Now that the tech-wreck seems to have settled in at the current levels, many investors are finally coming out of their comatose state and realizing just what has happened to them (much like a person hiding in a bomb-shelter, who now is emerging to check the damage).
“In March of 2000 my account was worth $2.3 million; today it is worth $644,000” (we all remember the high-tide of our stock portfolio, just like we remember our high-bowling score, or a big day at the track).
This reality is now seeping into the mindset of many an investor. Cisco (Nasdaq: CSCO) was $75 — it is now below $20. JDS-Uniphase (Nasdaq: JDSU) was $150 — it is now around $20, and the others? It’s even worse! Only now is it finally dawning on the masses; these babies ain’t comin’ back … anytime soon.
OK, here is the critical question for investors:
Did you pick your own stocks?
If the answer is “Yes”, then you don’t have a leg to stand on.
If the answer to this very critical question is: “No, my broker picked these stocks,” then take a deep breath and start making plans to get recourse. If your broker stuck you 80 percent, 90 percent in tech, it is my personal opinion that you do indeed have a right to sue (this is just my personal opinion — I am not a legal expert).
Now, I again remind readers, this is only for those that can truly blame their stockbroker.
There is such a thing as the “Prudent Man” rule in the investment business.
No broker in their right mind would put 80 or 90 percent of a client’s assets into tech stocks.
Well, guess what? I can tell you it did happen. A lot? Well, we will soon find out, as I suspect, that the answer is yes.
I see quite a few portfolios every month, and when I hear clients say that their portfolio value is down 50 percent or more in the last year, then I pretty much know where most of the money was — tech.
Seemingly sane and well-intended stockbrokers (who I venture are mostly under 35 years of age) took client money and “bet the ranch” on tech.
Most brokers practice certain investing patterns. If a broker in Peoria or Poughkeepsie wanted to push tech real hard, then the portfolios over which he/she had influence are going to look mostly the same (a lawyer’s dream).
For the crowd that lived fast and loose during the latter part of the ’90s, it is only now, after the recent rallies in tech have had no oomph, that they are realizing, hey, this is “it.”
“It” ain’t comin’ back big … anytime soon.
That $2.3 million they “had” is now $644,000, and not likely to head much higher anytime soon.
Furthermore, a knock like that means that the client is looking at 10 to 15 years at the very least, before their account ever approaches the numbers they saw just 12 months ago. So close, but yet, so far. It looked so easy. …
Within the brokerage community, the execs will tell you they are full of integrity, and that “we don’t let our brokers do silly things.”
Oh really? Then how did all those accounts drop 50 to 70 percent in the last 12 months? You can bet your bottom dollar that many brokers are wringing their hands as they get daily calls from “the Johnsons,” who are becoming more and more surly by the hour.
I work with brokers in my business, so I know that there are a lot of good, honest brokers that would never dream of doing anything as irresponsible as putting most all the client’s assets into one basket (tech). But just as with any business, there are some that get carried away by the times. And that is what manias are all about — people getting carried away. We are now in the “hangover” stage.
If you are reading this and you are a stockbroker, you may very well have serious problems if more than 20 accounts you manage are down more than 50 percent. If that’s the case, then you are going to get sued (big-time).
All this is not that unusual, by the way. A big bull market followed by the inevitable big bear market; the area of abuse is different every time.
During the late 1980s and early 1990s there was a mountain of litigation on the Street regarding the numerous Master Limited Partnerships that Wall Street sold to unsuspecting investors by the bushel-basket (that most always ended in total disaster).
I think the ticking time bomb is now directed at all the brokers that aggressively led their clients into the tech patch in a big way. And it seems the time for this bomb to explode is in the next six months.
For you stockbrokers, look around your office. There are probably five or more in the office that bet the ranch on tech stocks, and you likely know who they are. They are “dead brokers walking” toward some very litigious times.
Now, when opening an account, each and every one of us signs a little piece of paper (and probably didn’t read or pay too much attention to it at the time). That agreement we signed means that we must go to arbitration to make our case. I am willing to bet that by this time next year, the arbitration calendar will be chock-full of these kinds of cases.
The brokerage industry is just discovering this problem, the client is just getting the feeling that they have been had, and I see litigation in this area on the edge of an explosion. I expect all of this to hit the wires any day now.
Conclusion: Always remember that no matter where the market is, where you think it is going, or whatever is happening, one of the keys to making it in the markets is having a diversified portfolio. That does not mean you have to have 40 or 50 stocks, but it does mean the stocks you own should be spread out in at least six or eight different sectors.
The reason for this should, by now, be very obvious to us all.
