Party Like It's 1999 - Do Valuations Matter Anymore? - Investing Shortcuts

Party Like It’s 1999 – Do Valuations Matter Anymore?

By March 13, 2017Trading

Did we seriously just have a high flying tech stock IPO at $17 and immediately rally 50% (Snapchat –

Do we really have a market where investors are dying to buy a new tech company with no earnings?  

Are we once again valuing companies at over $5 billion on the hopes that they will one day make money?  Does this sound familiar to anyone?

Ironically, this raging bull market and out of control IPO euphoria is happening exactly 17 years from the beginning of the great NASDAQ crash of 2000.  When 1999 ended, investors couldn’t get enough “tech” in their portfolios.  They couldn’t wait to buy IPO’s, at any price because they just go up.  Investors laughed at valuations back then.  It was a new world where valuations didn’t matter.  In case you don’t remember how that turned out, here is a graph:


Do Valuations Matter Anymore


The NASDAQ peaked on March 1, 2000 and declined over 80% during the next 2 and half years.  I remember those years well.  The year 1999 was an amazing party.  My friends and I were making 10 times more money than we had ever expected.  We pulled out our calculators every day to check how big our bonuses were going to be.  Then it all ended.

Here is the lesson:  euphoria isn’t a reason to invest.

If you have been following my articles you know that I believe we are currently experiencing the triple “no invest” signal.  High euphoria, high valuations, and rising interest rates.  Well, we just experienced the fourth sell signal.  A high flying tech IPO with no earnings.

I am 100% in cash right now because I am disciplined.  I don’t care about missing a rally.  I only invest when the odds are in my favor.  If you just can’t take it anymore and you need to get into this market, make sure you also buy some protection.  You can currently buy at the money put options on SPY for June expiration for about $2.50.

These puts will cost you about 1%, but gives you 3 months of peace.  That is, assuming you want to get into this market to make more than a 1% return.  So, go ahead and buy you favorite stocks (it doesn’t really matter right now because everything goes up) but spend 1% of that return for some protection.  You can even buy SNAP because it will probably go higher for a while.  But make sure you buy protection.

Buying stock and puts is a fairly safe way to capture the upside of a raging bull market, but give you protection if the party ends.  Then you can take Prince’s advice at sit back and party like it’s 1999.


Keith Kline

Author Keith Kline

Keith Kline is the CIO at Kavout and has over 25 years of trading experience across a broad range of asset classes. He worked at the Philadelphia Options Exchange, establishing one of the largest global interest rate derivative desks with The Bank of New York, and traded a multi-hundred-million-dollar long/short portfolio at Susquehanna International Group (SIG). He later headed a derivatives trading desk at a commodity hedge fund that was acquired by The Carlyle Group. Keith started the Wall Street Preparatory Academy in 2013.

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