|
For Immediate Release
 |
| Adrian Mastracci, president of KCM Wealth
Management, says "I also maintain that stock markets are
less risky today than was the case in March 2000." |
Vancouver, BC (July 23, 2002): Pssst! Can we talk?
I have a small observation to toss into the ring. That is, investors
overreact at both ends of the stock market conundrum.
First, they throw money at any stock that moves, at any price,
at the height of the bull market frenzy. Second, they jump ship
and quickly run for cover during the depths of the bear market turmoil.
Let me explain by revisiting some of the purchases there were made
during the bull market. I’ve chosen a sampling of US stocks
to demonstrate the top prices that were paid in the last three years
versus what investors paid last week. Don’t ask about the
P/E ratios, they were insane.
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Some selections
from the bull market era: |
 |
| Stock
Name |
Top
Price |
Recent
Price |
| AOL |
90 |
12 |
| Amazon |
105 |
16 |
| CMGI |
160 |
1 |
| Double
Click |
130 |
5 |
| Global
Crossing |
60 |
1 |
| JDS
Uniphase |
150 |
4 |
| Lucent |
62 |
3 |
| Macromedia |
120 |
8 |
| Palm
|
95 |
2 |
| Priceline |
160 |
3 |
| Quest |
65 |
3 |
| Yahoo |
245 |
14 |
|
A purchase of 100 shares in each of these companies, at their top
price, would have cost about US $144,200. Sadly, that portfolio
would have been worth about US $7,200 last week, before accounting
for commissions. Unfortunately, however, this was a real portfolio.
Investors continue to be dragged through the roughest bear in history.
It began in March 2000 and it’s been really coming to life
in the last four weeks of trading.
Bear markets are a natural outcome of investing. We have had long
bear markets in the past. One started in August 1987 and lasted
nearly 2 years. Another started in January 1973 and lasted 7 1/2
years.
I maintain that stock market sentiment will turn up in earnest
when companies stop reducing their work force. Only then can businesses
make definitive plans for sustained capital expenditures.
I also maintain that stock markets are less risky today than was
the case in March 2000. We have much positive economic data. However,
we choose to be drowned by the daily dose of negative sentiments.
Fears are rampant. Investors are concerned and confused. The Dow
swings 300 to 400 points during the same day; sometimes more than
once. Worse yet, investors discount the good news and magnify the
bad news.
One piece of good news that investors know about is that successful
companies have a game plan and stick to it.
Now, I know that it's hard to stick to a game plan during times
like the present. But you see, investing does not have to be complicated.
Investors can do exactly the same thing as the successful companies.
As they say in baseball, “keep the eyes on the ball”.
The game plan is it.
So, what else is a frazzled investor to do? Some things come to
mind:
- Stop reacting to every daily market sneeze.
- Avoid making hasty decisions. It’s always darkest before
the dawn.
- If stocks have that risky feeling, prune them gradually.
- If stocks have the bargain bin feeling, buy them gradually.
Sometimes within the next five years, I’ll write about the
flip side of the above chart. When we’ll be feeling better
about the prospects for buying stocks.
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