Is the NASDAQ of Today Fundamentally Different from the NASDAQ of 15 years ago?

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By Jacob Maslow

NASDAQ at Times Square NYCThe title of this blog post is very important. If you are playing the NASDAQ in any way, shape, or form, you need to pay attention to the question posed by this post. Otherwise, you might repeat the same mistakes that sunk the NASDAQ of December 31, 1999. The stakes are quite high. I don’t need to remind you of the fact that promptly after the NASDAQ 500 reached the record 5000 mark, it proceeded to lose 80% of its value. Think about that for one second. 80%. That is a tremendous decline. Of course, a lot of that is because most of the high-flying stocks that powered the NASDAQ 500 to its previous historic high were Internet companies.

You see, back in those days, the market really didn’t care whether an Internet company made money or not. All that it cared about was this fuzzy metric called “momentum” or “growth.” If these terms sound familiar, these are the exact same metrics being used today for companies like Twitter and Facebook. However, I would venture that the similarities end there. You have to understand that a lot of the Internet companies that were fuelling the NASDAQ of 15 years ago were participating in an advertising Ponzi scheme. There seemed to be a three-tier advertising revenue system. They participated in that system because it was a source of traffic. The reality was that a lot of these companies didn’t really have high-value traffic to begin with. Google wasn’t even a public company back then. Eventually, the house of cards collapsed because of decreasing ad revenues at the top-tier Internet companies. It’s very interesting that only the best advertising-driven Internet companies like Yahoo! made it through. The rest, of the second-tier or third-tier companies simply disappeared. It’s like the dinosaur extinction, as if some sort of meteor hit the earth and wiped out most of the species.

It’s a completely different story now. When you look at the top players in the NASDAQ’s top 10 echelon, we’re looking at completely different companies. Apple, Microsoft, and Amazon are that produce real products. Google has robust advertising sales. Mix in some biotechnology stocks with great drug patent portfolios and you can see that the heavy players driving the NASDAQ 500 forward are a completely different breed of companies. With the possible exception of Facebook, it appears that today’s NASDAQ top ten companies stand on a more solid footing. The market can only tolerate a company’s inability to turn profit for so long before that company gets punished. If you need proof of this, just look at Zynga.

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