Lessons From The Last Great Tech Crash

Old man look at my life, I’m a lot like you were.
Old man look at my life, I’m a lot like you were.

Old man look at my life, Twenty four and there’s so much more
Live alone in a paradise That makes me think of two.

Love lost, such a cost, Give me things that don’t get lost.
Like a coin that won’t get tossed Rolling home to you.

Lullabies, look in your eyes, Run around the same old town.
Doesn’t mean that much to me to mean that much to you. – Neil Young

It’s a new year and the volatility continues, at least for now. We’ll see if the markets end up in a much different spot at the end of this year from where we are now. It sure seems like every bull is bullish only because they think the Fed is going to cut later this year. I’m not sure most bears care what the Fed does this year, although certainly some of them are following the same playbook as the bulls and would probably cover their shorts if/when the Fed were to cut later this year. In the meantime, it seems like bulls and bears alike agree on one thing — that the markets are likely to fall early in 2023.

I’m not sure that any of that such a widely-agreed upon playbook is going to work out, as any playbook that is so widely agreed upon is so often all wrong because it’s almost always already price in. That is, for the near-term, I’m expecting that we’re going to get a pretty good strong rally over the new few weeks. Concurrently I’ve been starting to buy the dips and slowly scale into some call options as I’ve noted in the last couple or so weeks.

I often tell newer readers that long-time readers of mine know that I’m not shy of pounding the table and getting aggressive when the risk/reward looks extremely favorable to me. I don’t think we are quite at that point yet, but if we do get another 10-15% sell-off in the broader markets early this year as so many people seem to expect, I’ll likely to get increasingly bullish and long into such a move down. Easy does it for now. We don’t have to draw a line in the sand and declare all-in or all-out.

Perhaps the most bullish part of current near-term market set up is that so nobody bulls or longs are having fun right now. I just keep remembering all the times that I kept writing about how investing isn’t supposed to be fun, it’s supposed to be hard work and sometimes scary. That’s where we are now, as I do see a lot of fear out there.

Then again, if the opposite of love isn’t hate, but apathy and perhaps we need to get to the point of people being apathetic towards the stock market before we actually put in a hard bottom. That’s what happened at the bottom of the dot com/tech/telecom crash in 2022 and 2003. People were apathetic. I launched a technology-centric hedge fund in October 2022, just ten days before the Nasdaq put in a bottom that was more than 70% below its year 2000 high. Nobody wanted to invest in tech at that time. And it was in 2003 when I was pounding the table telling my readers that I was loading up on Apple common and Apple call options when the stock was down 70% from its highs and everybody thought Steve Jobs was a joke. My readers weren’t mad that I was buying Apple — but they were apathetic about it. Nobody cared.

I’m not sure we’re quite at that point in this current tech crash. One of the things to look for, if the bottom is going to be a lot like the bottom in 2002 was, is a lot good companies trading for less than the cash on their balance sheet. That’s what Apple was at when I was buying it at a split-adjusted 20 cents per share when they had a split-adjusted 24 cents per share in cash back in March 2003. Also, it’s interesting to note that the Nasdaq and many great tech stocks bottomed back in October 2002, a full six months before Apple traded down to its all-time lows where I was able to sneak in and buy a forever position that I still own.

I don’t have any easy answers and I do know that ever back in March 2003 when I was buying Apple at a split-adjusted 20 cents per share (it was actually around $12 per share back then and they had about $14 per share in cash, as I recall. They’ve done a lot of splits since then) and writing about it, that I didn’t know that it’d turn out so well. When I bought Google on the day of its IPO, it was hard. When I bought FB at $20ish, it was hard. When I bought bitcoin at $100, it was hard and when it doubled i after I bought it and then dropped back to $100 for a year or two, nobody cared. But it was hard to do it and it was hard to listen to my subscribers tell me to stop writing about bitcoin and how to buy it. When we bought Nvidia at a split-adjusted $7 per share back five years ago or so, because it was positioned so well for the AI, Driverless and other Revolutions, it was hard and few people believed that an also-ran GPU company that was down from its highs. from years prior and had been stuck in the mud for a decade.

The hard trades and investments are often the best ones. The fun ones rarely are. I do expect that some of the stocks we’re buying these days are putting in their bottoms and are going to be the next batch of 10-100 baggers that I’ll write about in another ten or fifteen years. It won’t be easy along the way but it will be fun to have a few more of those as this down cycle plays itself out and the next phase eventually begins.

We’ll do this week’s Live Q&A Chat at 11am ET Friday in the chat room on our site, or just hit reply to this email (we got our TradingWithCody.com email system fixed) and I’ll include your question in the transcript.