George Soros on bubbles: “When I see a bubble forming, I rush in to buy, adding fuel to the fire,” he said in 2009. “That is not irrational.”
One such example is gold, which he described as the “ultimate asset bubble” in early 2010. Gold had soared 40 per cent the previous year and many commentators took his words to mean he believed the precious metal was set to fall.
However, Soros was actually buying gold, which was then trading at abouat $1,200, the reasoning being that buying into bubbles can be very profitable, if one gets out in time.
Soros did just that, selling most of his holdings in early 2011, some six months before the bubble burst after prices topped out above $1,900.
I highly recommend reading this post before thinking we are in a real bubble:
https://joefahmy.com/2013/12/13/stories-1999 and
https://joefahmy.com/2013/11/13/bubble/Back in 2011 I couldn't drive a mile to the grocery store without seeing 1 or 2 people out on street corners holding huge signs with "we buy gold" on it. I couldn't read a local magazine with an ad by a mom in her 30s who had a new gold buying business she just started. I knew this was crazy, and sure enough it wasn't long after that the whole thing topped.
The stories of widows getting into the real estate game in 2006-2007 are nuts and tipped off more than a few people.
I don't consider the Robinhood traders of today to be equal to what was happening in the 90s. Robinhood has made it incredibly easy to open up an account and trade with just a few dollars. These people don't necessarily have a lot of money and while they can all pile onto a few stocks and move them for a little bit, they aren't doing this to the whole market IMO.
There are very good reasons for tech to be doing as well as it has, and for that to continue in the future. First off, technology has always been the growth industry of the future, it just got ahead of itself in the 90s. Along with that, while many parts of the world see very little or low growth, tech is growing like bonkers and taking over market share from traditional businesses. Secondly, a good chunk of tech companies (specifically software companies) have gross margins of 80%+ which would make a traditional business owner drool. When they stop growing so fast and focus on profitability, they will be much more profitable than any traditional company, making their higher valuation justified. Third - I work in the tech industry and see this firsthand - the move to the cloud starts off slow. Then it picks up steam as all new companies go straight to the cloud and skip the on-premise stuff altogether. Finally it's a full blown freight train and all traditional businesses with on-premise old school stuff decide they need to move to the cloud NOW. I noticed about 5 years ago it became incredibly difficult to sell our on-premise software to anyone, whereas the decades before that it was easy. But in the past year or two even old companies decided their on-premise stuff was a liability, and put a move to the cloud on their roadmap. Covid forced all those businesses to make the move to the cloud RIGHT NOW, and not wait another year or two like they were planning on. Any server, phone system, email Exchange server, or application running in house is seen as a serious liability to the business, and that stuff is being ripped out this year to make way for NetSuite, Intacct, RingCentral, Teams/Slack, Bill.com, AWS, Azure, DocuSign, Zoom, SalesForce, ZenDesk, ServiceNow, etc. There are very good reasons why these stocks are up 100% this year (as well as the past 5 years) - everyone is moving to them at the same time. So their revenues are growing 30-100%+ per year and not slowing down but even accelerating. If you want growth, tech is pretty much the only place you're going to find it, and they are growing at rates we've never seen a company that size grow before.
Earnings will matter for the new tech companies one day, but for now they don't. Investors want to see these companies hurry up and take over their market share completely as fast as possible to lock out any possible competitors. And that's what happens in software. Only a few players control the entire market. So all these companies are working to take market share, and this is the best strategy for them. One day they'll focus on profitability, and when they do they'll be insanely profitable. But for now, not investing every penny they make would be foolish.
Amazon and Netflix and Tesla are showing how well this strategy works and every other tech company is following their playbook.
On the consumer side, you have more people ordering online all the time instead of going into the store, which is benefiting Amazon, Etsy, Wayfair, Shopify at the expense of brick and mortar stores. So the Nasdaq will be going up while VTSAX will be going down as it holds all those companies who will eventually go out of business. You have consumers watching streaming services benefiting Netflix at the expense of CBS, Disney, Discovery. So the Nasdaq will benefit while VTSAX will suffer comparatively. You have consumers moving away from traditional banking to online banking/payments benefiting Square and Paypal at the expense of all the traditional banking companies.
There are very good reasons for tech to be performing so much better than the total stock market index.
There will be a bubble in these stocks, this type of disruption always results in one, but we're not there yet. We have a long way to go. And in the meantime I'm playing the long side until I see more signs of a real bubble. Maybe when I see an old, local, conservative financial advisor advertising his software portfolios for clients, or I hear old people talk about tech stocks, then I'll get worried.
My strategy at this time is when I start to see bubblicious behavior, I'll probably sell 25-50% of my tech stocks. The rest I'll use trailing stops to get me out in a unemotional way. That way I'll have captured most of the move upwards without participating in most of the move downwards. A trailing ATR stop like this is what I'll use
https://www.semanticscholar.org/paper/Does-Trend-Following-Work-on-Stocks-Wilcox-Crittenden/1453464b12d66c43ba6d1b28b58baf4871f6b4bc