1999 again?

[JRM]

There's a large employer in my town that apparently allows employees to invest in individual securities in their 401k accounts.  One of my acquaintances who works there put 100% of his 401k in Tesla stock and was gloating about being up $50k or something.  I could probably post a different story like this every day about what I'm seeing around me.

[Spekulatius]

Yea my 23 year old brother, super edjukated, UPenn grad student in biomedical engineering, told me over the weekend that all his friends(of similar backgrounds) are on the WSB forums chasing options and making small fortunes in their Think or Swim accounts. Its always amazed me how the markets can seduce people of all intelligence levels. I remember having an SMA client some time ago, guy worked for a similar type of company as Edward Snowden did, was a US Navy Seal with a Harvard education, must have ACAT-ed in a half dozen accounts with clean energy themed penny stocks....intelligence does not always equate to one's success in the markets. Sometimes the smarter you are, the more the market can play tricks on you. In the case of my brother and his friends, these are all kids who are going to be making 7 figures one day so getting a school of hard knocks education now is probably a worthwhile investment, but I'd imagine that isnt the case for everyone. Definitely a sign of the times though.

 

Again, yo use the 1999 narrative, I was employed by one of those “” companies (via acquisition) when people were gambling in their 401k with company stock. I saw one guy on his PC back then who had a $2M balance and was up 200k one day. He was a tech who had been with the company for a while and collected a lot of stock via profit sharing and then moved more in.

 

My “Rulebreaker” company ended up losing 98% of its value when the telecom boom fell apart and that fellow went back to work as a cashier 2 years after “retiring” from his job. The higher up managers were mostly smarter and bought nice houses and vineyards etc from their gains.

[cwericb]

There's a large employer in my town that apparently allows employees to invest in individual securities in their 401k accounts.  One of my acquaintances who works there put 100% of his 401k in Tesla stock and was gloating about being up $50k or something.  I could probably post a different story like this every day about what I'm seeing around me.

 

Yeah, had a friend tell me not long ago that they had "invested" in TSLA and how well they were doing. They have never invested in the market before and probably shouldn't be. I told them to be very, very careful that at these levels it was a very high risk stock for them to be in. But since then TSLA has been up nearly $200 so what do I know?

[no_free_lunch]

Brooklyn investor has an interesting and well written take on the bubble. Tldr high valuations can persist for extended periods and there are sections of the market that should do ok regardless of what happens.

 

http://brooklyninvestor.blogspot.com/2021/01/happy-new-year-bubble-yet.html?m=1

[Gregmal]

Personally, Ive never quite understood how people make and then lose life changing fortunes to a degree that it significantly effects their life. There's few "essential" big ticket items in life. To me, house, car, boat....House you buy once and then need to keep reserves for the repairs/replacement...car figure 10 year life cycle, maybe 15. Boat, we'll leave that one alone. But how folks can make hundreds of thousands, let alone millions, and not check those boxes is astounding to me. How dont you cash out and solidify those? Because once those boxes are checked off, you could probably work at Chipotle and still maintain a pretty decent quality of life. Biggest other expense is probably healthcare, which you can now get even with a part time bs job at Starbucks or Home Depot. You dont need to be a genius to see that "no mortgage/manageable mortgage, no car payment, couple toys"....makes life 100x easier.

[cwericb]

Personally, Ive never quite understood how people make and then lose life changing fortunes to a degree that it significantly effects their life. There's few "essential" big ticket items in life. To me, house, car, boat....House you buy once and then need to keep reserves for the repairs/replacement...car figure 10 year life cycle, maybe 15. Boat, we'll leave that one alone. But how folks can make hundreds of thousands, let alone millions, and not check those boxes is astounding to me. How dont you cash out and solidify those? Because once those boxes are checked off, you could probably work at Chipotle and still maintain a pretty decent quality of life. Biggest other expense is probably healthcare, which you can now get even with a part time bs job at Starbucks or Home Depot. You dont need to be a genius to see that "no mortgage/manageable mortgage, no car payment, couple toys"....makes life 100x easier.

 

Greed.

[SharperDingaan]

During the .com era, a very good friend of ours steadily filled up his pension accounts with company stock, then had a panic attack.

