The most dangerous investing & the dot-com bubble 2.0

23 בינו׳ 2020

One of the most prominent investors of the twentieth century, John Templeton in the distant 1933 called the most dangerous words in investing. They sound something like this: "this time everything is different."

And although almost 100 years have passed since then, these words have not lost their relevance.

They were said to justify the dot-com bubble: “This time everything is different. The Internet is super-technology and the purchase of shares in Internet companies is a win-win.” After the collapse of the bubble, Nasdaq lost 80% of its capitalization.

They were said to justify the growth in the cryptocurrency market by thousands of percent: “this time everything is different. Cryptocurrencies and blockchain are a revolution in the world of finance and a new form of money is a more progressive form of money.” After the price bubble collapsed, Bitcoin lost 80% of its value.

If you read the analysts who are predicting growth in the US stock market now, you can hear the same words: “this time everything is different. The era of cheap money will continue to drive stock prices up. ”

But this already happened. Recall Japan in the 80s of the twentieth century. Flooding the country's financial system with cheap money has led to huge bubbles in the stock market, land, and real estate markets. After they burst the country for 10 years (the so-called "lost decade") could not come to their senses. Yes, and still has not fully recovered.

People stubbornly do not want to admit that all the time they are repeating essentially the same mistakes. The inflation of the price bubble ends with its collapse - this is almost an axiom.

Therefore, we urge our readers not to fall for one of the most dangerous misconceptions and not to believe that everything is different now. Just look at the list of the main drivers of growth in the US stock market (FAANG), again - before us is a dot-com bubble version 2.0. Belief in new technologies and startups has replaced faith in the Internet.

Recall that we consider 2019 the last year of unjustified growth in the US stock market. Already in 2020, it will begin to adjust. The scale of correction is from 50% and higher. Given that in recent years, shares of technology companies in the US stock market have grown by an average of 7-8 times (and some issuers have shown growth of 10 or even 20 times), the US stock market will no doubt become the object of massive sales. We recommend participating in this process, selling both the market as a whole (Nasdaq index) and the shares of individual issuers (Apple, Microsoft, Alphabet, Oracle, etc.).