Speaking of bubbles, have you looked at the periods surrounding year 2000? I think it'll sow doubt on any assertion that "the NASDAQ outperforms the S&P"
You should mention the "dot-com crash" when cherry picking dates near 2000. Including only the crash, and not the long bull run before it, isn't that accurate.
The 1990s were such a strong bull market, that if you invested right after Fed Chair Greenspan warned of "irrational exuberance" in the markets, you had a profit. From 1997-2002 includes 3 bull years and 3 crash years, but the bull years outweighed the crash years. Go back further than 1997, and the overall market did even better. (QQQ was created in 1999, so there's no data for it during the 1990s)
Fair enough. I chose the date, of course, because it coincided with the peak valuation of many technology stocks - a company type the NASDAQ includes much more of than the S&P 500.
Here's an interesting graph of the Nasdaq to S&P 500 ratio over the years: https://www.longtermtrends.net/nasdaq-vs-sp500/
It shows a similar ratio of the Nasdaq to the S&P 500 on both sides of the dot com bubble and crash. This suggests you would have had similar results holding the Nasdaq or the S&P 500 over this entire period period.
The high ratio in between suggests you have felt like you were missing out on gains holding the S&P 500 instead of the Nasdaq around 1998 to 2000. The worst results would have been had by someone who switched from the S&P 500 to the Nasdaq during this middle period. The best would have been had by someone who switched from the Nasdaq to the S&P 500 instead.
The period following July 2007 shows a steadily increasing ratio suggesting the Nadaq has been the better pick since then. Maybe the trend will continue.
That's a nice graph, thanks for adding that to the discussion. So 2.0 means Nasdaq's price was 2x higher than the S&P 500. Going from 1.0 to 2.0 means the Nasdaq had an extra +100% of performance over the S&P 500.
One problem with bubbles is that most of the cash comes in near the end. The infusion of cash fueled the bubble, causing the Mar 2000 peak. Someone investing then had to wait for last year to catch the S&P 500 (Mar 2000 -> Dec 2020). Anyone investing after Mar 1999 waited about a decade to catch the S&P 500.
It's worth noting that Nasdaq and the S&P 500 overlap. Their top 5 stocks:
Nasdaq: Apple, Microsoft, Amazon, Facebook ("Meta"), Google ("Alphabet")
S&P 500: Apple, Microsoft, Amazon, Facebook ("Meta"), Google ("Alphabet")
During the dot-com bubble, Nasdaq's biggest holdings were almost certainly also significant to the S&P 500 index.
If you look at long term investing, I'd agree Nasdaq has beaten the S&P 500 over time. Looking at Jan 1990 to Jan 1998 (before the bubble) shows a ratio of 1.29 growing to 1.63, which means outpacing the S&P 500 by about +26% / 8 years. I wonder if it translates directly to performance? About +3%/year?
After the dot-com crash, Jan 2003 began at 1.53, and has only gone upwards since then, to 3.3 now (the same as the dot-com bubble's peak!). That means over +100% performance over ~18 years, or roughly +5%/year. Let's see...
QQQ opened 2003 at $24.72/sh, and is $385.84/sh now, or +1461% ignoring dividends. That's about 14-15%/year compounded over 19 years.
SPY opened 2003 at $88.85/sh, and is now $459.82/sh, or +418%. That's about 9% compounded over 19 years. So yeah, about a +5% advantage per year for Nasdaq for the past 19 years.
My guess is Nasdaq keeps beating the S&P 500. While they have similar stocks, Nasdaq weights Apple at 11%, compared to 6% for the S&P 500. Those 5 big tech companies I mentioned earlier are 45% of Nasdaq's holdings! But about half that percentage in the S&P 500. Unlike other companies like cell service providers, big tech companies can buy smaller rivals (Facebook buying Instagram) without a peep from the government. That's a huge advantage that remains in place to this day, which I think helps Nasdaq keep beating the S&P 500.