He couldn't buy puts on his own company, but was allowed to do so on direct rivals in the same business, and used his bonuses to pay for the puts. We'd had a discussion, re the relevant risks involved, and he slept very well.

 

The boom started busting, and the puts began generating significant MTM settlements. As the money was corrupting, he got rid of it safely by flippantly asking his wife to buy an average 2 1oz gold wafers every week, and put them in their safety deposit box. After successive rounds of layoffs and extended misery, he finally managed to get packaged out with a good parachute, and a company pension that was essentially worth nothing.

 

As he had kept all the funny money on the way down via the MTM settlements, he knew he was OK, the package was just an added bonus. However, he had not thought too much about the wafers. When he went to look, he found that there were so many that his wife had got them a 2nd, and much bigger safety deposit box, that was near full. At a time when gold was now in the USD 3,000+/oz range.

 

He found it incredibly debilitating, and had to seek help for a time.

Every day, colleagues he had known for much of his working life were losing their homes, marriages, and lives to the company's demise; yet he had managed to keep the money, multiply it again many times over, and get paid a very nice severance (in cash) as well. Utterly obscene.

 

We had another discussion, and a great many others benefited from free counselling and scholarships, anonymously paid for.

From time to time he provides anonymous advice to our very small and private blockchain start-up  ;)

 

Point? Pay attention to what the outcome is if you end up doing everything right (by plan, or luck) - and have a plan.

Enjoy the game, but recognize that survivor guilt is not fun.

 

SD

 

 

 

 

[mattee2264]

 

I think it is a combination of things.

 

Chasing performance and buying high and selling low and taking excessive risks rather than being content to get wealthy slowly.

 

Buying too much house and spending too much on repairs and home improvements as a result.

 

Expensive divorces

 

Living beyond your means with conspicuous consumption and wanting the very best for your kids

[TwoCitiesCapital]

Grantham loves the green energy theme so probably has an unconscious bias so is refusing to recognize the froth in that area the market.

 

I think the new bull market thing is confusing. I think we are still in the same bull market and it has been extended by the promise of lower interest rates for longer and a reinvigoration of the growth prospects for tech due to much faster adoption and the potential for broadening as cyclicals have a lot of room to run in a strong economic recovery.

 

A lot of the speculative mania shows we are in the late inning. But could be another year or two before tapering and withdrawl of fiscal stimulus result in both Big Tech and cyclicals seeing significant price declines. I think so long as there is concern about the real economy the Fed is going to be very accommodating and so long as COVID continues to linger around there will be a lot of remote working and home entertainment and online shopping which will keep growth expectations high.

 

Agreed that it is confusing. I don't think our recent experience fits the bill for typical cycles. Typical cycles end in a recession and the recession ends the bear market.

 

But we didn't have a bear market - we had a one month pull back that didn't even break through the long-term trend support despite it's ferocity. And while we had/have a recession, none of the pain/malinvestments were worked out of the system because the pain was met with a wall of trillions of dollars - so everything is ok again and malinvestments are continuing to be made today a la Gamestop. Just the way it was.

 

I tend to view this as a continuation of the prior cycles/expansion. Another wall of money coming soon and the monthly savings refinancing and being couped up could certainly keep this going. But I have a hard time envisioning the stock market keeps up even if the economy does.

 

That being said, I've been sounding the alarm in relative valuations since 2013/2014 and on absolute valuations since 2016-ish (before tax cuts supported the valuation) so take whatever I say with a massive grain of salt.

 

So, two relatives reached out to me talking about investments. One wanted to buy "growth funds" and the other (who I probably haven't talked to in 3-5 years) wanted to "make some fast money." Then today, at Costco, I hear two employees talking about investing. I'm still not in the "feels like 1999" club but it's probably more so than anytime since.

 

My brother, who has never worked in finance, wants to get a job in finance based off the performance of his day trading portfolio this year.

 

I have an uncle buying penny stocks on the hopes that they 100x and make him rich. His head is in right spot about where he's looking and has the correct timeframe in mind (years - not days/weeks/months), but he's never had an interest in stocks before and is looking to strike gold.

 

We see investors bidding up Hertz in bankruptcy.

 

Gamestop going from $4 to $65 on speculation of a short squeeze and leveraged option buyers.

