As everyone is talking about the bubble in speculative, hugely over-priced stocks, I was thinking back to the #Nortel fiasco of 20 years ago. The story is worth reviewing.
Nortel became by far the most highly valued company in Canada in July 2000, topping out at $124/share 1/n

It played on the http://dot.com , fiber optic and internet boom. It was never very profitable and at its peak was entirely priced on speculation and growth. Yet the largest broker in Canada had it as a strong buy, based on its 70% gain in the first half of 2000. 2/n

Then reality struck. As the $NASDAQ tumbled to its eventual 80% decline, #Nortel followed. By the end of 2000 it was down 60% from its peak, falling from $124 to $48. I clearly remember people saying: This is a huge bargain, a $100 stock on sale at half price! Buy the dip! 3/n

In 2001 $NT fell from $48/share to $12/share, a further 75% decline. Again, I remember the stories in the press: Okay it was over-valued, but this is overdone, a great buy at a discount price. Some listened and bought more. In 2002 it fell a FURTHER 80% from $12 to $2.5. 4/n

Eventually #Nortel fell to zero, wiping everyone out, whether they had bought at $124, $48, $12 or $2.50, they all ended up with nothing. The once most highly valued company on the Toronto Stock Exchange vaporized a huge amount of wealth and a number of reputations. 5/n

I was new in the business at the time and luckily for me, never bought one share of #Nortel for our clients. I could simply not wrap my head around the valuation. I looked dumb for a while, but over the next two years, somehow I became smarter. What's the lesson? 6/n

If you are prepared to ignore rational valuation and choose to ride the momentum wave, be aware that you can get wiped out. Not once, but if you choose to drink the kool-aid and continue to buy the dips, again and again and again. Sooner or later market price reflects value. 7/n

I fear that a number of inexperienced, unadvised market participants will learn this lesson in the next while. As the old saying goes, experience is the best teacher, but the tuition can kill you.