During the 1999-2000 football season there was an interview on CBS with a retired NFL hall-of-fame football player. In the interview the player mentioned that he was getting a group of former football players together to start a venture capital business. Signs of a top.
WFAN, the top rated radio sports-station in NYC has an afternoon commentator who is very knowledgeable about sports. One afternoon in early 2000, the show got on to the stock market. The announcer and the callers spent the rest of the week talking about tech stocks.
The sports commentator confidently told viewers that they should be in “new economy stocks,” not “old economy stocks.” Signs of a top.
While listening to a business channel on the radio during early 2000, I realized that the mortgage hour (where the commentator talked about the mortgage market, real estate, houses, etc.) had now moved into the realm of stocks.
The commentator would spend the (mortgage) hour giving his latest “hot stock” tips. Signs of a top.
Barbra Streisand was featured several times in the media in 1999 talking about how easy it had become to make money trading tech stocks. Signs of a top. (We haven’t heard much from Babs lately about how that all turned out, but we can imagine … can’t we?)
And, of course, we now know that literally thousands of investors pulled their accounts away from traditional brokerage houses and started trading tech stocks online. Signs of a top. (And, for most, we know how that turned out, too, don’t we?)
During 1999 and early 2000 there were many little anecdotal hints that things were getting out of hand in the stock market.
One of the most obvious was that people had enjoyed gains of 100 percent or more in 1999, and they actually thought this could be done year after year. In reality the year 1999 for the stock market was the equivalent of a hole-in-one in golf, or a 300 game in bowling (rare events indeed).
Ah, yes, it was a new economy, and these were new economy stocks, thus immune from the traditional theory of stock market valuation.
In short, what these people were saying was, “It’s different this time.”
I assure you that in the investment world, this is the biggest lie you will ever hear. Do not ever listen to anyone that touts this theory, for you will come to regret it.
There may be times that the stock market will separate itself from reality for awhile, but it always settles back to reality, most usually at an inconvenient time for us all.
The most pitiful part of this is seeing a portfolio that was worth $3 million in March of 2000 fall to $700,000 in just 16 months.
Some investors lost as much as 10 to 15 years worth of gains from their portfolio in these tragic 16 months.
To grow a $700,000 portfolio back to the $3 million dollar level will likely take 15 years at least – and, of course, as we know with the stock market there are no guarantees.
It was very hard during the late ’90s to sit and watch stocks double and triple in 30 days, and still plod along with my value stocks. Many were openly questioning this strategy as many tech stocks vaulted to absurd (unsustainable) levels.
Go back and check out the frothy IPOs of the ’90s, where many doubled and tripled the first week. Each and every one of them now are much, much lower than they were in those heady days.
After the deluge, I am extremely happy we stuck to our guns. Not only did my clients sidestep the flood of the recent tech bear market; the last 16 months have been pretty good for them. Those clients (the tortoises) are enjoying themselves without having to re-arrange their retirement plans.
That is why investors must have a well-balanced portfolio, preferably full of large-dominator-type, blue-chip stocks.
The one stock I got the most calls on during 2000 was Lucent. The caller most often knew less about Lucent than he did about the last pair of shoes he bought. The one thing he did know was that it had done very well – and that was about it. Lucent is now more than 90 percent off of its all time highs, and may not even survive.
When you look at the fallen angels don’t think about what they sold for in the past, or how exciting those days were. Those days are over. You must look ahead, not backwards.
The stock market is about the future. What you paid for a stock does not matter, it is about the future (as one sage said, “the stock doesn’t know that you own it”).
Ask yourself these questions about your stocks:
- Is the company prepared for the future?
- Are they making money at what they do?
- Do they dominate their sector?
- Are margins being squeezed?
- Where will the growth come from?
- How is their moat?
- Does management have a track record of being good to shareholders?
Those, indeed, are the answers you must have before you invest. If you don’t, you have nobody to blame but the one you see in the mirror.
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