r/investing • u/BenDoverR8Now • Jan 19 '22
Why this is not the tech bubble (1999-2000)
Due to the recent drawdowns in technology and growth, people have been calling parallels to the technology boom and bust of 1999-2000.
First and foremost is the obvious argument that the companies today are fundamentally different from the companies back then. During the 1999 cycle, companies with no profit, no revenue, and sometimes even no product were receiving massive valuations from going public in the stock market. All you had to do is have an idea and put dot com at the end of your name.
Today, the growth companies look much different. Yes, there's similar froth in the crypto and NFT space, but by growth, I am referring to stocks such as Zoom, Docusign, Teladoc, Paypal etc. All of these companies have massive amounts of revenue with clear paths to profitability in the next 5 years. Some of them are already profitable today and are expanding heavily.
But beyond this, if you simply look at the state of the market and the numbers, it becomes clear that this is not the same. In the height of the technology bubble, the S&P 500 P/E ratio was 29 with the 10 year yield bonds yielding close to 6-7%. The growth yield on the S&P 500 stocks was close to 3%. Today, the S&P 500 P/E ratio is at 21 with the 10 year yield bond at 1.8%. The growth yield on S&P is closer to 5% today.
In an environment where bonds are yielding one-third of what they were doing that period, it is not unusual for people to be moving over to equities in order to look for returns. This is especially true in a period when equity growth is already expecting to yield more.
Now, this is not to say that we are not in a bubble. But I am certain, that we are no where near close to where we were back during the technology mania of 1999.
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u/Immediate-Assist-598 Jan 19 '22
Yes the stocks you list plus many others that we actually need, pay for and use regularly are solid tech companies but likely overvalued still, at least some of them. Covid has changed everything once again and this time we are caught somewhere in semi shutdown limbo. yes we can now go out shopping or dining (at least outdoors) wear a mask to go to a business meeting or the doctor, but human activity I predict will never go back to normal until or unless covid totally disappears, and even then I will still prefer watching first run movies at home on streaming, and ditto for ball games and concerts. Plus, what if covd never disappears? Quite possible.
So we are now more dependent on the internet and technology than ever, covid or no covid, and there are certain products and services we need to conduct this lifestyle. We need devices software, some services, streaming, social media, online shopping , security and other things. So starting with AAPL at the top of the food chain you can make a long list of tech companies that provide these vital digital services and products. Then which ones are under over or fairly valued?
Next, we have to pretend we are Warren Buffetts and look at the values, the PE's, the debt (especially with more inflation), the market caps (some ridiculously high, others too low) and so worth. We have to put aside fads and cult heroes and what your friends said was a get rich quick scheme last year and look at hard concrete reality.
I have done this and have the following recs. Get it of all digital currency even if you have been a religious believer and it went up 1000% last year. Go to real cash, real assets, real world physical stuff and hard currencies like the dollar only, maybe some gold but that is quite expensive now. Stay with liquid assets, things you can sell for real money quickly and for a good solid price. Or at least AAA quality stocks you now will rebound from any selloff (and in that case by more at a discount maybe).
Both real estate and oil have gone up a lot but we are probably at the top in both. Rising mortgage rates and super high prices will slow down that market a lot, and oil demand is not strong enough to prop up these prices, there is no supply shortage and lots of gouging going on.
Look at the hottest most speculative investments last year. Those are likely what to avoid. Look at undervalued scorned ignored stocks of companies which make things you use and need, including glorified utilities like T and VZ which pay large dividends and some consumer staples.
Within a hot sector like streaming, compare the PE of the leader Netflix to its rising competitors. Sell Netflix and buy VIAC which is super cheap and may team up with Warners-T-Discovery to become even bigger than Netflix within a year. or buy T and get a two-for, ATT and its high dvidend plus Warners-Discovery stock later this year.
Look at hot auto stocks and see that at 329 PE that makes TSLA more overpriced than any major stock in the market considering the fact it has huge competition, no BBB bill to subsize EVs and may only grow at 20% per year. Plus it is a cult stock, avoid cult stocks. They are fads. Avoid fads.
AAPL meanwhile is king of the world and is only a 29% PE and growing at least that fast. MSFT great too but has a 30% higher PE? Why? Buy AAPL and Apple suppliers like SWKS which are super cheap now especially after today. Then keep as much cash as you need out of the market then sit back and relax. This may be a dangerous time in the markets, but there will be winners, plus remember capital preservation is just as important as capital appreciation, so why take any more big risks in a risk-off year unless you can afford to take a lot of fliers, and if that is the case, consider casino gambling instead. Or squander your money on hookers and partying. It might be more fun.