 

Blackberry tripling over the course of a month on nothing other speculation.

 

Tons of speculation in Tesla - an auto company that has 10x'd from already elevated valuations whose only profits have come from aggressive accounting of future emissions credits.

 

SPACs trading at massive premiums on nothing other than hope of future acquisitions that build value instead instead of destroying it.

 

Credit spreads and HY spreads are tighter than they were pre-covid despite massive destruction to corporate balance sheets and income statements and significantly rising leverage ratios.

 

Apple now trades at $136/share despite the fact that its peak earnings were 2 years ago when it's shares traded for $54/share at the peak of that year.

 

This is NOT beginning of the cycle/fearing the bear market that leads to healthy long-term returns. This is NOT the clearing the board of malinvestment with whatever is left being robust businesses. This is NOT what healthy bull markets are built on. So I don't think this is the beginning of a new bull market.

[mattee2264]

Seth Klarman has a great take on the economic situation: "Trying to figure out if the economy is in recession is like trying to assess if you had a fever after you just took a large dose of aspirin,"

 

Obviously it is a no-fault recession so the government is doing everything it can to maintain consumer and business balance sheets. And a lot of the pain is being postponed to the future. So it is easy to think that a recovery is simply a matter of vaccinating everyone and re-opening the economy and therefore easy to ignore bad economic data and see across the valley.

 

And it is a recession that hurts the old economy and benefits the new economy. So combine that with lower interest rates for longer and you can understand why tech has done so well and the old economy is now catching up.

 

 

 

 

[mattee2264]

I think perhaps we are seeing separate cycles.

 

For cyclicals the peak was 2018 and obviously the bottom was 2020. There has already been a bit of a recovery and so long as we avoid going back into recession they should do well in the coming years.

 

For secular growth stocks there has been a very very long bull market for which 2020 was just a mild correction and the bull market has been extended by the shift in spending patterns from Covid and all the liquidity and easy money. Not sure what will end that bull market. Perhaps inflation/higher interest rates?

[LongHaul]

Ultimately, the only thing that matters in the long run is price to value.

The rest is noise.

[Jurgis]

https://www.gmo.com/americas/research-library/waiting-for-the-last-dance/

 

Grantham writes:

 

Similarly, in late 1997, as the S&P 500 passed its previous 1929 peak of 21x earnings, we rapidly sold down our discretionary U.S. equity positions then watched in horror as the market went to 35x on rising earnings. We lost half our Asset Allocation book of business but in the ensuing decline we much more than made up our losses.

 

Maybe he means that he made up his losses in the book of business. Since performance-wise, his sale was not great.

If you look at SP500 (I'm eyeballing SPY prices), if he sold at the top of 1997, he sold at ~$97.

If he rebought at the very bottom of 2002, he rebought at best at $82. I'd guess that he did not sell at $97 and he did not buy back at $82.

So in essence, let's say he really called the dot com bubble. He still avoided at best ~15% drawdown to the bottom... (There's some divvies missing and perhaps he reinvested in bonds that did better than 0% cash).

 

Not a great result if you ask me.

 

Sure, maybe selling now is not like selling in 1997. Maybe it is like selling in late 1999. Maybe. But there's a lot of folks here who have been telling to sell since 2011 or 2014 or 2016 or 2018. Will the real top of the bubble please stand up?

 

Yeah, maybe FAANMGs (which are a large chunk of the market) are ~20-30% overvalued (I'd argue that some of them are close to fairly valued). Yeah, if there's a crash they could overshoot down more than 20-30%. Yeah, good luck timing all that.

 

Another more measurable feature of a late-stage bull, from the South Sea bubble to the Tech bubble of 1999, has been an acceleration3 of the final leg, which in recent cases has been over 60% in the last 21 months to the peak, a rate well over twice the normal rate of bull market ascents. This time, the U.S. indices have advanced from +69% for the S&P 500 to +100% for the Russell 2000 in just 9 months. Not bad! And there may still be more climbing to come. But it has already met this necessary test of a late-stage bubble.

 

Is it me or is this quite cherry picking the time interval? "Look, market exploded... well it exploded from the bottom of the COVID panic drop, but it really exploded!"

