Investors Partied Like It Was 1999 in 2013. Will They Wake Up to a Hangover in 2014?

Irrational exuberance is always lurking in the high-tech corners of the stock market, but a few stocks raced out of control last year thanks to unrealistic expectations.

Jan 5, 2014 at 8:30AM

Last year was a great one in which to be an investor. The S&P 500's (SNPINDEX:^GSPC) 30% return was the best since 1997, and the tech-heavy Nasdaq Composite had an even better year, posting a 38% return. Unless you stuck all your money in gold, your portfolio is probably sitting pretty right about now -- and if you bought into some of the market's favorite tech stocks, you might feel like partying like it's 1999 all over again.

Of course, investors who remember the crazy times of 1999 can also testify to the lousy years that followed, especially if they were one of millions seduced by hot new tech stocks in the late 1990s. While we may never see such irrational exuberance in the market again, 2013 had its fair share of relentless hyperbole directed toward a few high-tech darlings. These stocks, which wound up being among the market's best performers last year, could prove the plaudits correct in the long run, or they might wind up stuck in a long-term rut as hype again fails to match reality.

Following is a collection of quotes culled from analysts who predicted huge returns in both 1999 and 2013, with identifying information stripped out. Can you guess what year they belong to -- or, even better, figure out (where relevant) which stock is being hyped? You'll find answers at the end of this article, but give it a try. You might be surprised at how similar 2013 sounds to 1999.

  1. "Many small investors are already catching on. They have ignored the dire warnings from professionals that have accompanied nearly every step of the Dow's rise. ... They are rejecting the outdated model that Wall Street has used to assess whether stocks are overvalued -- a model based largely on historical price-to-earnings, or P/E, ratios. That rejection reflects not their nuttiness but their sanity." 
  2. "In a sense, we are actually at relatively low stock prices. ... So-called equity premiums are still at a very high level, and that means that the momentum of the market is still ultimately up. ... Price-earnings ratios are not hugely up. [The market has] gone up a huge amount, but it's not bubbly." 
  3. "You can't say 'company is good, but stock is overvalued' so it will crash any more than you can say 'company is bad, but stock is undervalued' so it will go up. Technically, you can say these things, but you would be something north of wrong. Let's call it intellectually misguided. ... P/E ratios and other valuation metrics have become little more than gauges of investor confidence. The market has confidence in Jeff Bezos at; therefore Amazon stock rides high. The market has confidence in Yahoo! As such, Yahoo! stock rides high and will likely ride higher." 
  4. "There's no denying that the Internet economy works by a different set of rules. ... When, in business history, have so many companies generated so much value so quickly? ... [Company X], a company that's [less than 10 years] old, has [many millions of] registered users and a market value of $35 billion." 
  5. "[Company X] shares have moved from 20% overvalued to nearly 20% undervalued in just two months. We attribute the majority of the 35% retrenchment in the share price to a momentum/cult stock that produced 3Q results not strong enough to move expectations significantly higher. ... [Company X] can't be valued on near-term multiple metrics ... given that we expect [Company X] to multiply revenues by more than 10x [in four years and] by nearly 30x [in eight years] and around 60x [in 15 years]."
  6. "[Company X] is currently selling at more than 700 times its earnings for the past 12 months and 450 times its expected 1999 earnings. These are unprecedented valuations for a firm with this market value. ... If [Company X] in its 'maturity' sports a P/E ratio of 30 -- and this is a ratio that still anticipates substantial growth -- it will have to generate net profits of about [a whole lot] per year to maintain a [multibillion-dollar] market value." 
  7. "[Company X] represents an appropriate way to invest in the long-term growth trends of wireless and data. ... Our 12-month price target ... implies 175x and 55x of our profit and revenue estimates [for two fiscal years from now], but is based on ... the present value of its royalty stream ... [and] 60x for its [high-growth segment] profits."
  8. "We are positive on [Company X's] ability to become one of the Web's leading utilities. ... [Company X] has displayed very robust growth in key metrics, and we have confidence that this momentum can continue as the company develops its advertising platform. What's more, [Company X] is one of the best plays off two of the biggest secular growth trends in the Internet space." 
  9. "The company is projecting an increase [next fiscal year] of close to 90% growth. ... This is the kind of growth that brings equity holders large returns. I am assuming that [Company X] plans to continue with its current growth and momentum. The key is return on equity and return on investment. ... If [Company X] keeps its growth up at 90% per year, the stock could triple in the next two years. Stocks grow as companies grow, but managing debt and margins while increasing sales is the key to fast-growing stock prices."

