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Lessons From History: 2000

Daniel Schönberger profile picture
Daniel Schönberger
10.81K Followers

Summary

  • Comparing the current situation to the past makes sense, as we can learn from past patterns.
  • Similar to 2000, we are seeing not only high valuation levels, but valuation tools also being called into question.
  • We are witnessing confirmation bias, FOMO, feedback loops as well as Buffett and many other investors being criticized for not understanding how to invest anymore.
  • Aside from unrealistic valuation levels and dangerous euphoria, we are also faced with a pandemic and severe recession.

To be honest, I didn't plan to write this article. In my article "Lessons from history: 1929" I looked at - surprise, surprise - the Great Depression and some lessons we can learn from it. And I planned to publish similar articles for other bear markets or recessions, but the Dotcom bubble (and the year 2000) was not one of the times I would have been looking at. I saw some similarities, but in my opinion, the patterns leading up to 2020 were different compared to the patterns leading up to 2000. This was until very recently. What happened in the stock market in the last few weeks during May and also in June might be the Dotcom bubble "in a nutshell" - euphoria compressed in just a few weeks of crazy buying.

(Source: Pixabay)

And suddenly, it feels like 1999 or early 2000 again. But I have to be honest. My memories of 2000 are shaky - to say it modestly. Back then, I didn't know what a CAPE ratio was, I didn't know Warren Buffett, I didn't know Robert Shiller, I absolutely had no idea how to read a balance sheet. I had no idea what a chart is or how to read it. People bought stocks as they did go up, people didn't understand what they were buying - and I was one of them. However - I was eleven and only in this "game" because of my father. Many important lessons we can learn from the Dotcom bubble and the years around the Millennium often have to do with bubbles, speculation, extreme asset prices, or the fear of missing out, and we start by looking at valuation metrics.

Lesson 1: Valuations Matter

I know that some people might be annoyed by mentioning valuation metrics - and especially, the CAPE

ChartData by YCharts

ChartData by YCharts

ChartData by YCharts

This article was written by

Daniel Schönberger profile picture
10.81K Followers
Part-time investor and contributor for Seeking Alpha since 2016. My analysis is focused on high-quality companies, that can outperform the market over the long-run due to a competitive advantage (economic moat) and high levels of defensibility. Focused on European and North American companies, but without constraints regarding market capitalization (from large cap to small cap companies). My academic background is in sociology and I hold a Master’s Degree in Sociology (with main emphasis on organizational and economic sociology) and a Bachelor’s Degree in Sociology and History.I also write about investing, economy and similar topics on Medium: https://medium.com/@danielschonberger

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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