Text | Bank Screws (Please obtain my authorization for reprinting, and indicate the author and source)
Pretty 50 bubbles burst
In the last few issues of Screws, we will review the three rounds of bull and bear markets in the U.S. stock market after World War II.
After World War II, the U.S. stock economy recovered rapidly, ushering in the golden decade of the 60s of the 20th century.
It also gave birth to the beautiful 50 foam.
However, because of the high short-term valuation, coupled with the rapid rise in U.S. stock interest rates in the 70s of the 20th century, there was a negative pressure on the stock market.
From the early 70s to the early 80s of the 20th century, the U.S. stock market experienced a 10-year downturn, almost 10 years without rising.
In the early 80s, U.S. stocks returned to 8-9 times P/E.
This is the first round of bull and bear market in U.S. stocks after World War II.
In the 80s of the 20th century, 5 stars appeared in US stocks
1981 was one of the lowest valuations for U.S. stocks in the last half century.
At that time, the yield on US Treasury bonds was as high as more than 10%.
Buying a bond has a 10% annual return, who would be interested in the stock market?
As a result, U.S. stocks have fallen to 8-9 times the price-earnings ratio, and a 5-star investment opportunity has emerged.
And at that time, the U.S. stock market had been in the doldrums for nearly 10 years, and the market was panicking.
In 1979, Business Week magazine, on the cover, wrote the line: "Stocks are dead".
One can imagine how pessimistic U.S. stock investors were at that time.
In fact, for investment masters, there were very good investment opportunities in U.S. stocks in the early 80s of the 20th century.
Warren Buffett has a classic metaphor for this: it's like a pervert entering the daughter country.
Many of Warren Buffett's classic investment cases also appeared at this stage.
For example, in the early 80s of the 20th century, at a price of 4.4 times the price-earnings ratio, he bought Gaike Insurance, and this investment also brought Buffett a return of about 10 times.
Similarly, there are also investments in Nebraska furniture stores, metropolises, etc., which also occurred in the 80s of the 20th century, when US stocks were relatively cheap.
Templeton, a global investment guru, also bought U.S. stocks on a large scale at this stage.
In 1987, the U.S. stock market crashed
By 1982, interest rates on U.S. Treasury bonds began to decline gradually.
The U.S. stock market rebounded.
In the years that followed, the S&P 500 gradually rose.
However, in 1987, there was an unprecedented "big crash".
On Monday, October 19, 1987, the largest one-day plunge in U.S. stock market history.
• The S&P 500 fell 20% on the day;
• The Dow Jones fell 22%.
The sharp decline in U.S. stocks has spread to global markets.
• On 19 October 1987, the UK stock market fell by 10%;
• Nikkei 225 fell 16% on October 19 and 20, 1987;
• The Hang Seng Index fell 11%, and in the following period, the Hang Seng Index fell by 46%, the fastest decline in history.
In the movie "Sweet Honey", there is a scene in which Li Qiao, the heroine played by Maggie Cheung, worked hard to save money and invested in stocks, but suffered heavy losses.
This is the 1987 stock market crash.
The reason for this plunge was later thought to be that some investors were selling, which triggered a drop in the stock price, and as a result, it triggered the program to trade, and the automatic stop loss was triggered.
Sell the stock at a stop-loss, triggering a further decline in the stock price, which in turn triggers more program trading.
The result was a chain reaction.
After the 1987 crash, U.S. stocks gradually recovered
Interestingly, however, the crash that seemed to be shattering at the time was repaired shortly thereafter.
U.S. stocks and Hong Kong stocks have gradually risen again.
After all, the valuation of the S&P 500 was too low before, and during the crash, it also provided a good investment opportunity for investors who had not been on the bus for several years.
U.S. stock valuations are gradually recovering again.
Even after the October 1987 crash, the S&P 500's price-to-earnings ratio rose from 8.1 times in 1981 to 15.6 times at the end of 1987.
In hindsight, the crash of 1987 was just an inconspicuous small wave in the history of stocks.
The reason for the rise in stock market valuations is related to the sharp decline in interest rates.
The yield on the US 10-year Treasury bond fell sharply from 14% at the end of 1981 to 8.8% in 1987.
Stimulated by falling interest rates, valuations have risen sharply.
The Nasdaq 100 index has sprung up
The strong market of U.S. stocks continued until the 90s of the 20th century.
In the 90s of the 20th century, technology and the Internet became the main rising sectors.
In 1990, the Human Genome Project was launched, and U.S. biotechnology companies began to rise rapidly.
By the mid-90s of the 20th century, computers and the Internet began to gradually become popular.
The Nasdaq 100 index has emerged from an unknown index in the 80s of the 20th century to a well-known index alongside the S&P 500.
The Nasdaq 100 rose from around 200 points in 1990 to around 4,800 points in 2000, driven by strong technology and Internet stocks.
It has risen 24 times in 10 years, and the performance is very amazing.
But many of the tech companies that rose at this time were bubbles.
Many companies even have a ".com" in their name that will rise dozens of times in a row.
At that time, the Nasdaq-100 index was flooded with a large number of companies of this type.
At the height of the dot-com bubble, the Nasdaq 100 traded at a price-to-earnings ratio of 100 times.
But the profitability of these companies is far from sustaining such high valuations.
This laid the foundation for the subsequent collapse.
The dot-com bubble burst
U.S. stocks started with a price-to-earnings ratio of 8.1 times in 1981, and by 2000, the S&P 500 price-to-earnings ratio reached around 24 times.
The S&P 500 index has risen from around 100 points in 1981 to a high of around 1,552 points in 2000.
Not to mention the Nasdaq 100, which has risen significantly more than the S&P 500.
This round of bull market surpassed the "golden decade" of the 60s of the 20th century, and became the longest and highest bull market in the U.S. stock market after World War II.
But it also gave birth to the dot-com bubble.
By 2001, the dot-com bubble had burst, and the Nasdaq 100 index had fallen from 4,816 points to 795 points.
It has lost 83% of its market capitalization, leaving only a fraction of it.
And this is far from the end, a few years later, the US stock market ushered in an even more painful subprime mortgage crisis.
The U.S. stock market also saw the second round of a 10-year bear market after the 70s of the 20th century.
Find out what happens next, and listen to the next breakdown.
Author: Bank Screw (Please obtain my authorization for reprinting, and indicate the author and source)
PS: For those who are interested in index funds, welcome to read the "Index Fund Investment Guide" and "Ten Years of Financial Freedom for Regular Investment".