7 ms·

Nasdaq Index Reaches 5000 for First Time Since 2000

40 points by antr 12y ago

chollida1 12y ago
I don't want to ruffle too many feathers here but people often ask why someone would invest in alternative investments like a hedge fund or private equity fund rather than hold an ETF. This is one of the reasons, and there are many more. If you held a Nasdaq ETF from 2000 until now, you would have had to wait to 15 years to make back most of your gains. The Nikkei has been even worse... http://www.bloomberg.com/quote/NKY:IND http://www.bloomberg.com/quote/NKY:IND That doesn't mean everyone should try to add alternative investments, I think most people should hold ETF's. But rather most people should not blindly follow the dogma of holding an ETF that represents the market regardless of market conditions. I can't believe I'm going to recommend a Tony Robbins book, but his latest book on investing is actually pretty good, actually you just need to read chapters 5 and 6 to save you some time. I'd recommend most people check out his "All Seasons" portfolio that he got from Ray Dalio. I mean if you can get Ray Dalio's expertise working for you, you've got a great chance of having things work out for you! https://www.pwlcapital.com/en/Advisor/Ottawa/Cameron-Passmore/Advisor-Blog/Cameron-Passmore/November-2014/Stories-over-Science-Tony-Robbins-Financial-Adv https://www.pwlcapital.com/en/Advisor/Ottawa/Cameron-Passmor... EDIT Wow, based on the downvotes this struck a nerve. I don't think I said anything wrong here, do people just not want a balanced view?
- akgoel 12y ago
  Yes, the investor who somehow only invested all of their money one time at the peak of the dotcom bubble would only now get their nominal value back. However, some of those component company are presumably throwing off dividends, so it may not be that bad...
- antr 12y ago
  The short answer is that index investing is a different asset class to hedge funds and private equity, with a very different risk profile. And remember, there are plenty of different hedge funds with different strategies, industry focus, capital structure, etc. and the same goes for private equity. For example, private equity is very similar to a VC, they give LPs access to a type of company which is not public... and we all know how varied the VC industry is. Investors need to build a portfolio, and this requires a wide range of asset clases.
- JoshTriplett 12y ago
  Buying the NASDAQ doesn't seem as prudent as buying a more representative fund covering the whole market. Not everything has done as badly as the NASDAQ. And you could do a lot worse than a whole-market index fund. When it comes to investments, boring is a feature.
  - blakesmith 12y ago
    100% agreed. I've sat down with a few family members and friends who want to understand "investments" and it takes many conversations just to drill into their head that for most average people, boring is good. There are certainly complex, fast moving financial instruments that are exciting, but these should be steered clear of. It takes quite awhile to wash away the preconceived notions about what "investing" is. Investing shouldn't be like playing poker - it might be fun to have "action" and "excitement", but save that for the trips to Vegas.
- lmm 12y ago
  Let's compare like with like. If you take the peak of a random hedge fund or PE fund just before a big crash, how does its performance compare? And what proportion of indices do as badly as the Nasdaq or Nikkei?
- iolothebard 12y ago
  This is picking a bad time horizon and acting like that's the only way to invest. If you'd been investing let's say starting 2000 in a 401k, you put in money at regular intervals. So you were buying the whole way down and up. You wouldn't simply have "held" a NASDAQ ETF.
  - rsync 12y ago
    It is indeed the worst time horizon. However, when evaluating a course of action, I think looking at the upper and lower bounds of possible outcomes is a very wise thing to do, so in that sense it's relevant...
    - Retric 12y ago
      It's not the worst time horizion as you can oviously do worse than break even ex: 1999:2002. There are many stratagies where you would have gotten significant returns over that time period. EX: If you held say 50% nasdaq and 50% cash and then rebalanced your portfolio you would have been well ahead of the curve.
  - ChuckMcM 12y ago
    The funny thing for me was that when I first heard about 401k programs the talks discounted the period of time during the depression as that was 'anomalous'. Having run the experiment you've proposed (although I started putting money into a 401k in '86) I think when we did the calculation my rate of return from that period to today for the 401k it was like 3.2%. (and there are things that drag it down like fund loading etc and my initial exuberance as a young investor for 'risk' as I figured I had plenty of time to make it back later if it went down. ) Not the sales pitch they investors want you to hear :-)
- molf 12y ago
  > If you held a Nasdaq ETF from 2000 until now, you would have had to wait to 15 years to make back most of your gains. Not if you buy at regular intervals. If you had, say, $10K in a Nasdaq ETF in 2000, and invested the same amount at regular intervals between then and now, you'd have a 95% profit by now.
- rsync 12y ago
  Do not comment on your own downvotes. Do not interrupt the discussion to meta-discuss the scoring system.
- deleted 12y ago
  [deleted]
antr 12y ago
Just a reminder, back in 2000 Facebook, Google, Tesla, Baidu, Alibaba, et al. didn't exist nor traded in the Nasdaq. Add to that the fact that Apple's share price has exploded to become the largest company on earth... and voilà, the Nasdaq reaches the 5000 mark.
- minimax 12y ago
  Alibaba is listed on the NYSE, so it isn't included in the NASDAQ composite index.
  - antr 12y ago
    I stand corrected.
gmays 12y ago
