alt Hacker NewsYeah I always find dot com burst comparison apt because like, yeah market corrections will probably happen, but even if you invested in big tech RIGHT before the burst you would probably still be very rich today if you just held.
Replies
The problem is psychology. People don't HODL while their retirements drop by 20, 30, 40% in a week. High earners might, institutions can, but regular every day people they take the loss, and might never go back into the market again, forgoing those recovery years.
The average recovery is 18 months I think (I'm in a meeting, and can't look it up), but people like my dad watched his retirement fizzle out in the dotcom bubble, because he was all in on tech. Then he moved to safer bond and realestate funds, and his value never recovered, and then 07/08 happened and he watched what he thought were "safe" investments disappear almost immediately. He pulled everything out of the market, and never invested again. He went through 2 crashes on his portfolio, and to this day doesn't trust stocks and bonds.
He was sold an annuity that according to him is supposed to double it's payout every 5 years it is left un touched, so he didn't touch it for 15 years, now that he is drawing it down, it draws from principal before ever touching the growth, and when he dies, only the principal will get passed to my mother. It was basically a scam.
Yeah I made millions by hanging on to my pets.com stock and just riding the wave.
No. If you bought Cisco it never recovered, once you factor in inflation. Almost the same with Intel.
Held what? A majority of those companies evaporated. You'd have to cut your losses and reinvest.
If you invested in XLK (State Street Technology Select Sector SPDR ETF) In March of 2000 (just before the .com bust), you would have underperfomred SPY (S&P 500) until June 2026. As of today, the spread between the two is just over 1%, with good reason to believe that we are in another tech bubble.
https://www.etftimemachine.com/en/compare/XLK-vs-SPY?start=2...
Had you invested in XLK when it opened in 1998, then following the .com crash, it would take until early 2020 to return to parity to the S&P 500.
Survivorship bias.
It took the companies that survived a decade or more to recover.
You still have to pay bills while you endure inflation and the opportunity costs in the meantime.
Yes, if you only invest in winners you'd be very rich! Which companies will be the winners though? Nobody knows.
What about the hundreds of losers that looked good right before the burst? My coworker retells a story where he dumped his life savings in dotcom companies that went to zero.
I was under the impression that if you bought Cisco stock for $1000 during the height of the bubble, you'd have like $1500 now?
This is the definition of survivorship bias. There are a ton of tech stocks that you would have lost your shirt on had you invested in them just prior to the crash.
Even if you invested in a company that ultimately became a winner, you'd need to be able to hold on to it throughout the correction. You put your savings in tech stocks, the tech sector undergoes a significant correction, the stocks dive, you get laid off because you also work in tech and now you have to liquidate your stocks to meet your obligations. (Or you just retire at the wrong time.)