Hindsight / foresight

[Sam]

I went back and looked at some of the earliest posts on this board, hoping to find discussions relating to the stock bubble leading to the 2000 crash. Unfortunately, this forum wasn't old enough.

So here's the question: If you were in the midst of a crazy, overly optimistic bull run similar to the one preceding the 2000 crash, would you know it?

 

[brewer12345]

Sure. Whenever people start talking about alternatives to cash flows as a more modern/appropriate/whatever way to value securities, you know the market has lost its mind.

 

[lazygood4nothinbum]

just as real estate craziness was ending i wanted to sell the inherited house before inheritance but my accountant uncle advised us against it because we'd have to fork over about $150k in cap gains. as my brother sided with that, i would have had to take him to court to force the sale. now that we have our stepped-up cap gains, our price is down at least as much as we would have lost to taxes earlier, though at least then it likely would have sold. now it is just sitting there.

my gut feeling was to sell. peace in the family meant more. in this case i would have been right. but how do you ever know what tomorrow will bring?

 

[runchman]

I have the perfect barometer:

When my brother-in-law starts talking about buying individual stocks, I know a top is near.

Now if I'd only gotten out when he told me he was buying qualcomm......

- John

 

[Cut-Throat]

I went back and looked at some of the earliest posts on this board, hoping to find discussions relating to the stock bubble leading to the 2000 crash. Unfortunately, this forum wasn't old enough.

So here's the question: If you were in the midst of a crazy, overly optimistic bull run similar to the one preceding the 2000 crash, would you know it?

I knew it back then. So did a lot of investors. I did not like it as I was contibuting to my 401k to the Max and knew I was paying high prices. - I thought it was too high in 1999, 2000, 2001, 2002 etc...

I would do the same thing today as I did then. Nothing, except rebalance my portfoilo every year.

 

[Sam]

I thought it was too high in 1999, 2000, 2001, 2002 etc...

I didn't see any smiley, so I assume you are not sarcastic. You thought it was high in 2001, 2002? Did you think it was high in 2003 and 2004?

I would do the same thing today as I did then. Nothing, except rebalance my portfoilo every year.

You wouldn't even change the allocation? A little more bond/cash, a little less stock?

 

[wabmester]

I didn't see any smiley, so I assume you are not sarcastic. You thought it was high in 2001, 2002? Did you think it was high in 2003 and 2004?

In 2001 and 2002, prices came down, but so did earnings, so P/E ratios remained nutty.

 

[FinallyRetired]

Can't say I got out at the top (far from it) but yes, I knew it was a bubble. Problem is, a lot of people knew it but everyone thougth they could ride it a little longer. I bailed out about 20% down and watched some of my previous holdings go down 80% or more.

If it happened again would I know it? Probably not as easily, because everyone would recognize the same situation, so the market would behave differently. It would be a slow boil this time, not the fast rocket ride we had last time. Something like what we have now, a slow lengthy up market with no corrections. Mmmm....

 

[Nords]

I went back and looked at some of the earliest posts on this board, hoping to find discussions relating to the stock bubble leading to the 2000 crash. Unfortunately, this forum wasn't old enough.

Dory and a few others bolted from TMF's ER forum when TMF decided to start charging for their collective wisdom. Oddly enough that was just about the same time that the stock market imploded and advertisers stopped paying TMF.

So here's the question: If you were in the midst of a crazy, overly optimistic bull run similar to the one preceding the 2000 crash, would you know it?

Sure-- check the bull/bear sentiments and wait until everyone stops worrying.

Here's a link from another post to Mark Hulbert's survey data.

 

[dmpi]

I knew tech was too high, but I just didn't think that it'll take everything else down with it.

If this happend today, I think I would just end up riding this thing down once again.
When it comes times to hit the sell button, thoughts like: How am I going to pay all my taxes? or What happens if this keeps going up? or What else can I invest in to get +25% return? keeps poping into my head.

 

[wabmester]

I knew tech was too high, but I just didn't think that it'll take everything else down with it.

Tell me about it. I figured that the dot-coms were inviable but had lots of capital, so I bought the pick-and-shovel guys: telecom. Oops, 90% drop on that bet.