I don't think this is correct. Sure, it reached the "same number" but I don't think the indices are inflation adjusted, so the value isn't the same. Edit: Here's a brief explanation using the DJIA as an example http://www.npr.org/blogs/money/2013/03/05/173515767/the-dow-isnt-really-at-a-record-high-and-it-wouldnt-matter-if-it-were http://www.npr.org/blogs/money/2013/03/05/173515767/the-dow-...
- antr 12y ago
  While inflation can be seen as a pricing factor, the way the Dow is calculated is unique (in a bad sense), and it's the worst example and not applicable to Nasdaq. Here's the methodology behind Nasdaq (very similar to other international indices) https://indexes.nasdaqomx.com/docs/methodology_COMP.pdf https://indexes.nasdaqomx.com/docs/methodology_COMP.pdf
- ChuckMcM 12y ago
  On one channel it was asserted the inflation adjusted number would be 7000. And of course had you been an a NASDAQ index 'fund' it means you would still be negative from 2000 as you're 15 years of fund fees would still have been subtracted. Mostly it is a pretty robust signal that the 'stigma' of Tech has largely past. So we're ready for another bubble!
- mathattack 12y ago
  Yes - definitely more of a symbolic lesson. I remember a comment from Jim Rogers [0] that I can't seem to find to the effect of, "The lesson from Japan is bubbles take decades to recover form, not years." This is symbolic that we've finally recovered. [0] http://en.wikipedia.org/wiki/Jim_Rogers http://en.wikipedia.org/wiki/Jim_Rogers
mcantelon 12y ago
QE -> inflation.
- josu 12y ago
  To expand on that, QE means Quantitative Easing: >An unconventional monetary policy in which a central bank purchases government securities or other securities from the market in order to lower interest rates and increase the money supply. Quantitative easing increases the money supply by flooding financial institutions with capital in an effort to promote increased lending and liquidity. Quantitative easing is considered when short-term interest rates are at or approaching zero, and does not involve the printing of new banknotes. So if suddenly, a new player shows up in the markets buying trillions of dollars worth of securities, due to the law of supply and demand, one can expect price of stocks to go up. You can check out the Feds balance sheet here [1]. Check out "Securities held outright" [2], yeah, that's 4.3 trillion with a "t". This figure used to be on the billions before the financial crisis [3], which means that the Fed flooded secondary markets (stock exchanges among them) with more than 3 trillion dollars, to put this into perspective, this the value of all the goods and services that the US produces in 2 months, or two and a half years in the case of Mexico. So yeah, the causality between QE and inflation of stock prices seems very plausible. Disclaimer: Central banking operations is not one of my main strengths, so you are more than welcome to fact check, correct or complete my comment. [1] Web: http://www.federalreserve.gov/releases/h41/current/ http://www.federalreserve.gov/releases/h41/current/ PDF: http://www.federalreserve.gov/releases/h41/current/h41.pdf http://www.federalreserve.gov/releases/h41/current/h41.pdf [2] The amount of securities held by Federal Reserve Banks. This quantity is the cumulative result of permanent open market operations: outright purchases or sales of securities, conducted by the Federal Reserve. Section 14 of the Federal Reserve Act defines the securities that the Federal Reserve is authorized to buy and sell. [3] http://research.stlouisfed.org/fred2/series/WSECOUT http://research.stlouisfed.org/fred2/series/WSECOUT
  - nerfhammer 12y ago
    > a new player shows up in the markets buying trillions of dollars worth of securities, due to the law of supply and demand, one can expect price of stocks to go up. > which means that the Fed flooded secondary markets (stock exchanges among them) with more than 3 trillion dollars QE does not involve buying stocks. QE decreases bond yields making stocks relatively attractive vs. bonds.
adambratt 12y ago
It's been really interesting watching the media constantly trying to predict the "End of America" over the last 7 years since 2008. As far as I can tell, the only reason this saga continues is because of the marketing hype it builds. Most of the people I know who watch only mainstream news all believe that we are going to have a massive crash that will completely kill our country in a few years. When you actually ignore the hype and look at purely the numbers you'll see that the US is doing incredible compared to the rest of the world right now. The Euro is crashing, Russia is in ruins, Saudi Arabia's OPEC squeeze is now hurting all of the other "US enemies" while the net effect of the oil crisis on the US is mostly zero-sum. I'm incredibly bullish on the US right now. Sure we'll probably have another small crash in the next few years but we'll recover quickly and keep on surging for the foreseeable future. That's the nature of market cycles! It's super easy to be negative and for some reason that's the cool trend for people to take right now but frankly the macro-view of the facts say differently.
- toyg 12y ago
  > The Euro is crashing Well, for an anti-hyper, there's a ton of spin right there ;) The Euro is not crashing, it's pretty stable against most currencies except (re)surgent USD and GBP. It has some structural issues to overcome, not unlike USD, but "crashing" it is not.
  - adventured 12y ago
    The Euro lost 21% of its value against the global reserve currency in 9.5 months or so. For a major currency, that is pretty close to crashing. It's going to get worse yet, given the US is on the upswing (strengthening the dollar), and Europe is still mired in economic disaster and moving into QE mode (weakening the Euro).
    - toyg 12y ago
      Unless you also imply that other reliable currencies like AUD are "crashing", that's just the USD growing again after living in hell since 2008. AS I said, there are some structural issues to overcome, but it's not like the USD is heaven on Earth: US debt is still huge and the US government keeps having silly lockdowns every few months.

