Nasdaq - Party Like it is '1999' ? - Kuvera - All about stocks on Kuvera

October. This is one of the peculiarly dangerous months to speculate in stocks.

The others are July, January, September, April, November, May, March, June, December, August, and February.

: Mark Twain

NASDAQ has been on an absolute tear. When it comes to technology stocks there is no bad news. The pandemic driven work from home model is building interest in “everything from home” companies. And they are all enabled by tech. Be it work, entertainment or play. Large tech companies in these verticals have bucked the tend of last year and have made mammoth gains.

The rally post-March has been so fast that comparisons to 1999 are propping up everywhere.

1999 was a particularly special year for speculation – better than any October Mark Twain could have fathomed. Stocks would go up on metrics such as eye-balls or page visits. It was the first internet startup frenzy and like all gold rushes, the first wave saw a lot of fools rush in.

The 2020 version is not as bad. Most of the companies going up have strong revenue streams and good revenue growth. The expectation though is that these growth rates will continue for a very long time. Which is possible if work from home becomes the dominant working model for the 21st century. But if it doesn’t then the technology sector will have to reprice.

The euphoria of 1999, of course, ended in the dot-com bust of 2000. From Jan 1999 to Mar 2001, the Nasdaq went up ~130%. Not some stock in the index – the entire index doubled and then some in 15 months. But by the end of 2000, the Nasdaq was up barely 12% from Jan 1999 levels. But that was not the end of it. By the time the index bottomed in 2003 post the dot-com bust, it was ~49% below the Jan 1999 level.

So if you want to party like 1999 then be prepared for a hangover like 2000-2003 too ?

This is by no means a warning to sell or time the top or anything as dramatic. It’s just a reminder to stick to your international allocation and not get carried away and start increasing allocation to US stocks in general or Nasdaq in particular because of the recent good returns.

As we have argued before a US stock allocation can be a very good idea for Indian investors. Since we started in 2017, we’ve recommended a 13% equity allocation in an international mutual fund. The reason we include an international fund in our recommendation and the reason we want you to think global is the same – diversification. The 3Y correlation of Nifty 50 and S&P 500 can be as low as -30%. The correlation for the entire 20Y time period is just 34%. And that’s the good news. All we need to do now as investors is to resist the temptation of recent good returns and increasing our allocation to this asset class.

Happy investing,
Gaurav
CEO | kuvera.in | @rustapharian

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2 Responses Cancel reply

Thiyagu

November 18, 2020 AT 08:38

Hi Gavrav, Is this the appropriate time to do a lumpsum investment (still sticking to my original asset allocation plan). Just that the P/B ratio approaching 4.0 for Nifty-50 and Nifty-Next-50 is making me bit jittery to do a lumpsum vs spreading this over a period of 6/12 months.

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