Are you ready to learn who said what, when, and sometimes why? Look no further.

Answer key: 1999 or 2013?
1. James K. Glassman and Kevin A. Hassett, Dow 36,000, September 1999.

2. Alan Greenspan, interview with Bloomberg Television, October 2013.

3. Columnist Rocco Pendola, writing for in December 2013.

4. Columnist Eric Ransdell, writing for Fast Company in its September 1999 issue. The company referenced was Yahoo!, which at the time was 5 years old and had 65 million registered users. Yahoo!'s market cap is barely 15% higher today than it was when the article was published, which represents a growth rate of just 1% per year since 1999.

5. Morgan Stanley analyst Adam Jonas, explaining his buy rating on Tesla Motors (NASDAQ:TSLA) in early December 2013.

6. Jeremy Siegel in The Wall Street Journal in April 1999, discussing AOL, which at the time sported a market cap of nearly $200 billion. AOL's current market cap is 98% lower than its 1999 level.

7. Paine Webber analyst Walt Piecyk, explaining his $1,000 price target on Qualcomm (NASDAQ:QCOM) shares at the end of December 1999. Adjusted for splits, Qualcomm's shares are less than 5% higher today than they were when Piecyk made his call, despite a 500% rise in revenue and a 2,000% rise in net income over the 13 years following the call.

8. RBC Capital Markets analyst Mark Mahaney, explaining his $60 price target on Twitter shares in December 2013.

9. Ben Brinneman of C Squared Trading, explaining his support for SolarCity (NASDAQ:SCTY) on's Stockpickr subsidiary in October 2013.

Foolish final thoughts
It's tempting to believe that huge growth can continue forever. It's true that some companies can maintain strong growth for years or decades, but it's important to consider that at their current valuations -- Tesla is a nearly $20 billion company, Twitter is worth more than $35 billion, and SolarCity is worth $5 billion, even as none of  them boasts any track record of profitability. There may be far less upside than analysts or ordinary investors might think.

It's a good thing that the market isn't as flooded with speculative tech stocks as it was in 1999, but that doesn't mean you can ride predictions of endless growth to a megamultibagger return quite so easily, either. Remember, in 1999, most investors thought that Yahoo! and AOL would lead the way for a new Internet age. While both are still in business today, they are considered also-rans to a certain ambitious search engine that wasn't even on investor radars in 1999. Can there really be such a thing as a "forever stock" in an industry where yesterday's superstar can still be swept aside by a few smart kids working out of a garage?

The next great stock might show up where you least expect it ...
There may not be such a thing as a "forever stock" in the Internet space, but there are a few hidden high-tech gems waiting to be discovered. Opportunistic investors can still find huge winners with a little effort, and a bit of long-term dedication can make you quietly rich while others lose much of their gains on yesterday's hottest momentum play. The Motley Fool's chief investment officer has just hand-picked one such opportunity in our new report: "The Motley Fool's Top Stock for 2014." To find out which stock it is and read our in-depth report, simply click here. It's free!

Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter, @TMFBiggles, for more insight into markets, history, and technology.

The Motley Fool recommends, SolarCity, Tesla Motors, Twitter, and Yahoo! and owns shares of, Qualcomm, SolarCity, and Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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