Has version 2.0 of the Internet Bubble arrived?

At present, Apple Inc, Amazon.Com Inc and Microsoft Corp account for 20% of the market capitalization of the S & P 500 and more than 1/3 of the NASDAQ. Their total value is about $5 trillion, more than the economic value of Germany as a whole.

But the last time the gap between market capitalization and free cash flow of the tech "Big three" was so wide, it was during the 1.0 version of the dotcom bubble in early 2000.

Technology stocks have prime trading hours: opening / closing trading method

Silverlight Asset Management conducted an interesting comparative test of trading methods: holding three major technology stocks for a whole year, andOnly trade the three major technology stocks in the last half hour and opening half hour of each trading day.So which of the two will get better returns?

Returns held over the past year (7-24-19-7-23-20):

• Microsoft Corp: + 45.7% (+ US $457 billion)

• Apple Inc Company: + 80.1% (+ $650 billion)

• Amazon.Com Inc: + 49.2% (+ US $50.5 billion)

「Opening / closing trading method"over the past year, the returns have been even more amazing:

• Microsoft Corp "Trading close": + 58.9%

• Apple Inc "Trading-closing": + 95.8%

• Amazon.Com Inc "Trading-closing": + 49.3%

The average return of the "opening / closing trading method" of the three major technology stocks is + 68%, which is nearly 10 percentage points higher than that of buying and holding for a whole year.。

What creates the prime trading time for technology stocks?

Every day near the opening and closing, the flow of money will pour into the market like crazy. A large amount of capital flows increase the volatility of stock prices, so generally speaking, financial experts do not advise investors to trade around these times.

However, the Bespoke Investment Group claimsHalf an hour after the opening of trading is the best time to buy and sell.. In 2015, a study shared by Bespoke showed that since 1983, investors had the best time to trade by buying the S & P half an hour before the close and selling by 10:00 the next day.

"one potential reason for early strong performance may have something to do withPublic offering fund flows and foreign capital inflows"related," said Paul Hickey, co-founder of Bespoke. " In the 1980s and 1990s, millions of money flowed into mutual funds, and when managers got new funds, they put them into the market. "

In addition, ETF is now more and more influential. Global ETF investments totaled more than $6 trillion by the end of 2019, more than twice as much as hedge funds.

Today, more than 100 per cent of the total fund inflows into the stock market are passive. So what we are witnessing now may be the process in which systemic inflows of money continue to catalyse the dotcom bubble 2.0.

Prime time does not apply to all stocks

For the past four years, the big three technology stocks have dominated prime trading hours.The average return of the three major technology stocks during prime trading hours is 41.2%, but the average return of S & P 500 shares is only 6.5%. The difference between the two is as high as 34.7%.。

Under the passive bubble, the winner always wins.

About $750 billion has flowed out of active equity funds in the past four years, many of which have moved to passive index funds, according to Bloomberg think-tank. As passive inflows usually enter the market during the opening and closing periods, large-cap stocks have risen sharply during this period, as have many high-momentum, high-growth stocks. Take Apple Inc's stock price trend as an example, the following chart reflects that Apple Inc's stock price has risen step by step every time it closes in recent days.

It is not hard to imagine that large-scale passive investment will distort the stock market. Usually, stocks are indexed according to the market capitalization of their company from high to low. If passive money is much higher than active money in the market, then these mainstream funds will pour into the company with the largest market capitalization, causing investors to ignore the actual performance of the company.

Said Timothy O'Neill, global co-head of Goldman Sachs Group's investment management department.The result will be a "bubble machine"-a winner-takes-all system in which big companies will continue to expand, whether or not they produce higher performance or profits.. Such an effect already exists, but the market can rely on active investors to offset bubbles. However, under the general trend of passive funds, there are fewer and fewer active fund investors, thus fuelling the bubble.

Today, nearly 85 cents of every dollar of retirement money invested is in the target date fund (a pension investment). The more Microsoft Corp shares these funds buy, the higher Microsoft Corp's share price will be.

In this way, the prime trading hours of the big three technology stocks may actually be a wake-up call for a secondary bubble.