Tech Bubble Part Two Or Five: “I Told You So”

Some investors don’t believe it’s possible that the stock market can be in a bubble like the 1990s tech boom because they were told it was a one time event that could never happen again. However, there are bubbles in every cycle. There was the “tronics” bubble in the 1960s, the nifty fifty bubble in the 1970s, the biotech bubble in the 1980s, the tech bubble in the 1990s, and the housing bubble in the 2000s.

Plus, we had a mini marijuana stock bubble from 2018-19 and the fracking boom in the 2010s. Bubbles are the norm, not an exception. Furthermore, low rates don’t mean bubbles will last forever. The bubble in software stocks (SaaS), electric vehicle stocks & other renewables stocks, and the bubble in online shopping stocks all can come to an end without the Fed raising rates. Bulls claim that this cycle is different than the tech boom of the 1990s because firms are now profitable. Firstly, many firms were profitable in the 1990s too and many firms aren’t profitable now. The EV stocks mostly aren’t profitable. Plenty of renewable and software stocks are losing money as well.

It’s amazing how investors who weren’t following stocks 22 years ago can claim they would have easily avoided Yahoo which was one of the tech darlings in the 1990s. They wouldn’t have avoided it. As you can see from the chart above, Yahoo stock rose 517% in 1997 and its sales were up 242%. In 1998 Yahoo stock rose 584% as its sales tripled and its profits rose from a penny to 13 cents. In mid-May of 1999, Yahoo had a PE ratio of 1,062. It was added to the S&P 500 in December 1999. It fell over 90% in the 3 years after it was added. 

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