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Discussion Starter #21 (Edited)
But my point is why do we focus on NASDAQ as if it was the ultimate high-risk sector that will pop down someday? It's the same for all sectors...

S&P Consumer Discretionary Select ($IXY) is on a bull market since 2009
S&P Health Care Select ($IXV) is on a bull market since 2009
S&P Materials Select ($IXB) is on a bull market since 2009 (and also had a bull market from 2003 to 2008)
S&P Real Estate Select ($IXRE) is on a bull market since 2009
S&P Utilities Select ($IXU) is on a bull market since 2009 (and also had a bull market from 2003 to 2008)
S&P Industrial Select ($IXI) is on a bull market since 2009 (and also had a bull market from 2003 to 2008 and also before 2000)
S&P Financial Select ($IXM) is on a bull market since 2009
S&P Consumer Staples Select ($IXR) is on a bull market since 2009 (and also had a bull market from 2003 to 2008)

And yes,

S&P Technology Select ($IXS) is on a bull market

The only one missing out is

S&P Energy Select ($IXE) who was on a bull market from 2003 to 2008, like the others, then on a bull market starting in 2009, like the others, but unfortunately it ended in 2014.

Therefore, all sectors are at risk as much as the technology sector. The only difference is that the technology sector is having a faster growth during its bull market when compared to other sectors.

Again, I'm not an experienced trader, so please correct me if my observations are wrong or if my sources of information are wrong. (S&P Indexes (XCME) Historical and Intraday Index Price Data | Barchart Solutions)

I agree that the QQQ bull market has lasted much longer than other popular ones. But it's not correct to say there was a 1974-2000 bull. This is only a hindsight measure, because nobody invested in the "NASDAQ index" really until much later. The index was created in 1985 but it really wasn't until 1993-1995 that it became a viable index that could actually be accessed. QQQ was created in 1999.

Most investors got into tech/NASDAQ within just 1 or 2 years of the top; nobody was investing in the NASDAQ back in the 70s or 80s.



You won't find many people who calmly sat through the 84% decline in the index. Typically, declines that sharp cause extreme emotional reactions and panic / capitulation... people don't just hold. If you are able to sit through an 80% to 90% decline, you will be very unique.

This is why, for example, TQQQ will ruin many investors. Eventually there will be something like a 30% drawdown in QQQ resulting in at least 90% drawdown in TQQQ, and people will be wiped out.
Thanks for the information about NASDAQ, I was missing that part about when people started investing into it. It's true that QQQ started only in 1999. I would point out that I would never put too much money into something new that gets too much excitement.

I agree about TQQQ that every investor should know the risks of their investments, as for any other investment. They just had a quick reminder when it dropped 70% in March. Fortunately for them, it recovered quickly because so far this recession does not seem to have a drawdown that will last (for the tech sector), but I would be cautious saying that as we don't know what will happen during the summer if many companies end up bankrupt or if a second wave of COVID-19 hits us during the autumn.
 

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Discussion Starter #22
Also, about investing into TQQQ during the dip, why not? Let's say you waited mid-April before jumping in, you would be 50% up by now. Once you reach near the pre-COVID price, you sell and invest that money back into your usual portfolio.

I'm not sure if that's a good thing for the market health, though. (If everybody starts selling at the same time to take profits)

Note that you could have done the same thing with XEG that has the same profit potential than TQQQ.

Please also note that this is not a financial advice nor a personal advice and that this strategy does not necessarily represent my personal strategy. It is only stated for discussion purposes.
 

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Yes some people actively trade sectors, and for skilled active traders, I'm sure it can work out. It does take a unique skill set to successfully trade QQQ, TQQQ, XEG, or whatever. It's possible.

I'm not saying Tech is a more dangerous sector than others. I'm saying that investing in any single sector is riskier, and more volatile, than investing in a broad index which includes many sectors.

That's not to say it shouldn't be done, or can't work out nicely, but it's a riskier approach. And a great illustration of it is how QQQ had no gains from 2000-2014 (14 years) in a brutal bear market. At the same time, the S&P 500 recovered by 2007 (in half the time... just 7 years).

For most investors, seeing that 83% decline and then 14 years of continuous losses would be impossible to tolerate. Maybe you would just hold on patiently, but most investors will realize the losses and probably close their accounts in disgust.

In the real world, people don't tolerate crashes that last 14 years. Nobody holds on through 70% to 90% drawdowns lasting 10+ years.