 

Hmm, yes. BTW, both SPY and QQQ are up ~3% in 2021. That's definitely an accelerated final leg.  ::)

[TwoCitiesCapital]

https://www.gmo.com/americas/research-library/waiting-for-the-last-dance/

 

Grantham writes:

 

Similarly, in late 1997, as the S&P 500 passed its previous 1929 peak of 21x earnings, we rapidly sold down our discretionary U.S. equity positions then watched in horror as the market went to 35x on rising earnings. We lost half our Asset Allocation book of business but in the ensuing decline we much more than made up our losses.

 

Maybe he means that he made up his losses in the book of business. Since performance-wise, his sale was not great.

If you look at SP500 (I'm eyeballing SPY prices), if he sold at the top of 1997, he sold at ~$97.

If he rebought at the very bottom of 2002, he rebought at best at $82. I'd guess that he did not sell at $97 and he did not buy back at $82.

So in essence, let's say he really called the dot com bubble. He still avoided at best ~15% drawdown to the bottom... (There's some divvies missing and perhaps he reinvested in bonds that did better than 0% cash).

 

Not a great result if you ask me.

 

Sure, maybe selling now is not like selling in 1997. Maybe it is like selling in late 1999. Maybe. But there's a lot of folks here who have been telling to sell since 2011 or 2014 or 2016 or 2018. Will the real top of the bubble please stand up?

 

Yeah, maybe FAANMGs (which are a large chunk of the market) are ~20-30% overvalued (I'd argue that some of them are close to fairly valued). Yeah, if there's a crash they could overshoot down more than 20-30%. Yeah, good luck timing all that.

 

I think you ingore the alternatives here though. He didn't sell and go to cash right? He sold and went to t-bills. So it's not that he avoided -15%, it's that he made a few % each year over the 5-year time frame his benchmark was -15%. That's a pretty big deal and the type of outperformance people pay hedge funds 2 and 20 to achieve.

[Jurgis]

https://www.gmo.com/americas/research-library/waiting-for-the-last-dance/

 

Grantham writes:

 

Similarly, in late 1997, as the S&P 500 passed its previous 1929 peak of 21x earnings, we rapidly sold down our discretionary U.S. equity positions then watched in horror as the market went to 35x on rising earnings. We lost half our Asset Allocation book of business but in the ensuing decline we much more than made up our losses.

 

Maybe he means that he made up his losses in the book of business. Since performance-wise, his sale was not great.

If you look at SP500 (I'm eyeballing SPY prices), if he sold at the top of 1997, he sold at ~$97.

If he rebought at the very bottom of 2002, he rebought at best at $82. I'd guess that he did not sell at $97 and he did not buy back at $82.

So in essence, let's say he really called the dot com bubble. He still avoided at best ~15% drawdown to the bottom... (There's some divvies missing and perhaps he reinvested in bonds that did better than 0% cash).

 

Not a great result if you ask me.

 

Sure, maybe selling now is not like selling in 1997. Maybe it is like selling in late 1999. Maybe. But there's a lot of folks here who have been telling to sell since 2011 or 2014 or 2016 or 2018. Will the real top of the bubble please stand up?

 

Yeah, maybe FAANMGs (which are a large chunk of the market) are ~20-30% overvalued (I'd argue that some of them are close to fairly valued). Yeah, if there's a crash they could overshoot down more than 20-30%. Yeah, good luck timing all that.

 

I think you ingore the alternatives here though. He didn't sell and go to cash right? He sold and went to t-bills. So it's not that he avoided -15%, it's that he made a few % each year over the 5-year time frame his benchmark was -15%. That's a pretty big deal and the type of outperformance people pay hedge funds 2 and 20 to achieve.

 

And you just ignored the SP500 yield that I mentioned. And you ignored that he quite certainly did not switch back at the bottom, so -15% is theoretical worst he avoided.

[Spekulatius]

https://www.gmo.com/americas/research-library/waiting-for-the-last-dance/

 

Grantham writes:

 

Similarly, in late 1997, as the S&P 500 passed its previous 1929 peak of 21x earnings, we rapidly sold down our discretionary U.S. equity positions then watched in horror as the market went to 35x on rising earnings. We lost half our Asset Allocation book of business but in the ensuing decline we much more than made up our losses.

