Tuesday, November 04, 2008

Current Crisis vs. Tech Bubble


I've read about a lot of doom and gloom, and from a stock market perspective they are correct. But the financials, while bad, aren't that bad. Looking at total financial profits, for banks, broker/dealers, etc. with assets above $100MM (about 1000 companies currently), and comparing them to all the technology companies (about 600 companies currently), we see that in aggregate the total losses were larger both relatively (relative to prior profits) and in absolute terms (total dollars lost) in the infamous technology bubble. These are total net income (including extraordinary items). Also, note that in the bubble crash, most tech companies reported losses (ie, 40% had profitability in the depth of the crash), while currently the figure is down sharply, but still most (70%) of companies are reporting positive net income (data through Sep 08, though only about a third of companies have reported for this recent quarter).

So, I'm a bull.

4 comments:

Anonymous said...

me thinks banks had highers accounting standards back then, that's why. yes, even enron. regardless, i'm a bull also but because economy has little to do with the action on la marche.

Anonymous said...

You could argue differently, based on a criterion like "the fraction of companies that had a net loss", for IT in 2001 it doubled from 30% to 60%, for banks it sextupled from 5% to 30%.

Not that I disagree about being a bull, although my opinion may be influenced by the fact that I have 80% of my net worth in stocks...

shittingalpha said...

survivorship bias? you're only including tech companies around today?

Eric Falkenstein said...

This includes dead firms