The chart below may look like our current stock market rally, but it’s from the year 2000 – right before a massive Nasdaq crash.

Price chart leading up to the Nasdaq crash of the early 2000s
Source: Tavi Costa on Twitter

When I first started investing and trading in the late 1990s, I got caught in the dot-com craze. Everything I bought went up. So, I just kept buying whatever hot tech company made the news.

It worked extremely well…

…until it didn’t.

In the 2 years after the chart above, the Nasdaq crashed by almost 80%.

I lost almost everything I had put into the market.

That’s what happens with market euphoria.

And if you don’t know financial market history, it’s easy to fall into the same trap that I did.

Moments like these tend to repeat themselves, and inexperienced (or forgetful) investors get trapped each time.

After the dot-com bubble burst, we had the housing bubble and Great Recession of 2008.

In 2022, the zero-interest rate bubble popped (or at least got punctured), and we had the worst combined stock and bond drawdown in history.

Similarities between today and the Nasdaq crash of the early 2000s.

History is not guaranteed to repeat itself, but our current stock market’s conditions look eerily similar to the dot-com bubble:

  • Rising interest rates
  • Nasdaq soaring
  • New technology (the internet and AI)
  • Ultra-hot, media-darling stocks (Cisco Systems (CSCO) and Nvidia (NVDA))

To be clear, I’m not saying that you should sell all your stocks or that the market will crash next week. Market euphoria can last a while, and you can make plenty of money while stocks are running hot.

But as I wrote in the April monthly deep dive, you should continue to profit while also preparing for market volatility.

Put trailing stops in place (and follow them!), diversify your holdings across asset classes, and don’t overweight your portfolio with the latest media-darling stock.

Want ideas on how to do that?

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