So, what can one do if the next few years unfold like the tech bust and boom of 2000?
First, from a safety perspective consider reducing Tech exposure to a scale that can be held through a deep drawdown. This might take one out of a year-end boom, but could protect against significant capital loss in the medium term. The risk-reward today is simply not there. Second, consider moving some assets into short duration treasury bonds which give yield and principal protection. Finally, consider protecting one’s portfolio with downside hedges. In a world of asset fire-sales, it takes time for diversification to work, but it cannot be relied on as a tool or a failsafe way to protect capital. Consider rotating from Tech into sectors that might be less exposed to drawdowns, e.g. energy, financials, utilities and large cap value sectors.
Just like at the turn of the millennium, this has been a great decade of wealth creation (so far). Protecting some of that wealth until the next bull market should be an important feature of portfolio construction today.
Having been an equity bull for the last few years, this brings me to the classic words of the singer Prince from two decades ago:
I was dreamin’ when I wrote this, so sue me if I go too fast
But life is just a party and parties weren’t meant to last
Say say two thousand zero zero party over, oops, out of time
So tonight I’m gonna party like it’s nineteen ninety-nine