Over the past 10 years the Nasdaq 100 is up almost 20% per year.
From the March 2009 lows, the Qs are up 22% per year! That’s more than a decade and a half with annual returns that would make Warren Buffett blush.
This has been a magical bull market run.
We all know why. The 10 biggest stocks now make up more than 50% of the index. You know the names.
Obviously, the bubble talk is at a fever pitch right now.
Bubbles are difficult to define. You can’t just go through a checklist because so much of it is a combination of valuations, expectations and emotions. It’s quantitative and qualitative.
While the numbers don’t tell the entire story, I wanted to see how the returns from this cycle look compared to some of history’s other great bubbles. So I looked the total return during the Roaring 20s1, Japan in the 1980s and the dot-com bubble in the 1990s to see how the past 10 years in the Nasdaq 100 stack up.
I’m not going to lie — the numbers are slightly concerning:
We’re not at dot-com nosebleed levels just yet but the past 10 years are right in line with Japan and the Roaring 20s.
I didn’t expect the returns to be this close.
Each of those other cycles ended in tears with a massive crash.
Are we setting up for that again?
I don’t know.
A crash is always possible.
Some context is probably required that goes beyond the fact that today’s tech behemoths are the best corporations the world has ever seen.
Following the bursting of the dot-com bubble the Nasdaq crashed more than 80%. From 2000-2008, the Nasdaq 100 was down 50% in total or a loss of -8% per year.
From 2000-2013, the total return for the Nasdaq 100 was a gain of 1%. Not 1% per year. That’s 1% in total for 14 years. A lost decade and then some.
The annual returns for the Nasdaq from the start of 2000 to now are a more pedestrian 8.4% per year.
That’s combining a brutal bear market with a bananas bull market. Is that a full market cycle? 2000 was the peak of the dot-com bubble so it’s hard to say definitively.
However you measure it, tech stocks are on an all-time heater. This is one of the great bull markets we’ve ever witnessed.
So now what?
We could see a crash. It wouldn’t surprise me if expectations have gotten too far ahead of fundamentals. That happens during periods of rapid innovation.
I’m much more comfortable forecasting lower returns for tech stocks going forward than an imminent crash from here. That might feel like a cop-out. You could have made the same low return claim many times over the past decade and it hasn’t happened.
Tech stocks cannot keep growing at 20% per year indefinitely. I can confidently say that.
Beyond that…maybe this is like the past or maybe this time is different.
Concentrating your wealth in technology stocks has lead to unbelievable returns for many years now.
I strongly believe that diversification will be necessary at some point.
I don’t know when.
But that’s why you diversify.
Further Reading:
Is This 1996 or 1999?
1Technically the Roaring 20s start in 1921 since there was a bear market and recession in 1920-21. Close enough.
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