 

Maybe he means that he made up his losses in the book of business. Since performance-wise, his sale was not great.

If you look at SP500 (I'm eyeballing SPY prices), if he sold at the top of 1997, he sold at ~$97.

If he rebought at the very bottom of 2002, he rebought at best at $82. I'd guess that he did not sell at $97 and he did not buy back at $82.

So in essence, let's say he really called the dot com bubble. He still avoided at best ~15% drawdown to the bottom... (There's some divvies missing and perhaps he reinvested in bonds that did better than 0% cash).

 

Not a great result if you ask me.

 

Sure, maybe selling now is not like selling in 1997. Maybe it is like selling in late 1999. Maybe. But there's a lot of folks here who have been telling to sell since 2011 or 2014 or 2016 or 2018. Will the real top of the bubble please stand up?

 

Yeah, maybe FAANMGs (which are a large chunk of the market) are ~20-30% overvalued (I'd argue that some of them are close to fairly valued). Yeah, if there's a crash they could overshoot down more than 20-30%. Yeah, good luck timing all that.

 

I think you ingore the alternatives here though. He didn't sell and go to cash right? He sold and went to t-bills. So it's not that he avoided -15%, it's that he made a few % each year over the 5-year time frame his benchmark was -15%. That's a pretty big deal and the type of outperformance people pay hedge funds 2 and 20 to achieve.

 

But what are the alternatives now? Long duration T-bills in my opinion have the potential for large losses too, just as stocks do. Gold? Cash or short term bonds yield nothing basically.

[TwoCitiesCapital]

https://www.gmo.com/americas/research-library/waiting-for-the-last-dance/

 

Grantham writes:

 

Similarly, in late 1997, as the S&P 500 passed its previous 1929 peak of 21x earnings, we rapidly sold down our discretionary U.S. equity positions then watched in horror as the market went to 35x on rising earnings. We lost half our Asset Allocation book of business but in the ensuing decline we much more than made up our losses.

 

Maybe he means that he made up his losses in the book of business. Since performance-wise, his sale was not great.

If you look at SP500 (I'm eyeballing SPY prices), if he sold at the top of 1997, he sold at ~$97.

If he rebought at the very bottom of 2002, he rebought at best at $82. I'd guess that he did not sell at $97 and he did not buy back at $82.

So in essence, let's say he really called the dot com bubble. He still avoided at best ~15% drawdown to the bottom... (There's some divvies missing and perhaps he reinvested in bonds that did better than 0% cash).

 

Not a great result if you ask me.

 

Sure, maybe selling now is not like selling in 1997. Maybe it is like selling in late 1999. Maybe. But there's a lot of folks here who have been telling to sell since 2011 or 2014 or 2016 or 2018. Will the real top of the bubble please stand up?

 

Yeah, maybe FAANMGs (which are a large chunk of the market) are ~20-30% overvalued (I'd argue that some of them are close to fairly valued). Yeah, if there's a crash they could overshoot down more than 20-30%. Yeah, good luck timing all that.

 

I think you ingore the alternatives here though. He didn't sell and go to cash right? He sold and went to t-bills. So it's not that he avoided -15%, it's that he made a few % each year over the 5-year time frame his benchmark was -15%. That's a pretty big deal and the type of outperformance people pay hedge funds 2 and 20 to achieve.

 

But what are the alternatives now? Long duration T-bills in my opinion have the potential for large losses too, just as stocks do. Gold? Cash or short term bonds yield nothing basically.

 

Gold/silver and cash IMO. If we get inflation to eat away at the cash, the gold/silver will do well with negative real yields. If we get deflation to eat away at the gold, cash will do well with increasingly positive real yields.

 

The actual way I'm positioned is with short-term bonds funds and bull spreads on GLD/SLV for leverage.

 

Not expecting huge positive real returns from this approach of managing my liquidity/cash - just better than what I expect the stock/bond market to provide over the same time frame.

[patience_and_focus]

But what are the alternatives now? Long duration T-bills in my opinion have the potential for large losses too, just as stocks do. Gold? Cash or short term bonds yield nothing basically.