40 points by antr 12y ago

I don't want to ruffle too many feathers here but people often ask why someone would invest in alternative investments like a hedge fund or private equity fund rather than hold an ETF. This is one of the reasons, and there are many more. If you held a Nasdaq ETF from 2000 until now, you would have had to wait to 15 years to make back most of your gains. The Nikkei has been even worse... http://www.bloomberg.com/quote/NKY:IND http://www.bloomberg.com/quote/NKY:IND That doesn't mean everyone should try to add alternative investments, I think most people should hold ETF's. But rather most people should not blindly follow the dogma of holding an ETF that represents the market regardless of market conditions. I can't believe I'm going to recommend a Tony Robbins book, but his latest book on investing is actually pretty good, actually you just need to read chapters 5 and 6 to save you some time. I'd recommend most people check out his "All Seasons" portfolio that he got from Ray Dalio. I mean if you can get Ray Dalio's expertise working for you, you've got a great chance of having things work out for you! https://www.pwlcapital.com/en/Advisor/Ottawa/Cameron-Passmore/Advisor-Blog/Cameron-Passmore/November-2014/Stories-over-Science-Tony-Robbins-Financial-Adv https://www.pwlcapital.com/en/Advisor/Ottawa/Cameron-Passmor... EDIT Wow, based on the downvotes this struck a nerve. I don't think I said anything wrong here, do people just not want a balanced view?

