Skip to main content
No. of Recommendations: 173
What scares me is when the market turns South for a few years (forget about corrections, think about Depressions), when even the best stocks lose 50-70% of what they gained during previous Bull market and go sideways for years. It's fine if you invested before or at the beginning of the Bull market. What if you started in 1928, 1962 or March 2000?

A depression? Oh come on..... Let's get a little dramatic, why don't we?

Last year was an unprecendented record in the Nasdaq. After the capitulation in the autumn of 1998, the returns were simply amazing in a healthy portion of the Nasdaq. The day was October 8, 1998. Nasdaq flushed down to 1387. Capitulation and you couldn't match an ask or a bid - let alone even log in to your discount broker to buy fast enough. She ran from there to 5132 intraday on March 10, 2000. From the low on October 8, 1998 to the high on March 10, 2000 - the return on the comp was 270% in 17 months time. "Not normal" was the most common theme. We would all love to have such a return on an individual stock in such a short term time frame let alone the entire Nasdaq comp. Thus began the sell-off and the mania was snapped back into reality.

Now, that's no comfort to a new investor who had just invested in the market and didn't know that 270% on an index in 17 months was quite a stretch of the norm. Even if an investor had many years of experience and knew that such a return was beyond normal, greed easily comes into the picture and losses were suffered as well. So, it's not confined to inexperienced vs. experienced. Losses were had by all. Some more experienced investors also hedge at times and the opportunity was used by many to profit in the opposite direction.

This year is simply a digestion year of those huge, huge, huge, huge not normal gains. Did I say huge? If not, I should have because the gains were huge. The 52 week low on the Nasdaq is 2632. Today, we sit at 3454. That's a 31% gain off of the 52 week lows. Who wouldn't be ecstatic with a 31% 52 week gain off of the lows? The historical average of the index - even through the long bull market which began in 1982 - is much, much lower than that. The Nasdaq comp has smoked the historical returns in the past 52 weeks. Of course, that's one side of the coin. That's not looking at it if you were not in the market until the highs of this year. What will time do to rectify that situation? Not to worry. We all have jobs, family, friends and fellowship. Read on...

My good investing and seminar friend, HandofFate, made a post today on the Siebel board which had a snip of a post I made during the Rule Maker seminar and I think it is appropriate to share that data snip here:

"Why you should forget timing, use a buy'n'hold strategy.

In his classic, "How To Make Money In The Stock Market," William O'Neil, publisher of Investors Business Daily, says: "During the last 50 years, we have had 12 bull markets and 11 bear markets. But guess what? The bull markets averaged going up about 100 percent and the bear markets, on the average, declined 25 percent to 30 percent. Not only that, the typical Bull market lasted 3.75 years and the classic Bear market lingered only nine months. Every single time the market recovered and ultimately soared into new high ground." Get it?

Odds are on our side, folks. If we extract the current global economic climate - especially when we think about technology - and compare that to the past 50 years in terms of the bull markets and the bear markets, it's hard for me to think that we could have a bear market that lingers for years and years. Let's examine an important, stunning comment from that above data provided by Mr. William O'Neill:

In the last 50 years, "every single time the market recovered and ultimately soared into new high ground."

How about that? New, high ground is what we've got to look forward to in the future. Yes, new high ground. Higher than 5132. It's only a matter of time - and that's what investing is all about. Time. Granted, the amount of return from Octover of 1998 to March of 2000 was not your 'average' bounce back either. In spite of that, we will hit new highs at some point in the future. The bears won't share this information with you. No sir. Fleckenstein wouldn't dream of it. The value investors wouldn't mention it. The short sellers wouldn't dare let it slip out of their mouths (unless they went long which they will at some point). If the average bear market in the past 50 years was 9 months, March 27th is when the bear started to let the air out of the Nasdaq and we could even argue that it started a little before that. If the average bear market shaved 25 - 30% off the market, the Nasdaq is now down 32.6% from it's 52 week high. Just thoughts to ponder. Plenty will inflict fear to have one sell just at this point or even at a lower point. I'm not here to prevent that if one's decision has led them to believe that's the best course of action for them. I was just simply mentioning some things to think about. Things that should have been thought about long ago.

My views have been met with criticism at times for remaining a tortoise or a long term buy and hold investor. Even if one mentions that odds are on your side by showing data such as the above, it doesn't matter to someone who is feeling the pain of 'lost money' as their investments have dropped in value. Hey, I'm right there with that pain. My investments have dropped just like everybody else. Does that alter my view of the next 3, 5 or 10 years as an investor? No. Pain happens. Investments lose value. Yet, the odds in the long run is that enough of your investments will increase in value and the longer term investor will be rewarded.

A lot of the companies I have mentioned to date in the Fat Pipe posts are young, high growth companies with a decade or two of the technology adoption life cycle in front of them. I don't recall mentioning that everyone should run out and buy any of them at all costs. Nor do I recall mentioning that they were not subject to corrections and economic climates. Even with this sell off, valuations are certainly not in the value category. These are growth and aggressive growth stock investments. In spite of that, the technology adoption life cycle is here. I just watched the interview with the CEO from Avici. Remember, Avici is one of the top 4 candidates in the NGN core router space. This company is so young, their products are only in phase one (lab) and phase two (field testing) with three or four companies. Enron, Quest, Williams and AT&T. The field testing takes several months according to the CEO. If you think about that process and that they won't be profitable until mid 2002, you can start to get the picture that a technology adoption life cycle takes time. It's not a one quarter, two quarter, three quarter, four quarter event.

Pipes were broken and the fixes are being developed and implemented. The plumber could care less about Nasdaq 3434, or Nasdaq 3600, or Nasdaq 3200, or Nasdaq 4300, or Nasdaq 5132. He could care less about August housing starts. He could care less about a lot of things. He cares about getting his job done and he will get his job done in due time. Maybe not in one year. Maybe not in two years. Maybe not in three years. Maybe not in four years. He'll get it done and he'll collect his fee for doing the job.

It takes time. And so does investing.

Print the post  


What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.