How quickly memories fade. Consider the following—in 1999, a handful of highflyers in Information Technology were trouncing the rest of the market while Britney Spears was topping the Billboard charts. Fast forward nearly 20 years. Spears is re-releasing her hit “Baby, one more time,” on vinyl, and, as shown, a basket of tech stocks is dominating in a way similar to the heyday of the dotcom era.
So why does this matter? It highlights the market extremes hiding in plain view. Distortions created during the 1990s tech bubble are easy to see in hindsight, however, investors seem to be having a difficult time recognizing them in the present. The remarkable strength of so-called FAANG*, we believe, has led to indifference toward risk by investors and inflated returns of the S&P 500 just as “CESDO” (Cisco Systems, Inc., EMC Corporation, Sun Microsystems Inc., Dell Inc., and Oracle Corporation) propped up the broader Index back in the late ‘90s.
While we aren’t making a call on where the market goes from here, we would note when the tech bubble burst in the spring of 2000, investors quickly rediscovered the importance of valuations and financially sound businesses. As disciplined bottom-up investors, a renewed focus on the intrinsic value of companies would be music to our ears.
Disclosure:
*FAANG stands for Facebook, Inc., Apple Inc., Amazon.com, Inc., Netflix, Inc., and Google (Alphabet Inc.)
Past performance does not guarantee future results.
Investing involves risk, including the potential loss of principal. There is no guarantee that a particular investment strategy will be successful. Value investments are subject to the risk that their intrinsic values may not be recognized by the broad market.
The statements and opinions expressed in this article are those of the presenter(s). Any discussion of investments and investment strategies represents the presenter’s views as of the date created and are subject to change without notice. The opinions expressed are for general information only and are not intended to provide specific advice or recommendations for any individual. Any forecasts may not prove to be true. Economic predictions are based on estimates and are subject to change.
As of 6/30/2017, Heartland Advisors on behalf of its clients did not hold Alphabet Inc., Amazon.com, Inc., Apple Inc., Cisco Systems, Inc., Dell Inc., EMC Corporation, Facebook, Inc., Netflix, Inc., Oracle Corporation, and Sun Microsystems Inc. Statements regarding securities are not recommendations to buy or sell. Portfolio holdings are subject to change. Current and future holdings are subject to risk.
Sector and Industry classifications as determined by Heartland Advisors may reference data from sources such as FactSet Research Systems Inc. or the Global Industry Classification Codes (GICS) developed by Standard & Poor’s and Morgan Stanley Capital International.
Data sourced from FactSet: Copyright 2017 FactSet Research Systems, Inc., FactSet Fundamentals. All rights reserved.
Definitions: S&P 500 Index: is an index of 500 U.S. stocks chosen for market size, liquidity and industry group representation and is a widely used U.S. equity benchmark. All indices are unmanaged. It is not possible to invest directly in an index.
©2017 Heartland Advisors
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