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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

#141

Post by ars »

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…

> 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

That's because you are using a linear graph instead of a logarithmic graph.

If you have $100 and it double you have $200, if you have $10,000 and it doubles you have $20,000. Both of those are the same chance, but if you use a linear graph it looks parabolic.

Do yourself a favor and NEVER use a linear graph of the stockmarket.

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

#142

Post by vishnugupta »

sharkweek wrote: post #37
mwattsun wrote: post #25

I lived through the dot-com crash and got out safely after hearing something so ludicrous that I had to ask myself "How insane does this industry have to be for someone to think they can build a high growth internet company out of home cement delivery?" My memory may be playing tricks, but it was something like that. After 2008 I became interested with crashes throughout history. There are so many fascinating little…

Have you seen the movie Margin Call? There’s a great scene where the CEO of a Goldman-style bank is recapping the last 100+ years of global financial collapses and he mentions, “we just can’t help ourselves.” https://youtu.be/LtFyP0qy9XU One of the best banking movies I’ve ever seen. Jeremy Irons absolutely nails his role.

It’s a terrific movie that perfectly complements The Big Short.

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

#143

Post by discardedrefuse »

vitus wrote: post #93
anonporridge wrote: post #50

Earlier quoted context omitted.

If the measuring stick you use is getting shorter every year by design (monetary expansion/inflation) then you can be quite certain that the market will trend upwards for as long as you use that unit of measure.

S&P 500 growth has historically outpaced inflation by 6-7% annualized over the ~65 years of its existence. That cannot be explained solely due to central bank policy and/or inflation. Naive extrapolation would posit that keeping your money in this index would continue to stay far ahead of inflation given sufficiently long horizons [0]. If your goal is simply to keep up with inflation, then buy I bonds. [0] The aphori…

I bonds are great right now. But you can only purchase $10,000 per year ($15,000 if you finagle your taxes right). I wish my IRA had an I bonds-like product I could invest in.

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

#144

Post by pertymcpert »

grey-area wrote: post #128
chii wrote: post #64

Earlier quoted context omitted.

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.

World indexes are 50% American stocks, they are not as diversified as you think. They’re also vulnerable to mass panic during a crash.

50% American sounds good to me though? And of course a global financial crisis is expected to hit global stocks. That's completely fine.

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

#145

Post by adam_arthur »

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 math is a 100 PE implies a 1% yield. The company could distribute 1% of its value each year to the shareholders in perpetuity. Many started using FCF and PS ratios in recent years, but often this hides the actual profitability of the business. For example, FCF measures typically do not add back equity compensation.. which is obviously highly misleading for tech companies that issue a lot of stock

If a 100 PE company doubles earnings, they will yield 1%, then 2% etc. Of course if they don't pay dividends then this yield is "theoretical", but its the fundamental basis of how to price equities.

Coke (KO) which is a fairly stagnant company is at a 30 PE, while GOOG is at 20. It seems to me that most fund managers these days haven't lived in a time where valuation matters... everything is vastly mispriced for the most part. There are pockets of fair value though, but buying a broad index is a pretty bad idea right now, IMO.

In terms of bonds, they have a market value, but the yield is guaranteed (assuming the issuer doesn't default). If you buy a 1yr bond yielding 3%, and the issuer doesn't default, you will get a 3% return by the end of the next year. It doesn't work the same for bond funds, but this is how it works for individual bonds

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

#146

Post by chii »

milkytron wrote: post #94
chii wrote: post #66

Earlier quoted context omitted.

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?

Maybe those things can happen. But it's a race against time and we don't seem to be making progress on those fronts as much as we may need to.

10 years ago, no one would predict that the cost of solar would drop by 80%-90%. There's still a lot of untapped potential in other forms of renewables too. The current bottleneck of batteries might be solved, i'm sure, in the near future.

There's a lot of pessimism among the media. I, for one, am hopeful.

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

#147

Post by michannne »

na85 wrote: post #82
sharkweek wrote: post #37

Earlier quoted context omitted.

Have you seen the movie Margin Call? There’s a great scene where the CEO of a Goldman-style bank is recapping the last 100+ years of global financial collapses and he mentions, “we just can’t help ourselves.” https://youtu.be/LtFyP0qy9XU One of the best banking movies I’ve ever seen. Jeremy Irons absolutely nails his role.

I just watched that a few weeks ago. Great movie, but to be honest I thought Jeremy Irons was unconvincing and played the role poorly/was poorly cast.

Felt the opposite, he really exuded that cold-and-carefree-but-wise archetype I'd expect from a mid-2000s cocky hedge fund manager who got themselves into that position in the first place.

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

#148

Post by chii »

hn_throwaway_99 wrote: post #86
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 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. But just look at housing, which has exploded well beyond the rate of inflation since the Great Recession bottomed out, and especially in the past couple years. Yes, if money is plowed into housing, the homeo…

> if money is plowed into housing, the homeowner has more cash when they sell.

but it's not expensive _everywhere_. It's expensive in some of the most desirable places. And housing has some issues unrelated to the market - such as NIMBYs stopping new constructions.

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

#149

Post by adam_arthur »

mercy_dude wrote: post #133
dannyw wrote: post #114

Earlier quoted context omitted.

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

OK, so it could happen if I buy now it would be worth even less due to yields go higher which seems to be the trend.

The market value of a bond will decrease, but the yield at purchase is locked in. But bond funds are different because they are constantly rolling money into new bonds, rather than just buying and holding a given set of bonds.

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

#150

Post by hanniabu »

argomo wrote: post #137
rubidium wrote: post #100

Earlier quoted context omitted.

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.

As the saying goes, there are four types of economies: developed, undeveloped, Argentina, and Japan.

Why Argentina?
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