akgoel 12y ago
Yes, the investor who somehow only invested all of their money one time at the peak of the dotcom bubble would only now get their nominal value back. However, some of those component company are presumably throwing off dividends, so it may not be that bad...
antr 12y ago
The short answer is that index investing is a different asset class to hedge funds and private equity, with a very different risk profile. And remember, there are plenty of different hedge funds with different strategies, industry focus, capital structure, etc. and the same goes for private equity. For example, private equity is very similar to a VC, they give LPs access to a type of company which is not public... and we all know how varied the VC industry is. Investors need to build a portfolio, and this requires a wide range of asset clases.
JoshTriplett 12y ago
Buying the NASDAQ doesn't seem as prudent as buying a more representative fund covering the whole market. Not everything has done as badly as the NASDAQ. And you could do a lot worse than a whole-market index fund. When it comes to investments, boring is a feature.
- blakesmith 12y ago
  100% agreed. I've sat down with a few family members and friends who want to understand "investments" and it takes many conversations just to drill into their head that for most average people, boring is good. There are certainly complex, fast moving financial instruments that are exciting, but these should be steered clear of. It takes quite awhile to wash away the preconceived notions about what "investing" is. Investing shouldn't be like playing poker - it might be fun to have "action" and "excitement", but save that for the trips to Vegas.
lmm 12y ago
Let's compare like with like. If you take the peak of a random hedge fund or PE fund just before a big crash, how does its performance compare? And what proportion of indices do as badly as the Nasdaq or Nikkei?
iolothebard 12y ago
This is picking a bad time horizon and acting like that's the only way to invest. If you'd been investing let's say starting 2000 in a 401k, you put in money at regular intervals. So you were buying the whole way down and up. You wouldn't simply have "held" a NASDAQ ETF.
- rsync 12y ago
  It is indeed the worst time horizon. However, when evaluating a course of action, I think looking at the upper and lower bounds of possible outcomes is a very wise thing to do, so in that sense it's relevant...
  - Retric 12y ago
    It's not the worst time horizion as you can oviously do worse than break even ex: 1999:2002. There are many stratagies where you would have gotten significant returns over that time period. EX: If you held say 50% nasdaq and 50% cash and then rebalanced your portfolio you would have been well ahead of the curve.
- ChuckMcM 12y ago
  The funny thing for me was that when I first heard about 401k programs the talks discounted the period of time during the depression as that was 'anomalous'. Having run the experiment you've proposed (although I started putting money into a 401k in '86) I think when we did the calculation my rate of return from that period to today for the 401k it was like 3.2%. (and there are things that drag it down like fund loading etc and my initial exuberance as a young investor for 'risk' as I figured I had plenty of time to make it back later if it went down. ) Not the sales pitch they investors want you to hear :-)
molf 12y ago
> If you held a Nasdaq ETF from 2000 until now, you would have had to wait to 15 years to make back most of your gains. Not if you buy at regular intervals. If you had, say, $10K in a Nasdaq ETF in 2000, and invested the same amount at regular intervals between then and now, you'd have a 95% profit by now.
rsync 12y ago
Do not comment on your own downvotes. Do not interrupt the discussion to meta-discuss the scoring system.
deleted 12y ago
[deleted]

antr 12y ago

Just a reminder, back in 2000 Facebook, Google, Tesla, Baidu, Alibaba, et al. didn't exist nor traded in the Nasdaq. Add to that the fact that Apple's share price has exploded to become the largest company on earth... and voilà, the Nasdaq reaches the 5000 mark.

minimax 12y ago
Alibaba is listed on the NYSE, so it isn't included in the NASDAQ composite index.
- antr 12y ago
  I stand corrected.

gmays 12y ago

I don't think this is correct. Sure, it reached the "same number" but I don't think the indices are inflation adjusted, so the value isn't the same. Edit: Here's a brief explanation using the DJIA as an example http://www.npr.org/blogs/money/2013/03/05/173515767/the-dow-isnt-really-at-a-record-high-and-it-wouldnt-matter-if-it-were http://www.npr.org/blogs/money/2013/03/05/173515767/the-dow-...

antr 12y ago
While inflation can be seen as a pricing factor, the way the Dow is calculated is unique (in a bad sense), and it's the worst example and not applicable to Nasdaq. Here's the methodology behind Nasdaq (very similar to other international indices) https://indexes.nasdaqomx.com/docs/methodology_COMP.pdf https://indexes.nasdaqomx.com/docs/methodology_COMP.pdf
ChuckMcM 12y ago
On one channel it was asserted the inflation adjusted number would be 7000. And of course had you been an a NASDAQ index 'fund' it means you would still be negative from 2000 as you're 15 years of fund fees would still have been subtracted. Mostly it is a pretty robust signal that the 'stigma' of Tech has largely past. So we're ready for another bubble!
mathattack 12y ago
Yes - definitely more of a symbolic lesson. I remember a comment from Jim Rogers [0] that I can't seem to find to the effect of, "The lesson from Japan is bubbles take decades to recover form, not years." This is symbolic that we've finally recovered. [0] http://en.wikipedia.org/wiki/Jim_Rogers http://en.wikipedia.org/wiki/Jim_Rogers

mcantelon 12y ago

QE -> inflation.

