I'm Not Saying Things Aren't Crazy

This is not the 1990s stock market. From 1995-1999, 108 stocks in the S&P 500 doubled. 39 in 1999 alone.

From 2020 through today, 32 stocks gained 100% in a year, 12 of those coming in 2021.

People use analogies because it gives them the illusion of control. “I’ve seen this movie before and I know how it ends” is a lot more comforting than “This is crazy and I’m really not sure what to do.”

All manic episodes share commonalities, but each one is unique unto itself. The only thing they all have in common is that they end, eventually.

I’ve been writing and speaking about the tech giants and the comparisons with the dotcom bubble. It’s a lot, I know, but it’s also the biggest story in the stock market, and how it plays out will have as large an impact on investors as anything else.

The Nvidia thing is crazy, but it’s not insane. The fundamental growth is crazy. The valuation isn’t insane. I’m sorry it just isn’t. The stock trades at 44x forward earnings, which isn’t cheap, but it’s nothing compared to Cisco in 1999, which got as high as 97x forward earnings.

This chart shows how out of whack the Nasdaq-100 got in the late 90s compared to the earnings it was generating. Today it’s very much in line with its economic footprint.

Michael Mauboussin and Dan Callahan shared a similar chart, but instead of using earnings, they use economic profit. In 2023, the top 10 stocks earned 69% of the economic profit, but were “only” 27% of the market cap.

Josh and I are going to talk about this and much more on tonight’s What Are Your Thoughts?