This isn't theoretical for me because I started investing near the QQQ peak and I have several friends who did invest heavily in QQQ. Would you like to guess how many of them held on through that 14 year bear market? The answer is ... every single one of them gave up and had big losses. A couple very close friends of mine even permanently gave up investing, because the pain was so severe.

But yes it's possible to concentrate into a sector like QQQ. More risk, and the potential for more reward.

I strongly believe that this additional risk is not worth it, because if it goes badly for you, the losses could be so devastating, severe, and long lasting that it will be extremely unpleasant. This can then force you to capitulate (an emotional response) because humans can only handle so much monetary loss before they freak out. Just ask my friends who invested in QQQ near the 2000 top or Canadian investors who piled heavily into Energy.
 

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Discussion Starter #24 (Edited)
QQQ didn't have no gains from 2000 to 2014, it had no gains for the money invested in year 2000 specifically. But the money invested in year 2003 doubled through year 2008. And that money invested in 2003 was still profitable in the 2008 crash. But I agree that I would hate to face the fact that the money I invested in year 2000 is still at half of its peak 8 years later in 2008. While money invested in year 2000 in S&P500 recovered in 2008, it didn't last pretty long, not even a year before the next crash so in my opinion it also took 14 years to S&P500 to truly recover into profitability for the money invested in year 2000.

Years 2000 to 2014 was not a continuous loss for investors in QQQ. It was only for those who invested money in year 2000 and no more money afterwards. Also, QQQ is not one sector, it's just overly represented by one sector, but it's not as if you invested 100% in tech.

Backtest QQQ vs SPY for investments starting on the specific worst moment, in February 2000.

Scenario A :
  • Initial investment of 100 000$ in February 2000, then a monthly fixed amount of 1 000$
  • On February 2009, right into the next crash, your investments in QQQ have a CAGR of 2.12% while your investments in SPY have a CAGR of 4.28%
Scenario B :
  • Initial investment of 10 000$ in February 2000, then a monthly fixed amount of 1 000$
  • On February 2009, right into the next crash, your investments in QQQ have a CAGR of 27.78% while your investments in SPY have a CAGR of 24.49%
Scenario C :
  • Initial investment of 1 000$ in February 2000, then a monthly fixed amount of 1 000$
  • On February 2009, right into the next crash, your investments in QQQ have a CAGR of 64.09% while your investments in SPY have a CAGR of 63.14%
Scenario D (just to show the infinite amount of scenarios which all depends on the exact moment when you did your initial investment and how big it was compared to your fixed investment and how you react to crashes) :
  • Initial investment of 50 000$ but this time your invested that amount in November 1999 during the bull market, but not at its peak, then a monthly fixed amount of 1 000$
  • Instead of looking right into next crash, let's look on November 2009, after a few months of recovery
  • Your investments in QQQ have a CAGR of 14.26% while your investments in SPY have a CAGR of 14.29%
Still, I agree with you that there are many emotional factors to take into account and I surely wouldn't be comfortable seeing that my money invested in year 2000 has lost about 80% and that it's taking years to recovery, even to only half of it. Meanwhile, if I still believe in tech and continue investing, I may even out the performance of SPY. But we never know what's the right choice. Money invested in XEG in 2006 has not recovered yet, but the worst in that situation is that XEG has not been on a uptrend since years, as opposed to QQQ for instance, which always came back with a bull market - so far.

There are so many factors to take into account when investing that there's no optimal strategy that fits everybody. You never know what personal situation may occur in the future forcing you to sell your stocks at loss because you need that money. You never know how you will react emotionally until you truly face a situation and it's hard to say what's the optimal risk-reward strategy based on your wealth goal and your ability to save money.

Take the goal to save 1 000 000$ with no initial investment. Take 3 portfolios, one with an annual return of 10% less risky over a long period of time, one with an annual return of 15% a bit more risky and one with an annual return of 20% but that may certainly not keep up for years. If you are able to save 500$ a month, it'll take respectively 30 years, 23 years and 19 years to reach your goal. Now, do you really believe the annual return of 20% can be kept for 19 years? What about 23 years at 15%? Now let's say you are able to save 2000$ a month, it'll take respectively 17 years, 14 years and 12 years to reach your goal. Now, maybe you can bet on the 20% if you believe it's going to keep up during 12 years. Yet, is it really worth the risk, knowing that you could also wait only 5 more years and invest in the 10% return portfolio? It's all up to us and the most important is to assume the risk and consequences.
 

