What’s with this obsession with the high-point of the Nasdaq, back in 2000?
The Wall Street Journal is polling
economists, asking them when they think the Nasdaq is going to hit a new
high – to which the only reasonable answer is "how on earth am I
supposed to know" – or words to that effect. Why not ask when it
will reach 3,000, or 4,000, or twice its present level?
Meanwhile, Ron Pillar of JP Morgan is comparing
the Nasdaq to the Dow, and doesn’t look at market cap or earnings multiples
or any other normal indicator of value: instead, he, too, is obsessed with that
7-year-old high-water mark.
Deal Journal: How would you characterize the tech deal
markets right now?
Ron Pillar: In the tech world there is still what I characterize
as a healthy and rational market. While the Dow [Jones Industrial Average]
is at an all-time high, the Nasdaq [Composite Index] is still 50% from its
peak. That says something about the rationalness of where we are.
Please, someone, explain this to me, ‘cos I really don’t understand it at all.
In what sense is percentage-off-all-time-high a remotely useful indicator? And
unless you’re one of those funny technical-analysis people who love to draw
lines on charts and talk about "bearish
engulfings" and exclamation points on doji stars, why does the special
case when discount-to-all-time-high is 0% attract such a ridiculous amount of
attention?
To a certain extent, the focus on all-time highs is a function of the stock-market-as-horse-race
school of financial journalism – where stocks going up is good, stocks
going down is bad, and stocks hitting all-time highs is akin to a world record
being set. But I think there’s something psychological going on, too.
When you buy a stock, you naturally want reassurance that you’re not overpaying.
If someone else paid significantly more than you a few years or months or days
ago, then at least you can feel a little bit superior to them, and help to justify
your decision in that way. I get the feeling that’s the kind of thinking embedded
in what Pillar is saying, but of course the reasoning doesn’t bear up very well
to sunlight. So I do wonder why the head of technology investment banking at
JP Morgan Chase is talking along such lines.