 

Maybe unlike around 1998-2000, the alternative right now is cash (at least healthy fraction of once's portfolio). Zero is still better than negative returns. Thankfully inflation is rather tame and if one does not have big discretionary spending left out (such as a house) for a foreseeable future, cash is not a bad option in the short to medium term (1-3 years). Pockets of value still exist in pharma/biotech.

[Simba]

Meh. I'll take the contrarion bet. I'm seeing a lot of behavioral / misinformation all over the internet on the stock market in calling it a bubble, it's incredible, which leads me to believe the "general market" is not in a bubble (of course you have some stupid SPAC or non-profitable company) - which is a separate topic of discussion.

 

Here are my 2021 predictions

1. Elon Musk becomes first Trillionaire in 2021

2. You will have multiple "Gamestop" stories in 2021

3. WSB is going to get even more attention in 2021 than 2020.

4. The market is not in a bubble.

 

Keep calm and carry on.

[Jurgis]

Since I'm all for accountable predictions, I am going to offer a (value investor priced) dinner bet that SP500 will be higher in 5 years (on 2026 Jan 25) than where it is now.

 

Don't all jump at the opportunity.

Offer good for first person to bet only.

I may accept or reject any additional bettors at my discretion. Which I have to say is the better part of valor.  8)

[TwoCitiesCapital]

Since I'm all for accountable predictions, I am going to offer a (value investor priced) dinner bet that SP500 will be higher in 5 years (on 2026 Jan 25) than where it is now.

 

Don't all jump at the opportunity.

Offer good for first person to bet only.

I may accept or reject any additional bettors at my discretion. Which I have to say is the better part of valor.  8)

 

Where are you located and are flights included? Any interest in coming to St Louis if I lose?  ;D

[Jurgis]

Since I'm all for accountable predictions, I am going to offer a (value investor priced) dinner bet that SP500 will be higher in 5 years (on 2026 Jan 25) than where it is now.

 

Don't all jump at the opportunity.

Offer good for first person to bet only.

I may accept or reject any additional bettors at my discretion. Which I have to say is the better part of valor.  8)

 

Where are you located and are flights included? Any interest in coming to St Louis if I lose?  ;D

 

Boston.

 

Last time I visited St. Louis was in 2005.

The food was good from what I remember, so I might be able to drop by.

Assuming - if I lose - that I have enough money to drop by.  8)

[TwoCitiesCapital]

Since I'm all for accountable predictions, I am going to offer a (value investor priced) dinner bet that SP500 will be higher in 5 years (on 2026 Jan 25) than where it is now.

 

Don't all jump at the opportunity.

Offer good for first person to bet only.

I may accept or reject any additional bettors at my discretion. Which I have to say is the better part of valor.  8)

 

Where are you located and are flights included? Any interest in coming to St Louis if I lose?  ;D

 

Boston.

 

Last time I visited St. Louis was in 2005.

The food was good from what I remember, so I might be able to drop by.

Assuming - if I lose - that I have enough money to drop by.  8)

 

Lol - I'd be lying if I said I wasn't interested, but so far being bearish has hurt me plenty without adding to the tab.

 

Really thought about it though!

[AzCactus]

Meh. I'll take the contrarion bet. I'm seeing a lot of behavioral / misinformation all over the internet on the stock market in calling it a bubble, it's incredible, which leads me to believe the "general market" is not in a bubble (of course you have some stupid SPAC or non-profitable company) - which is a separate topic of discussion.

 

Here are my 2021 predictions

1. Elon Musk becomes first Trillionaire in 2021

2. You will have multiple "Gamestop" stories in 2021

3. WSB is going to get even more attention in 2021 than 2020.

4. The market is not in a bubble.

 

Keep calm and carry on.

 

1. Elon Musk becomes first Trillionaire in 2021

 

Would this not require Tesla to like 6X this year lol ?

[stahleyp]

I'm not so sure that they market will be higher in 5 years. I will say on average it's usually up over a 5 year period.

 

I'll also say (in my humble opinion) the odds are higher than normal that it'll be lower 5 years from now that it is today than the average 5 year period.

 

By that I mean, let's say the odds of it being higher during a 5 year period is 70%. I'd say it's closer to a 50% chance now.