How do I handle it? By selling off little pieces of these winners at a time, by rebalancing into other sectors outside of technology, and cash. If I miss upside because of this, so be it. The latter side of the year 2000 was painful for investors. WorldCom, Qwest, Global Crossing, Lucent, JDS Uniphase, AOL, Yahoo, Excite and other hotties of their day, which had multi-hundred billion-dollar valuations, literally saw their values evaporate. Ironic, then, that the Yahoo (now also home of AOL) fire sale to Verizon was approved this week.
Some investors don't even realize that Google and Facebook didn't exist in 2000.
P/E ratios of ETFs
- NASDAQ Internet Portfolio (PNQI): 48.28
- Nasdaq 100 ETF (QQQ): 24.35
- Tech Sector SPDR (XLK): 22.21
- S&P 500 ETF (SPY): 19.87
- Dow ETF (DIA): 17.90
Turns out that just because a new way of doing things comes into being, it's no guarantee of future profits. When the small- and mid-cap tech stocks started to break down in very late '99 and early 2000, investors moved more of their money into stocks such as Cisco and Microsoft, the sellers of the "picks and shovels" of the internet. It was a better business model than just plain internet stocks. But to this day, those two stocks still haven't reached the market caps they had back then.
YTD returns in ETFs
- NASDAQ Internet Portfolio (PNQI): 29.60 percent
- Nasdaq 100 ETF (QQQ): 21.43
- Tech Sector SPDR (XLK): 19.23
- S&P 500 ETF (SPY): 9.53
- Dow ETF (DIA): 8.28
Today, investors are crowding into the FANG stocks as if they are the safe ones. Today's winners are about social media, artificial intelligence and self-driving cars. I personally believe those three industries will be tremendous; social media already is. I use "boost post" on Facebook, "Promote" on Twitter, and I hired my assistant from LinkedIn "Jobs." So I'm living proof that these services for business work. I also believe humankind hasn't come close to tapping the full potential it can extract from technological advances. NVidia has a chip so powerful it can be used to make one server as powerful as 40 servers that are in use today. This is truly an astonishing technological feat.
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But I am a student of the market, and lessons I've learned hardest are the ones learned best. Odds are that even if we see the mass adoption of artificial intelligence and self-driving cars, the stock market winners of that golden era will be different than the ones we are betting on today.
Could today be the day we remember as the one in which the tech bubble burst? I certainly don't think it'll be that obvious until well after the fact. But let's not get too carried away.
— By Mitch Goldberg, president of investing firm ClientFirst Strategy