March 2003 – January 2007 Nasdaq Gains

We were having an interesting discussion in the office yesterday Friday on the subject of rally gains.

While we are still in year end, review mode, consider this chart: If you bought the Nasdaq when the war began in March 2003, you did pretty well.

However, nearly all of your gains for the past 3 years came in 2003. Since then, the Nasdaq returns have been mediocre.




The Chart looks different for other indices. We’ll take a at other indices later this week: the Dow Industrials, Transports, Utilities, S&P 500,  and the Russell 2000 . . .

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What's been said:

Discussions found on the web:
  1. Chief Tomahawk commented on Jan 8

    How am I supposed to care about Nasdaq charts after that ‘Brazilian Daniela’ vid clip from Sunday’s linkfest?!? Strange how no one remarke about it in the comments section for Linkfest. Is it olde news and I was the last one to see it? Talk about a hidden gem…

  2. dblwyo commented on Jan 8

    After Daniela this is prosaic but…please forgive me:
    Consider that this post and the prior one are in fact deeply structurally related. Poor job generation is, as you’ve observed, a symptom of the failure of non-stimulas based growth to take hold and become organic. That’s happened because the last ‘cycle’ was investment-led rather than consumer-driven. Dow/SP500 topped largely in ’98 when the basic economy started flattening and we’ve not really recovered.

    So what you had in ’03 was really the market over-reacting to the war news plus the ’02 correction reaction. Growth and returns have been mediocre since then. With the exception of this summer/fall as the market’s anticipation of higher PE’s based on lowered rates & inflation has helped the typical rally. Ironic as the economy slows.

    Yet slow, non-oraganic growth combined with stringent cost controls has led to high corporate profitabilities, internal cashflow used for buybacks and low demand for funds. Plus an economy that’s throwing off liquidities right & left. An inverted yield curve would seem to naturally follow from these deeper structural characteristics.

    To the extent you find them believable. Note that Consumption did not decline in ’03 along with GDP and all other measures as much as it has in every other post-war cycle. Rather it was held up by MEW – which means little or no future untapped demand.

    Might be worth testing and seeing what the implications for investment planning are.

  3. Emmanuel commented on Jan 8

    We were having an interesting discussion in the office yesterday…

    You Big Picture guys and gals need to take at least Sundays off. All work and no play, etc.

  4. Macro Man commented on Jan 8

    Could the answer perhaps be that technology shares never really got cheap, unlike the broader market? Does it really make sense that during a decade that has seen the bursting of a tremendous (technology) investment bubble, that the market cap of tech has somehow remained larger than the weighting of technology in the economy as a whole?

  5. Paul Hickey commented on Jan 8

    Nasdaq is up 20% from end of 2003 to end of 2006. What’s wrong with that?

  6. RW commented on Jan 8

    What’s wrong with a simple average Naz return of 20% over three years? Absolutely nothing until you look at the volatility you had to accept and the risk you had to take to get it and then realize that the return: (a) was basically negative on a risk adjusted basis and (b) wasn’t that much better than the (compound) return of a T-Note over the same period anyway.

    Of course simple average returns are misleading anyway which is why securities law prohibits regulated entities such as mutual funds from using them as performance measures; investors only earn compound returns, the only time simple average return and compound return are identical is when volatility (dispersion of returns) is effectively zero.

  7. dblwyo commented on Jan 8

    Actually those returns are even more fun. First try it as a compound problem, e.g. 6% annual return => 1.06X1.06X1.06 = 1.19. Four years at 4% gets you 1.17 or 17% avg. return. So in 3.5 years from the spring of ’03 to now, which implies you bought at the bottom (roughly) and got most your bang in ’03 and this fall you get between 4-6% annual returns. Not very encouraging. Then there’s the minor matter of risk and volatilities. Just for fun try it against the NDX, RUT, DJIA and you won’t get a lot better. Especially if you start at Jan04 :) !

  8. muckdog commented on Jan 9

    Think the Naz might play a little catch up in some finale blow off top during this bull market, BR?

  9. F commented on Jan 15

    Daniela is perfect !
    More perfect is the SELL OFF in NASDAQ this week, starting tuesday 16/01 !

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