey-area »

tedunangst wrote: post #84
fny wrote: post #10

Look at a chart of the S&P 500 from 1920 to 2008 and you'll notice something rather curious: the stock market has gone parabolic ever since the financial crisis. What made this period so unique? Tremendously low interest rates coupled with quantitative easing dissuaded capital from financing the real economy and instead encouraged herding and levering up in the financial economy for returns. At ever dip, it was an op…

Every even modestly exponential curve has the same shape. https://www.wolframalpha.com/input?i=y+%3D+1.05%5Ex+from+1+t...

Exponential curves in real assets are not sustainable.

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

#120

Post by scrivna »

rubidium wrote: post #100
slaw wrote: post #83

Earlier quoted context omitted.

Past performance is not indicative of future results. Japan stock market JP225 didn't recover yet from 1990 crash.

Yea so buy land if you’re so paranoid about becoming Japan. It’s an island nation with a very unique history. Not a great counterpoint to current US and global economics.

The UK is at more or less the same price as it was in 2000. France same as 2008. Meanwhile SPY is up 2.75x in that period. The US seems to be the anomaly. Value doesn’t always go higher. Maybe the USA is special, maybe not.
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