Side-question: do we have a useful model for whether there WAS a dot-com bubble? Seems like there was a fair bit of churn, and a temporary loss, but the category is bigger than ever. Buying at the peak and holding until now did pretty well, right?
There was a bubble, and there is also secular growth in the market, with a lot of churn that makes buy-and-hold a fairly bad idea. Those aren’t inconsistent. Here’s a graphic of the churn. Most of the early companies died.
But if you put all your money in the hot IPOs of Netscape, Yahoo, Lycos, and Excite in 1995, you’d have done very poorly. If you extended this to 1996, you could add Mindspring and Checkpoint (the only one that did well, so far, which is up 29x, for a 16% annualized return to date.) It took until 1997 to get any long-term fantastic return, for Amazon—which is up 1000x since 1997, or a 37% annual return—fantastic, but if you were prescient, and it was an entire tenth of your portfolio, on average you did just OK. Skipping ahead to 1999-2000, the height of the bubble, here’s the list. Nothing made big bucks.
So we can construct a portfolio with 10 stocks, 8 of which went bust, and 2 of which, checkpoint and Amazon, did well. Your compound 22-year return? 5.25% (And if you bought an S&P index fund in 1998 at 1,000, you’d have made 6.5% annually.)
Side-question: do we have a useful model for whether there WAS a dot-com bubble? Seems like there was a fair bit of churn, and a temporary loss, but the category is bigger than ever. Buying at the peak and holding until now did pretty well, right?
There was a bubble, and there is also secular growth in the market, with a lot of churn that makes buy-and-hold a fairly bad idea. Those aren’t inconsistent. Here’s a graphic of the churn. Most of the early companies died.
But if you put all your money in the hot IPOs of Netscape, Yahoo, Lycos, and Excite in 1995, you’d have done very poorly. If you extended this to 1996, you could add Mindspring and Checkpoint (the only one that did well, so far, which is up 29x, for a 16% annualized return to date.) It took until 1997 to get any long-term fantastic return, for Amazon—which is up 1000x since 1997, or a 37% annual return—fantastic, but if you were prescient, and it was an entire tenth of your portfolio, on average you did just OK. Skipping ahead to 1999-2000, the height of the bubble, here’s the list. Nothing made big bucks.
So we can construct a portfolio with 10 stocks, 8 of which went bust, and 2 of which, checkpoint and Amazon, did well. Your compound 22-year return? 5.25% (And if you bought an S&P index fund in 1998 at 1,000, you’d have made 6.5% annually.)
neat graphic, thanks!