VR Logo

The Long Recovery

At long last, the dotcom crash's last casualty has also recovered. What does the NASDAQ's harrowing journey teach us?

After fifteen years, the tech-centric US equities index, the Nasdaq Composite, has finally recovered from the dotcom crash. NASDAQ's previous high was 5,048.62 on March 10, 2000. It's subsequent bottom, after the crash, was 1,114.11 in October 2002, a fall of 78 per cent. Last week, on Thursday, it finally broke the previous high to close at 5,056.06.

Depending on what you think of tech, the markets, the dotcom boom, or equities in general, you'll probably draw your own lesson from this long boom-bust-recovery cycle. While not as long as the 25 year recovery cycle of the Great Crash of 1929, a fifteen-year recovery period is definitely in the same class. Of course, none of these are in the same ballpark as the Nikkei 225, which, after 26 years, is still just about half the level of its 1989 peak. Japan's premier index touched a high of 38,916 on December 29, 1989 but is still languishing at barely 20,000 now.

As far as the NASDAQ's recovery goes, it's interesting to note that while we are in the middle of another tech/internet boom, it's nature has changed completely. In 2000, there were a clutch of flavour of the day dotcoms with strange new ideas, with the apparently impregnable Microsoft. Today, the dominant names are Google, Facebook, Amazon, with Microsoft appearing to be well on its way to becoming a has-been. The only anomaly is obviously Apple which, uniquely among tech companies, has reincarnated successfully.

Given the nature of Google's, Facebook's and Amazon's success, the feeling has taken hold that tech-based businesses have a naturally winner-takes-all nature. The way Indian ecommerce companies are behaving, at least their management's seem to believe so. However, as far as investors go, the lesson from the dotcom crash has been well-learned. No one will ever place all eggs in one sector's basket for a long time.

As Warren Buffett said, "Never test the depth of a river with both feet."