 

[FinanceDude]

Tell me about it. I figured that the dot-coms were inviable but had lots of capital, so I bought the pick-and-shovel guys: telecom. Oops, 90% drop on that bet.

Never bought much tech, too much of a value guy for that................

However, bought Lucent and CMGI, but got out at a 30% loss than than 90%................

 

[runchman]

Watched my wife's rollover ira drop from 100k to 20k.

The sad thing is I don't even remember what stocks I was in at the time. I was on the dot-com mania of course - bought netscape when nobody had yet heard of it, did good on that one.

Thank goodness I discovered asset allocation and indexing and came to my senses.

It was fun while it lasted and was rocketing up though, wasn't it? It was all we talked about in the office. Then after the crash, nobody talked about investing anymore.

My buddy knew people at qualcomm that exercised options, held the stock, then couldn't pay the tax bill when it was due because their stock had tanked. He says people lost houses over it.

Now that would depress me to no end.

 

[chinaco]

I think everyone knew instinctively... but most did not exercise caution. Everyone got greedy. It was like a gold rush. When the Sh!t hit the fan... fear kicked in. And the cylcle continues....

This lesson is learned over and over again by new generations. Back in the 17th century in the Netherlands the lesson was learned in the Tulip Bulb "bubble"....

http://en.wikipedia.org/wiki/Tulip_mania

 

[W2R]

So here's the question: If you were in the midst of a crazy, overly optimistic bull run similar to the one preceding the 2000 crash, would you know it?

Probably not.

However, I do remember people at work bragging (almost in astonishment) about their TSP (=401K) balances. That was the most common topic of conversation, and quite a few talked about retiring in a year or two if the situation held. So if I start hearing that sort of conversation, it would raise warning flags.

 

[HFWR]

I have the perfect barometer:

When my brother-in-law starts talking about buying individual stocks, I know a top is near.

Now if I'd only gotten out when he told me he was buying qualcomm......

- John

Krispy Kreme!!

 

[kcowan]

So here's the question: If you were in the midst of a crazy, overly optimistic bull run similar to the one preceding the 2000 crash, would you know it?

Probably not.
However, I do remember people at work bragging (almost in astonishment) about their TSP (=401K) balances. That was the most common topic of conversation, and quite a few talked about retiring in a year or two if the situation held. So if I start hearing that sort of conversation, it would raise warning flags.

According to contrarian analysis, a major stock market top will occur when the prevailing sentiment is stubborn bullishness. The dead giveaway that this is the dominant mood will be the reactions of short-term market timers in the wake of the first correction off of the market's top: He will refuse to reduce his equity exposure, and may even increase it.
That's what happened at the top of the stock market in March 2000, by the way. And we're not seeing anything like that kind of stubborn bullishness today

So Mark thinks that we are not near a market top. Are people crowing about their 401k balances?

I think this time is different because most of us remember 2000 whereas then in 1999, 1987 was a dim memory to many of us. But are there any structural differences now? For example, many investors escaped into real estate back then so they were leaving in droves. What alternatives do investors have today?

 

[Donzo]

I remember being thrilled w/ my 401K and fund balences...When the crash came - it did not really faze me - I had no thoughts of RE, I always planned on bailing at 55 or older (13 years away) - so I considered the crash a buying bargain and kept investing the max I could - glad I did

 

[W2R]

So Mark thinks that we are not near a market top. Are people crowing about their 401k balances?

I really haven't heard that type of crowing at my work to the extent that I did back then.

I think this time is different because most of us remember 2000 whereas then in 1999, 1987 was a dim memory to many of us.

Good point. They may be hesitant to crow quite so much this time around.

But are there any structural differences now? For example, many investors escaped into real estate back then so they were leaving in droves. What alternatives do investors have today?

Is real estate close to bottoming out, yet? If only I had a crystal ball.... Hindsight is great, but as for me, I just muddle through.

In order to be able to sleep at night I keep 40% of my TSP in the "G" fund, which never loses money. During the past 10 years it got as low as 4.11% annual return in 2003, and as high as 6.77% in 1997. So I'll probably always have something.