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Who’s Afraid Of The Big, Bad Tech Mini-Correction?
It says a lot about market psychology, and maybe even more about the generational composition of today's investor base and the average age of journalists, when a handful of bad sessions for equities, including a 2% down day for the S&P, count as "scary."
"Scary" was bandied about by financial media outlets towards the end of another interesting week. I don't think it's the best adjective. Or at least not if we're talking strictly about equities. If you're "scared" by a 5% dip, a technical c
“Battle-hardened alt-coin worriors”…LOL
My wife and I married in 1967 and began investing that year. The DJIA topped in 1966 and didn’t break that top for 16 years in 1982, ironically in the midst of a deep recession, high inflation and ultra high interest rates that hit 20%. Another large stock market dead period hit toward the end of the last century, lasting more than 10 ten years. I was awash in bonds and never noticed. For more than 30 years in the midst of my investing life, bonds out-earned stocks and young investors had little to turn to but CDs. Since the great unpleasantness of 2008 stocks have done much the same as bonds did a couple decades before, go straight up. By then I had retired and bought few stocks as I wanted income not gains. Today, folks like Robinhood, Schwab and Fidelity are trying to convince younger investors, the ones with college debt, that $50 bucks makes you a stock investor. Sadly, it doesn’t. Morgan wealth has an ad showing a guy in a bar, playing with his phone, trying to figure out if taking a couple hundred in gains makes him some sort of tycoon. A big part of the financial community seems to be bent on getting the newbs to see investing as an alternative to Fanduel. That won’t make them happier down the line. Neither will day trading in meme stocks.
Dr. L, I love the Fanduel comparison. It’s spot on now that you can risk money calling the next pitch or next play while you watch a game. And to think how many of us once ridiculed the Chinese for betting on everything!
Does anyone else see parallels with ancient Rome?
One risk is the reversal of the wealth effect for the economy and the stock market. Lots of people talking about great their 401ks or retirement funds are doing, in US and in an Asian country I just visited. Financial districts will see many hanging heads if this sell-off gains steam and moves into that -20% range you referenced. And ppl in 30s and 40s will start to worry if there’s no Fed or government generated rescue to bounce stocks w/n a month or so of a sharp decline.
AI hype reminds me of the genome sequencing buzz and a failure by many investors to recognize and/or accept genetic research takes years and many $ to produce biopharmaceuticals. Biotech stock collapse is rarely distinguished from the dot.com bubble.
100% agree on the genome mania comparison.
It’s a great technology, but real-world applications are sadly taking longer to appear than most equity “investors” can tolerate. “You Can’t Hurry Love” ….
If things go to plan, I’ll ride a leveraged bond ETF through a 40% drawdown in equities and then plow it back into a leveraged S&P500 ETF just in time to launch myself into the top 1% and retire to a job that doesn’t involve moving numbers around in a spreadsheet. Yeah, that’s the ticket!
I have my dad (90) 100% in bonds, but I struggle to have any conviction about where the stock market and 30 year interest rates are headed.
Just curious- will you share what you see happening that will result in a 40% equity drawdown?
Sorry, I should clarify that I think that’s very unlikely. I’m not even sure what could drive something like that knowing that the government and Fed will pull out all the stops for anything serious (e.g. a pandemic). A real war between the US and China or massive natural disaster is the only thing I could see causing something like that at this point.
I know H has talked about concentration risk a lot which is something to keep an eye on, but these big tech companies have oligopolies at this point, so I expect them to keep making outsized profits and reaping the benefits of being long duration and growth stocks. I also think they will benefit most from AI, both from a revenue and cost perspective (although one or two may fall due to AI).
All that to say I would be absolutely shocked by a 40% drawdown, but never say never. I do think interest rates will head back down toward zero and will likely happen quickly once the economy does get dicey, but I have no idea when that might be. I would be less surprised by the economy and market holding strong than if we had some major drawdown of 25%+.
I thought you might’ve been a bit facetious- but wasn’t sure. 🙂
I sold (in my IRA) a big chunk of Nvidia recently at $121; and almost immediately regretted that. Might repurchase some if it continues lower.
In the last 15 years, all of my major gains have come from positions in individual tech stocks. I used to be willing to put everything in one stock. Now, I try to keep an individual stock position at less than 20% of my portfolio. I definitely took (and continue to take) to heart H’s ongoing advice to be prepared to lose half!
I don’t recommend this, however, unless you are somewhat unhinged and prepared to deal with the consequences.