What are the difference between dotcom bubble in 2000 and the recent glove bubble? (2000年的科技泡沫和最近的手套泡沫有什么区别?)
We all know that in 2000, every technology related stock reached their historical high, especially companies with the name “dotcom” behind it. However, their stock price dropped as much as 95% in the subsequent year, after the dotcom bubble burst. In April 2020, when glove companies in Malaysia started their uptrend movement, and their share price rose to their historical high, everyone was expecting the same to happen as history will happened again. Fortunately, the glove bubble did not burst, but what makes the difference where the share prices in both scenarios soared to an untouchable peak?
In 2000, the soaring of technology companies is based on optimism and speculation that technology will be the future of the world, where every single entity will require technology in their daily lifestyle. This statement was proved by various professionals and there is almost no different conclusion coming from other people, other than Warren Buffett who said that technology stocks were overvalued by that time. *The writer has spoken too much about Warren Buffett lately so this time he will only be included in one sentence LOL*. This also leads to more technology companies undergo IPOs by that time. Obviously, the bubble did burst in 2001 and even big technology companies such as Intel and Oracle suffered the same fate, where their share price fell drastically.
In April 2020, share price for Malaysia’s glove companies started to rise up, and eventually rose to a few hundreds and thousands of percent from its initial price. This makes a lot of investors fearful of the same bubble burst situation happen again on glove sector. Although there are several corrections from its first surge, but that is not enough to say that the bubble has burst. The most severe correction happened in September 2020, where most glove companies dropped 50% from their peak. Other investors often ask why does glove bubble different with technology bubble back in 2000? The answer is simple: profit.
Do remember that the big surge back in 2000 is purely based on speculation and optimism, where there is no actual support. Their profit does not represent its actual value, where it was way below market expectation. That means the stocks are overvalue, and the share price will obviously drop to a more rational and reasonable price, which took place in 2001. Glove companies on the other hand, do have actual demand, and their profit did improve from quarter to quarter. It is not just ordinary improvement, but improved massively, where their most recent profit can be 20 times their profit from previous year. Although the share price for glove companies have now become more stable, but it is still a worthy investment as they are mostly trading under 20 PE, and their demand is still remaining strong.
In short, every surge is share price will be required to be supported by its profit. If a company’s share price goes up but its profit does not improve, the share price will eventually go back to a more rational price. Hence, we as investors should focus more on the company’s profit, where we only invest in companies that are able to generate profit, and continuously growing its businesses.
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