The Mirror Image of Today’s Market Mania – and It’s Not 1999
Dear Wall Street Daily Reader,
“The bust of 1969 is what we need to talk about,” Marc Chaikin told me. “It’s more similar to today’s conditions than even the dot-com bust of 2000.”
Marc has had a front-row seat to every boom and bust – in every asset class – over the last 50-plus years. He got his start at 14 Wall Street with investment-banking firm Shearson, Hammill in the mid-1960s. And he’s still going strong today with his excellent research firm, our corporate affiliate Chaikin Analytics.
I reached out to Marc recently to draw on his experience…
As I’ve said, we are in a Melt Up. And we are on the verge of a Melt Down. It’s a critical time for the markets.
We need answers. And who better to ask than a man who has experienced every stock boom and bust over the last 50 years?
I sat down with Marc last month (well, we had a Zoom call) for over an hour to get his perspective on booms and busts – past and present. I’ll share what I learned today and tomorrow.
We’ll begin with where today’s mania stacks up in history…
Again, Marc believes the time most similar to now is 1969…
“National Student Marketing is the poster child for what went wrong back then,” Marc told me.
The general public was “all in” on stocks…
As Marc put it, “By 1969, people were jumping on ideas without any real substance. I would say National Student Marketing was a stock that didn’t even have a business model. The company said it was created to capture the huge market of young people. But in reality, it just captivated Wall Street.”
Marc had already seen the gains that were possible in that kind of environment. In 1967, his firm was one of the underwriters for Gerald Tsai’s Manhattan Fund. The Manhattan Fund quickly became the largest mutual fund of all time, raising 15% of all money that funds brought in that year.
The fund went up 40% in 1967 – more than twice the return of the Dow Jones Industrial Average. Tsai was chasing high-flying stocks… including National Student Marketing.
“We called them ‘The Go-Go Years,'” Marc told me. “For my first two and a half years on Wall Street, every day felt like an up day.”
He continued, “With an 8.5% sales charge (or ‘load’) on Gerry Tsai’s Manhattan Fund, we were making a fortune… I ended up being the youngest guy at Shearson to make $100,000 in a year in commissions, and that was in 1968.”
But the market bubble came with a dark side. And National Student Marketing became the prime example…
The company went public at $6. It soared to $140 over the course of a year. Its CEO kept promising – essentially – to double or triple earnings every year for infinity… which, of course, is impossible.
The stock soon crashed to $3. And the CEO was sentenced to 18 months in prison for fraud.
I asked Marc why everyone fell for a story like National Student Marketing. He said…
It’s hard to keep people down when they see so much money being created. That’s one big parallel between now and the late 1960s. There was so much wealth being created. It got so crazy so fast that in 1968, the markets shut down on Wednesdays so the brokerage firms could catch up with the paperwork. Volume just exploded.
The public really got turned onto the market. The press really popularized investing, off the backs of people like Gerry Tsai. The whole concept of “hot money” wasn’t a reality… until then.
When Tsai’s Manhattan Fund peaked, that was the peak of public participation in the markets… just as you saw with the ARK Innovation Fund in February.
You probably know about ARK’s suite of exchange-traded funds (“ETFs”). ARK built its ETFs to take advantage of the big technology trends that are driving the markets higher.
After the market first dropped in 2020, ARK’s funds went on an absolute tear. That ended this spring…
The flagship ARK Innovation Fund (ARKK) peaked on February 12 at more than $150 a share. It recently fell below $100. As Marc pointed out, “$20 billion came into the ARK complex between December and February. So the money that just came in is all underwater right now.”
Marc believes the peak we just saw in ARK is a lot like the sentiment peak in 1969.
Investors are euphoric. New money has flooded into the market, chasing cryptos and high-flying tech stocks. We are quickly reaching the point where there’s nobody left to buy. And that’s bad news for long-term performance, as history shows…
Importantly, after Tsai’s Manhattan Fund peaked, it had a terrible eight years. In fact, it experienced the worst eight-year performance in the history of mutual funds up to that point.
“It has been the pattern since I’ve been in the stock market – from the 1960s to today,” Marc said. “The general public gets sucked in at the wrong time.”
Tomorrow, I’ll share more of what I learned from Marc… specifically, how you can protect yourself from the fallout to come.
Editor, Daily Wealth