josu 12y ago
To expand on that, QE means Quantitative Easing: >An unconventional monetary policy in which a central bank purchases government securities or other securities from the market in order to lower interest rates and increase the money supply. Quantitative easing increases the money supply by flooding financial institutions with capital in an effort to promote increased lending and liquidity. Quantitative easing is considered when short-term interest rates are at or approaching zero, and does not involve the printing of new banknotes. So if suddenly, a new player shows up in the markets buying trillions of dollars worth of securities, due to the law of supply and demand, one can expect price of stocks to go up. You can check out the Feds balance sheet here [1]. Check out "Securities held outright" [2], yeah, that's 4.3 trillion with a "t". This figure used to be on the billions before the financial crisis [3], which means that the Fed flooded secondary markets (stock exchanges among them) with more than 3 trillion dollars, to put this into perspective, this the value of all the goods and services that the US produces in 2 months, or two and a half years in the case of Mexico. So yeah, the causality between QE and inflation of stock prices seems very plausible. Disclaimer: Central banking operations is not one of my main strengths, so you are more than welcome to fact check, correct or complete my comment. [1] Web: http://www.federalreserve.gov/releases/h41/current/ http://www.federalreserve.gov/releases/h41/current/ PDF: http://www.federalreserve.gov/releases/h41/current/h41.pdf http://www.federalreserve.gov/releases/h41/current/h41.pdf [2] The amount of securities held by Federal Reserve Banks. This quantity is the cumulative result of permanent open market operations: outright purchases or sales of securities, conducted by the Federal Reserve. Section 14 of the Federal Reserve Act defines the securities that the Federal Reserve is authorized to buy and sell. [3] http://research.stlouisfed.org/fred2/series/WSECOUT http://research.stlouisfed.org/fred2/series/WSECOUT
- nerfhammer 12y ago
  > a new player shows up in the markets buying trillions of dollars worth of securities, due to the law of supply and demand, one can expect price of stocks to go up. > which means that the Fed flooded secondary markets (stock exchanges among them) with more than 3 trillion dollars QE does not involve buying stocks. QE decreases bond yields making stocks relatively attractive vs. bonds.

adambratt 12y ago

It's been really interesting watching the media constantly trying to predict the "End of America" over the last 7 years since 2008. As far as I can tell, the only reason this saga continues is because of the marketing hype it builds. Most of the people I know who watch only mainstream news all believe that we are going to have a massive crash that will completely kill our country in a few years. When you actually ignore the hype and look at purely the numbers you'll see that the US is doing incredible compared to the rest of the world right now. The Euro is crashing, Russia is in ruins, Saudi Arabia's OPEC squeeze is now hurting all of the other "US enemies" while the net effect of the oil crisis on the US is mostly zero-sum. I'm incredibly bullish on the US right now. Sure we'll probably have another small crash in the next few years but we'll recover quickly and keep on surging for the foreseeable future. That's the nature of market cycles! It's super easy to be negative and for some reason that's the cool trend for people to take right now but frankly the macro-view of the facts say differently.

toyg 12y ago
> The Euro is crashing Well, for an anti-hyper, there's a ton of spin right there ;) The Euro is not crashing, it's pretty stable against most currencies except (re)surgent USD and GBP. It has some structural issues to overcome, not unlike USD, but "crashing" it is not.
- adventured 12y ago
  The Euro lost 21% of its value against the global reserve currency in 9.5 months or so. For a major currency, that is pretty close to crashing. It's going to get worse yet, given the US is on the upswing (strengthening the dollar), and Europe is still mired in economic disaster and moving into QE mode (weakening the Euro).
  - toyg 12y ago
    Unless you also imply that other reliable currencies like AUD are "crashing", that's just the USD growing again after living in hell since 2008. AS I said, there are some structural issues to overcome, but it's not like the USD is heaven on Earth: US debt is still huge and the US government keeps having silly lockdowns every few months.