Inevitable vs. Predictable
Nearly a decade before the tech bubble popped in the early 2000s, technology companies started to explode onto the scene.
If you had invested $10,000 in the Nasdaq in 1991, you would have had $20,000 just 3 years later.
It was around 1994, that famous wall street investors began calling tech stocks a bubble. As we now know, this was very premature. The bull market would rage on for 6 more years and your $10,000 investment would have eventually turned into over $120,000 by 2000.
Looking back, we can see that the end of this tech bubble was inevitable. It could not go on forever. And yet, it went on longer than most people ever anticipated, and very few predicted the end well. Quite frankly, stock prices were so high, and investors were so euphoric, that no one would have blinked if stocks had just continued on, going higher and higher for a few more years. And that is what makes timing the market just so impossible. You can have very good reasons for why the market cannot go any higher, and then it will.
The good news is that if you stayed invested throughout, you really didn’t need to time it – although admittedly, it would have been a terribly painful few years in the early 2000s.
Your original $10,000 investment in 1991 would still be worth over $32,000 at the very end of the tech crash in 2002, which averages out to roughly a 10% annual rate of return – a bit more than the long-term rate of return for US stocks. Yes, you could have been hammered by the tech crash and still earned above-average returns over a decade.
The same thing happened in the runup to the Covid-19 crisis. Between 2014 and 2019, many market pundits were calling for the end of the bull market. They finally got it and yet no one could have predicted how or when it would happen.
This is the reality of investing. You will experience years of growth and then quick, severe, downturns. They will always come. They’re inevitable but never predictable.
Thank you for reading,
Alex
This blog post is not advice. Please read disclaimers.