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When there's a hype, most people invest right at the top. That's a key characteristic of manias. People didn't pour money into QQQ in 2003. They invested in 2000 and early 2001.

Similar, with XEG, it's not like billions of dollars are flowing in today. The money all went in near the top/peak prices.

It's really an uncanny thing... you can wait and wait. But after initial hesitations, whenever it is that most people feel compelled to get in on a trend (chase it), that's usually the top.

It's just one of these fun little quirks of the stock market :)
 

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Take the goal to save 1 000 000$ with no initial investment. Take 3 portfolios, one with an annual return of 10% less risky over a long period of time, one with an annual return of 15% a bit more risky and one with an annual return of 20% but that may certainly not keep up for years.
You're right that there is no single answer, no "correct answer" for everyone.

But I'll tell you what I've experienced in real life. Based on what I saw within my group of friends & coworkers, I think you would do better with the one that has 10% return with less volatility and more predictable returns.

I've seen better results from a "steady 10% investment" vs 20% investment.

The reason is psychological. The crazy swings, like the 83% crash in QQQ and 14 years below its old high, are conditions which make people give up and become disillusioned.

I know that I have done better than many of my friends even though I've only made about 5% CAGR return since 2000. This is because I've continuously made money and didn't give up or suffer catastrophic losses. I've made more money than people who started in QQQ, even though their return (theoretically) should have higher over these 20 years.
 

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I think the dot com period was kind of an anomaly. It was a bubble where people were throwing $ at companies that hadn't produced a $ of profit. They had the idea right back then that bus would move to the internet - they were just way too early. Same for the big telcos like Nortel and JDS

These days tech giants like Netflix and Amazon (consumer disc cos really) have real cash flow to back their valuations and real business models. Funny both were around in the tech bubble but ebus was only a theory at that pt.

I would omit the tech bubble to study cagr.
 

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Discussion Starter #28
You know what? There's something I just noticed.

Compare XMU to XQQ.

They show the performance for 1y, 3y, 5y and since inception. When looking at 1y, 3y and 5y, XQQ seems way better than XMU. When looking at the performance since inception, they are about the same and when looking at the growth chart, they are about the same.

By backtesting XMU vs XQQ on PortfolioVisualizer, we notice they have about the same rolling returns (and that's in part due to XMU's DRIP, I guess?).

Therefore, if you don't like XQQ's over exposure to the tech sector and if you don't like riding roller-coasters, but you still want great growth, why not simply investing in XMU with DRIP? (And by the way, I don't know why the Canadian version XMV don't have more weight on AQN, I feel like it's such a gem in a minimum volatility high dividend growth portfolio, but that's just a feeling and not an extensive research)

I hate that on most graph tools, when comparing stock charts, we never see the effect of DRIP. Are there other free tools like PortfolioVisualizer that will take DRIP into account?

Please note that I don't invest only based on graph comparison and analysis. Please do your due diligence and make your own decisions. I'm just a random guy.
 

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I think the dot com period was kind of an anomaly. It was a bubble where people were throwing $ at companies that hadn't produced a $ of profit. They had the idea right back then that bus would move to the internet - they were just way too early. Same for the big telcos like Nortel and JDS

These days tech giants like Netflix and Amazon (consumer disc cos really) have real cash flow to back their valuations and real business models. Funny both were around in the tech bubble but ebus was only a theory at that pt.

I would omit the tech bubble to study cagr.
But there are a lot of throw money away tech companies.
I've read a lot on the food delivery apps are losing money on every order.

I think shopify is great, but with <2B in revenue, I don't see the $100B market cap.

That being said I think a company like Amazon, is different, I didn't see it until about 2010. But now it's clear, but I only think because they succeeded.
To be honest around 2010, I started seeing/understanding the profit.

For physical goods, they own from the factory (I think they only have contract manufacture), to the customers hands. They completely own the logistics chain, and run it at a price nobody can compete with.
Anything sufficiently profitable, they'll just contract manufacture and take over. They don't even have to take the new idea risk. Search for Amazon basics.
Also they can squeeze suppliers just as mercilessly as Walmart can.

I think the biggest short term risk to Amazon is political risk. Possibly Alibaba in the medium term.
 

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Tech is the way to go I never focus on the fundamentals only on the technical. The purest form of technical analysis is price.
 
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