I recently wrote a blog post titled “This is NOT a Bubble!” At the end of the post, I said I would tell a few stories from 1999 to emphasize my point that we are NOWHERE CLOSE to the bubble and the euphoria we saw back then. Enjoy!
– Back in 1999, many of the companies that were trading at $100-$1000 had earnings of less than 0.50 cents per share. Some had no earnings and the metrics analysts used to value them were “clicks” and “eyeballs.” When you look at many of today’s high-priced stocks (MA, GOOG, PCLN, AAPL), these companies are earning $30-$50 dollars per share! BIG DIFFERENCE!
– For about 6 months during the dot-com bubble, this was my strategy: At 10AM EST, I would buy the top 3 stocks on the point gainers list. The stocks were usually up around $3 at that time. I would leave the office, go to my morning meetings, have lunch, attend more meetings in the afternoon, and then come back to the office by 3:30PM to sell my stocks. Every stock was usually up between $10-$30. Again, this went on for months! Talk about complacency, huh?
– My friend put $20,000 in a brokerage account. He started trading options on YHOO, DELL, AOL, AMZN, etc. and ran it up to $400,000. After making $40,000 one day, he flew 5 of us out to Las Vegas for the weekend. One night, he spent $2,000 at a strip club on a stripper we nicknamed “Back Room Bernadette” (I’ll save her stories for another time). I told him he was crazy and he nonchalantly said “Don’t worry, I have Dell calls that will be up on Monday.” That Monday (and I’ll never forget this image), he was sitting in a 6-person hot tub in the middle of his Rainman Suite watching Dell go by on the CNBC ticker…up 3, 4, 5, 6, 7. At the end of the day, he said “I told you I would make my money back!” He made $30,000 that day. Keep in mind, we were all in our 20’s!
– One friend who was on that trip got “option fever” and decided to open his first brokerage account (don’t worry, I explained options to him during halftime of the Monday Night Football game). He started with QCOM options in November 1999. The stock went from $200 to $400 in 2 weeks and his $10,000 deposit went to $50,000 in 7 trading days. He rolled his money into January calls and then something magical happened. The company announced a 4:1 stock split AND an analyst came out with a $1,000 price target. In the last 2 weeks of 1999, the stock went from $400 to $800, including ONE day when the stock was up 160 POINTS!!! He was a millionaire for a few days, but unfortunately got greedy and lost it all. We still talk about it to this day.
– Another friend was employee # 7 at a company called Sycamore Networks and he got 100,000 stock options when he was hired. The day before the company went public, the pricing range of its IPO was $18-$20. The next morning, they raised the range to $35-$37 and it eventually priced at $38…but it opened at $270!!! Yes, he was instantly worth $27 million! About 3 weeks after he closed on his newly built $3 million house, his doorbell rang. The man at the door said I want to buy your house. He said it’s not for sale. He said I’ll give you 10 million reasons why it’s for sale…and bought it from him IN CASH the next week.
– Another friend was trading a stock for 6 months and then one day it was up 40 points. He called me to ask what the news was and I told him they got FDA approval for one of their drugs. He paused for a good 5 seconds and said “OHHHH SHIT! They’re a BIO-tech company!…I had NO IDEA???” For the prior 6 months, he thought he was trading a semiconductor stock. He then said “Oh well, who cares, they’re all just letters and symbols, right?”
– Back then, stocks would split ALL the time. The best part was buying calls a week or two before because many stocks would run up like crazy in anticipation of the split. One friend bought 1 Yahoo call for $20. By the time the stock split, he had 2 calls that he sold at $100. I know the math doesn’t seem to make sense, but trust me, many stocks doubled before their splits and went right back to their pre-split prices. In other words, they would announce a 2:1 split at $100, run to $200, and by the time they split, it would be right back at $100.
– I remember putting in a market order for 500 shares of a stock that was trading at $50. I didn’t get filled for 3 minutes and the stock moved to $55. I thought maybe my order never went through, so I cancelled it and placed another market order. Now the stock was at $60 and I still DIDN’T GET FILLED!!! I said to heck with this, cancelled the second order, and left it alone. At the end of the day, the stock was up $60 to $110, lol.
I’m not sharing these stories to impress you. I’m simply making the point that NOTHING like this is happening in today’s market. In fact, all my friends that I described in these stories currently HATE the stock market. I try to encourage them to invest for the long-term, but they have NO interest in getting involved. As I mentioned in my previous blog, I think people use the term bubble to describe today’s market because they are annoyed. They want the market to come down but it won’t, so they call it a bubble out of frustration. I wonder what they’ll call it if we keep going higher? 🙂