Are we in a tech bubble all over again?
Some say the Nasdaq looks nothing like it did in the dot-com days. Here are some points to consider.
With the Nasdaq Composite Index ($COMPX) at its highest since March 2000, there's growing talk about how the index looks nothing like it did in the bubble years.
How sure are you, though, of the "this time things are different" arguments?
ARGUMENT NO. 1: This is not the same tech-loaded index it was.
The reality: In March 2000, tech accounted for half the Nasdaq's stock market value, and the top five holdings were Cisco (CSCO), Microsoft (MSFT), Intel (INTC), Qualcomm (QCOM), and Oracle (ORCL). (Microsoft owns and publishes Top Stocks, an MSN Money site.)
Now tech is 45 percent of the index, and the top five stocks are Apple (AAPL), Google (GOOG), Microsoft, Amazon.com (AMZN), and Facebook (FB). This mirrors the broad market, where tech is no longer a third of the S&P 500 à la 2000 but is still the biggest sector.
The takeaway: Own an S&P 500 fund, and you don't need a tech-centric one. Already, $1 out of every $5 you have invested is in technology stocks, which is plenty.
ARGUMENT NO. 2: The biggest tech stocks, such as Microsoft and Intel, have matured.
The reality: True, but over the past 5.5 years blue-chip tech has gone from trading at a 10 percent discount to the S&P to a 5 percent premium. The bigger problem lies beyond the largest players.
"Unlike 2000, where the large-caps were insanely overvalued, today what you're seeing is the smaller-cap names are the most expensive," says Ben Inker, co-head of asset allocation at GMO.
For instance, many of the small-to medium-size companies in the Nasdaq biotech index have been on a tear, such as Isis Pharmaceuticals (ISIS) (up 282 percent in 2013) and drugmaker Incyte (INCY) (up 205 percent). The index now trades at a price/earnings ratio of more than 170.
The takeaway: Don't load up on blue-chip tech, and take profits in biotech and social-media stocks.
ARGUMENT NO. 3: Nasdaq's P/E is a fraction of what it was in 2000, so you can't call it frothy anymore.
The reality: Compared with a P/E of 175 in 2000, today's Nasdaq looks "reasonably" priced at around 30 times earnings. But it's foolish to make relative judgments against such historically extreme cases, says Greg Schultz, a principal with Asset Allocation Advisors.
The takeaway: Don't touch this index -- it trades as an ETF (ONEQ) -- until prices fall. Buy cheap, as the Nasdaq was in the early 1990s, and you do well.
"Pay too much," says Schultz, "and you get bad returns. It's as simple as that."
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"""""Don't understand this being a Tech Bubble....
I thought Tech Companies, built things, most of these Companies DON'T..."""""
You are correct - These writers are classifying "Social Media Crap" as Tech Companies. They are not tech in any form . They need to differentiate between the two.
To the "it is all Bush's fault" morons. Blame Bush? Get Real. Did not you morons hire Obama to fix "Bush's mess"? Where is the fix? Oh, sure the fix is 1.2 trillion dollar annual deficits up from Bushes 300 billion. Oh sure the fix is 20 trillion nation debt, a doubling in 8 Obama years! Oh sure the fix is higher healthcare premiums, if you can keep your plan at all, when he PROMISED a $2500 reduction. Oh sure the fix is 7% unemployment (real figure accounting for job participation rates is closer to 10 or 12%) up from the Bush years of 4.5% year after year after year. And millions moved from full time job to part time jobs. And ....
Sure glad we hired Obama to fix all this stuff. Pull your head out.
What ever happened to those kind of men that founded this country? What ever happened to the kind of men that defended the constitution? What ever happened to a real leader ready and willing to take the challenge and lead?
My fellow Americans does not open a speech anymore. Now it's (My indentured servants) I have a pen and a cell phone and I'm not afraid to use it!
This county is so dekcuf it unbelievable. Hang on to your hats my friends the market is going down.
Don't understand this being a Tech Bubble....
I thought Tech Companies, built things, most of these Companies DON'T...
They just rope in users....When you have too many ropers and not enough users, some thing's are going to fail..
What fake money, or money printing has to do with article, makes little sense..
That's like saying the Raisin Crop is going to fail.
The game board is being redesigned but the rules look very similar. Ask yourself this---Who is it that is asking you to play?
"ARGUMENT NO. 3: Nasdaq's P/E is a fraction of what it was in 2000, so you can't call it frothy anymore.The reality: Compared with a P/E of 175 in 2000, today's Nasdaq looks "reasonably" priced at around 30 times earnings."
No, you clearly have no idea what the Reality is. Back then, I highly doubt companies were engaged in the type of massive Financial Engineering that we are seeing today. When that collapses and companies are faced with the need of Real Organic Growth, earnings will literally collapse.
Also, again, the money printing started long before QE to infinity. QE is just one of the many cures thrown at the original problem. The Original Problem, folks are terrified to actual discuss that 800 pound Gorilla. Never solved, only delayed.
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