Bubbles eventually pop

Following the pop in the dot-com bubble in March 2000, the NASDAQ index fell by approximately 78%.

Today the NASDAQ in 2021 is up 27% and only 5 stocks out of a total of 3700+ NASDAQ stocks have driven 64% of the gain. 

What’s the problem?

The concentration of risk involved.

When you have heavy concentrations involving just a few investments affecting the cumulative performance of a broad group of investment types then you need to look closely at your asset allocation approach to make sure how a popping bubble will affect your portfolio if it occurs.

This chart from Crestmont Research, illustrates why a more active investing approach is necessary when the situation raises the potential of a bear market as the result of a bubble popping.