| 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. |
