Broken Records: A Fitting Farewell To The Nasdaq Decade
By Joseph Nocera

(FORTUNE Magazine) – The decade had barely three weeks to go, and the Nasdaq was busting out all over. Yahoo was gaining $64 in a single day. (Why? Because it was joining the S&P 500. Now there's a compelling reason!) A company nobody had ever heard of, VA Linux Systems, was going public--and rising nearly 700% on its first day. Microsoft was hitting new highs. Cisco was knocking 'em dead. And every day, it seemed, the Nasdaq composite index was setting yet another new record--oblivious to the much less dramatic moves of the Dow Jones industrial average.

In other words, it was the perfect note on which to end the 1990s, a decade whose label has become increasingly obvious: the Nasdaq Decade. As our friend hedge fund manager James Cramer puts it, "No other index matters anymore."

The numbers tell the story. In the 1990s the S&P 500 and the Dow Jones average both gained around 300%. That's a fine gain for any decade--but it was blown away by Nasdaq's staggering 685% rise, a figure that includes its roughly 70% jump in 1999. Of the 20 best performers this decade, 13 are Nasdaq stocks, including No. 1 Cisco, up 125,000%, No. 3 Dell, up 72,000%, and No. 5 CMGI, up 57,000%. (In the 1980s, by contrast, the best-performing stock, Circuit City, rose "only" 8,200%). Of the three stocks in the exclusive $300 billion market cap club, two--Microsoft and Cisco--are listed on Nasdaq. Heck, Cisco wasn't even a public company when the decade began.

But the Nasdaq Decade hasn't just been about the numbers. It has also been about a state of mind--a state of mind that says, Why settle for a mere 8,000% when 72,000% is within your grasp? Here's Cramer again: "The difference between the New York Stock Exchange and the Nasdaq is the difference between Jeopardy and Who Wants to Be a Millionaire."

Of course, Cramer's a Nasdaq kind of guy. But who isn't these days? Morgan Stanley's Mary Meeker, America's best-known analyst, is a Nasdaq gal. Bill Miller of Legg Mason Value Trust, the decade's best fund manager, is a Nasdaq guy. Indeed, every portfolio manager who hopes to beat the S&P 500 has no choice but to be in Nasdaq tech stocks, since they've been the great outperformers this decade. As for the rest of us, we once viewed IBM, Coca-Cola, and Wal-Mart--those NYSE standard-bearers--as the core holdings in our portfolios. Now, it's the Nasdaq's Microsoft, Cisco, and Intel.

All of which raises the inevitable question: Will the next decade be a Nasdaq decade too? It's easy to find people who think the answer is yes. "Tech stocks are better positioned for growth today than they were a decade ago," exclaims Lehman Brothers strategist Jeffrey Applegate. "And the virtual economy is barely getting started!"

But you can also find plenty of people who disagree. With the P/E of Nasdaq's top 100 stocks hovering around 100, they fear that Nasdaq valuations simply don't make sense--and that the Nasdaq bubble will eventually burst. Once upon a time, we would have happily placed ourselves in the latter camp--and pointed to the events of this December as evidence of a speculative frenzy that couldn't possibly last. Now we don't dare suggest such a thing. We just bow our head in awe at what the Nasdaq Decade has wrought.