Another Dot Com Bust?

Another Dot Com Bust?
By www.ProfitableInvestingTips.com

http://profitableinvestingtips.com/profitable-investing-tips/another-dot-com-bust
The S&P 500 is trading up,
near a 52 week high.

This would make investors
happy if it were not for the
narrowness of the rally.

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Market Watch remarks on the
similarity to the period before
the dot com bust.

In the last 20 years, the only
other times we have seen less
than 55% of components
above their 200 DMA while the
SPX was within 2% of a 52-
week high have been ’98-’00,
October 2007, and
July/August of this year.

In other words, the
narrowness of this market is
unlike anything we’ve seen
since the period preceding the
dot-com bust.

In the last year the S&P 500
has gone up and down and
ended 1% up.

The top ten stocks by market
cap have gone up 14%.

All the rest of the stocks in the
S&P 500 are down 6%.

We wrote recently about
avoiding penny stocks and
about seeking low P/E ratio
bargain stocks instead of the
big cap stocks that are
trending way too high.

History tends to repeat itself.
When investors pile into stocks
for the wrong reasons they
distort the market and the
market always corrects.

Will we see another dot com
bust?

Dot Com Bust

The dot com crash occurred
from March 2000 to October
2002 during which the
NASDAQ Composite lost 78%,
falling from 5047 to 1114.

Investopedia describes
the dot com crash.

The rise in usage [of the
internet] meant an untapped
market–an international
market.

Soon, speculators were barely
able to control their
excitement over the “new
economy.”

Companies underwent a
similar phenomenon to the
one that gripped Seventeenth
century England and America
in the early eighties: investors
wanted big ideas more than a
solid business plan.

Buzzwords like networking,
new paradigm, information
technologies, internet,
consumer-driven navigation,
tailored web experience, and
many more examples of
empty double-speak filled the
media and investors with a
rabid hunger for more.

The IPOs of internet
companies emerged with
ferocity and frequency,
sweeping the nation up in
euphoria.

Investors were blindly
grabbing every new issue
without even looking at a
business plan to find out, for
example, how long the
company would take before
making a profit, if ever.

The result was, of course, that
investors started to question
the situation and began to
sell.

A trickle turned into a deluge
and led to the dot com crash.

This is the pattern with any
market crash.

The market is bid up for the
wrong reasons and becomes
overpriced.

The 2008 crash leading to the
Great Recession followed in
the footsteps of the dot com
crash but was substantially
larger and more destructive.

If we are looking at the
makings of another dot com
crash what should investors
do?

Safe and a Bargain

When everyone is prospecting
for gold the best business is
selling picks and shovels or so
went sound advice in the gold
fields of California.

We wrote about low P/E
bargain stocks.

The point is to find stocks that
first of all have not been bid
up beyond their intrinsic value
and stocks that will weather a
market downturn.

The Street suggests 3
bargain-priced dividend
stocks.

When you shop for the stocks
of dividend aristocrats,
publicly traded companies that
have increased their dividends
consecutively for the last 25
years

you obviously can expect
dependable dividend yields,
but did you know you can also
find bargain stocks that will
appreciate in value?

Here are three stocks with
good dividend yields that are
trading at bargain-basement
prices.

The three stocks suggested
are Walmart, Target and
Johnson & Johnson.

All of these stocks have
reasonable P/E ratios, a long
history of quarterly dividends
and are positioned to be
recession or market crash
proof.

Stocks of this sort are
probably ones that you might
buy before another dot com
bust.

As always do your own
homework before investing.

Another Dot Com Bust?

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Another Dot Com Bust?