2. I haven’t looked it up but I’m sure that the S&P didn’t lose 50% in 2000. It was the internet stocks that collapsed and they weren’t in the S&P. I sold out of my internet stocks in the early months of 2000, and I was up 19%, 47%, and 20% in 2000, 2001, and 2002, the three years you referenced.
It wasn’t just dot-com stocks, many optic fiber carriers went bankrupt because the price of bandwidth dropped so fast they could not pay off their capital investments. Their assets went to deep pockets and lived on. Optic technology suppliers like Lucent, JDSU, and Corning Glassworks also suffered heavily. The two satellite bandwidth providers also went broke, Iridium and Globalstar. I think they were ahead of their time. Bankruptcies on this scale cascade up the supply chain. Bankruptcy is debt forgiveness that hurts creditors, suppliers, shareholders, bond holders, banks – a chain reaction.
To answer Karth’s question, look for survivors – not easy specially if you fall in love with the technology. Check out who survived 2000 and who went bankrupt, that should be a good guide. I gave you the names of some of the cadavers. Unfortunately the dead are soon forgotten, it’s called survivorship bias.
Survivorship bias From Wikipedia, the free encyclopedia
Survivorship bias or survival bias is the logical error of concentrating on the people or things that made it past some selection process and overlooking those that did not, typically because of their lack of visibility. This can lead to false conclusions in several different ways. It is a form of selection bias.
Merriman always pointed that best way to protect against such is to diversify.
It is if you don’t know what you are investing in. Diversification is security paid for with lower returns. As I pointed out in my previous post some companies survived and some went broke. How can you tell beforehand? You can’t with certainty but you can improve the odds. Finance has easy to understand examples. Finance is usually among the highest yielding investments but banks go broke all the time. How to invest in finance safely? Buy stock of companies that don’t have credit risk, shun credit risk. I’m long VISA but I would not touch a bank. Only the most conservative insurane businesses are safe, best to ignore them.
In high tech it’s more difficult but MSFT, APPL, INTC, ORCL, EMC, AMAT among others survived because they were already heavily adopted by the economy, they were the Gorillas for the most part, they had Crossed the Chasm, their products were being used by the pragmantists, not just be technology geeks. Getting in too early is risky. Most of the money is made in the middle period, in the middle of the “S” curve, when the market has soundly adopted the technology and the product but before the market is saturated.
Saul - #4 why would Square be the most vulnerable? Many small businesses use their services and those services are core to their business operations like the payment terminals.
In my opinion I think companies that provide ‘beneficial’ but not required services would be scaled back in a down turn.
In the retail industry where I work - i think most companies haven’t found it absolutely necessary to get into the cloud as its not core to their business. I think Data analytics (AYX) and security (ZS) is going to more universal across all industries compared to heavy tech focused companies like ntnx,mdb,pvtl. Anyways my 2cents
Saul - #4 why would Square be the most vulnerable? Many small businesses use their services and those services are core to their business operations like the payment terminals.
In a real severe recession a lot of small businesses may go out of business.
In my post #45521, in talking about our SaaS companies, I wrote:
Yes, I think they probably would go down further than the S&P in a real crash, but that’s not a sure thing, as each time the S&P has fallen in the past couple of years these SaaS stocks have sometimes done better and sometimes worse, but not consistently worse.
Right now is an example: The Dow is down 0.46, the Nasdaq is down 0.62, the S&P is down 0.48, and the Russell is down 0.94. Oh, and the IJS is down 1.09.
So how much would you anticipate my portfolio is down (according to my broker). Down 1.5%? Down 2.0%? Down 3.0%? They are fragile, overvalued stocks after all… Well, how about UP 1.12%?
So, no, it’s not a sure thing that they will do worse than the averages in a decline. Still very possible, but not a sure thing at all.
If you came across X amount of dollars and were starting a portfolio from scratch, would you immediately match your current stock allocation or would you gradually scale in?
Price Anchoring suggests that we ignore what price a stock has done in the past (one’s cost basis) and focus on where it is going. Do you agree?
