By all accounts, the dotcom boom was a painful experience for all. The sceptics, such as Tiger Management’s Julian Robertson, were put out of business by their reluctance to partake in the mania. The bulls meanwhile, lost their shirts as the Nasdaq collapsed 70 per cent between March and December 2000.
All in all, it was a pretty nasty experience no matter what side of the trade you were on. (Bar perhaps, if you were a value investor who was long a tech stock by mistake.)
Which brings us neatly to today, and the question of whether we are reaching a similar peak in technology mania. A new report from Bernstein’s Toni Sacconaghi has taken a look at the Nasdaq and has concluded: “sort of”.
We’re not going to go into all of the particulars here, but we thought one chart was worth sharing with you.
Now if you read this blog, you should know that the S&P 500 is de facto a tech play now, with the top 5 stocks — that is Apple, Microsoft, Amazon, Google and Facebook — accounting for just under a quarter of the index’s total market capitalisation.
In the dotcom peak in March 2000, Sacconaghi notes, this figure was just 16 per cent.
And how did those companies fare? Well, here’s the top 9 technology stocks in March 2000 by market cap, with a helpful tag as to whether they ever hit those valuations again:
Eek. Just 22 per cent of them ended up justifying their valuations! And those two — Microsoft and IBM — only did so 12 years later.
Bubble stock buyers, you’ve been warned.