Great job on year to date performance. You have be out-gained by 30%. My performance has been held back by “buy and hold” positions in FB, AMZN, GOOOG, NFLX, NVDA, SBUX, ATVI, MA, etc…
I have the same concern. It’s one thing to say we shouldn’t price anchor when a stock has reported great results, or had a gradual rise. But when a stock has shot up for unexplained reasons, it’s tough to pull the trigger.
Burt posted this just a few weeks ago about TWLO… and it’s rocketed even higher since… and not because of any new news (that I’ve seen).
“Should investors buy the share at this price (about $75) after this kind of spike? I might choose to wait it out for a few days before initiating a commitment, and I prefer to scale into names if I can-but those are tactics and not a strategy. Of course, notionally it is riskier to own highly valued shares, than the road-kill that typically passes for value stocks. On the other hand, there is a serious risk in pursuing a value strategy in the in significantly underperforming a benchmark.”
I have the same question, but have not opened a separate thread for fear of being off topic.
I have a significant lump sum that is now available to invest as I choose, but I am cautious because of the skyrocketing of many of these names. I know one could have said that 3 months ago, and if they waited, they would have missed significant gains, and I know i am price anchoring as well. I also know that in the knowledgebase Saul is against scaling in or the oft mentioned “rule of thirds”.
So, how would you approach investing a lump sum right now??? Dive right in at 100%??? Scale in??? This isn’t speculative funds or play money and I can’t afford to screw it up. What are my fellow Saul worshippers doing with new money RIGHT NOW???
I don’t think anyone can answer that question nor will Saul say buy his stocks etc (what is your risk appetite, how old are you, do you need funds straight away etc). See which stocks you like - you have a pretty good list of stocks to consider via this discussion board, motley etc.
and if you are that worried about losing money - maybe seriously reconsider if investing is the best course as none of us can predict what the market will do tomorrow or a year from now.
I can answer that for me but not for you. Scaling in has one huge psychological advantage. If the price goes up you can say you were right , you invested. If it goes down, you can also say you were right because you only partly invested .
This can be a problem if you are making decisions that may be based on the oft quoted idea that losses are twice as powerful psychologically as gains.
So look to whether your decision is based on emotion or reason.
There is only one low risk (risk measured over a time span of 6 to 12 months) IMO, and that is deep in a bear marke.
The way you asked the question tells me to suggest that you get your feet wet gradually. Once you own some shares, you’ll likely be paying more attention and develop a “feel” for when to buy more.
I think it’s a good time, because several of these stocks have gotten hit for what are likely to be reasons that will go away in another quarter or two. Read some of the discussions and you’ll see what I mean.
Looks like some years ago, Apple’s Steve Jobs forecast the same concerns re: television in this TMF article published earlier today…
…Jobs was answering questions at the D8 Conference back in 2010. The Apple co-founder described one of the biggest challenges in expanding into the living room:
The problem with the television market … the problem with innovation in the television industry is the go-to-market strategy. The television industry fundamentally has a subsidized business model that gives everybody a set-top box for free or for $10 a month, and that pretty much squashes any opportunity for innovation, because nobody is willing to buy a set-top box.
Ask TiVo, ask ReplayTV, ask Roku, ask Vudu, ask us, ask Google in a few months [crowd laughs]. So all you can do … Sony’s tried as well, Panasonic’s tried, a lot of people have tried – they’ve all failed. So all you can do is add a box onto the TV system.
At the time, the Alphabet subsidiary had just announced Google TV, a smart TV platform that was discontinued in 2014 and replaced with Android TV. The inevitable result, Jobs posited, was “a table full of remotes, a cluster full of boxes, a bunch of different UIs.”
…Comcast’s move to distribute subsidized set-top boxes could change that relatively newfound propensity to pay for set-top box innovation. In a research note yesterday outlining a bearish thesis for Roku, Pivotal Research analyst Jeffrey Wlodarczak argued that the competition will “likely drive the cost of OTT devices to zero,” eerily echoing Jobs’ sentiment.
The real question that the industry will face going forward.
