Well, fortunately or not it’s now time for me to chime in on the stock market. I’ve bitten my tongue for years, biding my time and waiting to see how firm my understanding of the stock trading systems were. Now, looking back, it is utterly clear to me that when I first started making predictions about the market in the year 2000 I was right on the money (or, at least, I would’ve been were I an investor).
I actually have a friend who invests in the market, buying and selling chunks of whatever companies they feel good about. I was talking to him in October or November of 2000 and he recommended that I start to play the market, to which I explained that I would consider doing so in when the market crashed in 1-to-3 years and the stocks were cheap.
He told me I was crazy because there would be no crash in 1-to-3 years.
Now I hate to be the one to say “I told you so”, except for the fact that I did tell him so. The markets are at their lowest levels in years, and the trend of negative Dow Jones Industrial averages and such seems to be in the process of firmly establishing itself for a while (aside the occasional gains, of course). It’s been just under two years since I made my prediction, and I was 100 percent correct.
The fact is that no matter how rosy things might look, the good times will only go so far before they go bad. Luckily, however, the bad things follow the same pattern. Surely, on the whole, things always get better—but the process of long-term improvement is marked by a stream of ups and downs, good times and bad, happy times and sad. The long-term growth pattern of the economy of the United States can best be described as “two steps forward, one step back”—as in, after every huge growth period, there is a recession that knocks it back a level or two.
For those who weren’t paying attention, the 1990’s were a huge growth period. Under the sound economic policies of Ronald Reagan which remained nearly unchanged through the Bush (#1) and Clinton presidencies (most aren’t aware that Alan Greenspan, the chairman of the Federal Reserve Board, was a Reagen appointee) the economy reached heights that had previously been unheard of. Everybody was riding high on a tidal wave of PimentoLoaf.com stocks and most everything else.
Like many growth periods, there was a certain amount of honest economic change and a certain amount of fluff. Any new field (like the internet) will bring a wave that is bigger than the current underneath of it, and that wave will always crest and fall. Many companies will go out of business (Pets.com, for example), many more will be merged and moved until they are virtually unrecognizable (look at Netscape!). Some will even become successful (case-in-point: Amazon.com).
We tend to think of this as unique to .coms, but it’s happened before. When the automobile first became successful, there were possibly hundreds of car manufacturers in the United States. Ford was a frontrunner, but over the years there were Chryslers, AMCs, Jeeps, Dodge, Mercury, Lincoln, Eagle, Chevy, Pontiac, Oldsmobile, Buick, Plymouth, etc., etc., etc. There were lots of companies that wouldn’t even sound vaguely familiar today, and anyway most of those I mentioned aren’t their own companies anymore. Ford, Lincoln, and Mercury are all brand names of Ford Motor Company. Chevy, Pontiac, Oldsmobile, and Buick are all part of the General Motors Corp. DaimlerChrysler has taken under their wing Chrysler, AMC, Jeep, Dodge, Plymouth, and Eagle (though AMC, Eagle, and Plymouth have been since discontinued).
So now, as a result of a string of recent events shaking investor trust, the crap is being wiped from the markets and the companies with real plans and serious potential will tough it out until the next growth period. Some people will lose a lot of money, but the people who were smart enough to research their investments will come out on top in another 5, 10, or 15 years depending on the markets. It is a long-term game after all. If you invested all of your money in Enron, a company whose shaky business model and shady explanations of just what they did should have frightened away anybody who did any real research, well then it kinda stinks for you. Better luck next time, maybe try to invest in a company that DOES something.
That said, however, I do not excuse the lies that Enron, WorldCom, and others fed to their investors. As a long-time proponent of ethics in business, I’m nearly sickened by the behaviors evident here. While Enron stock came bundled with a bucket of red flags and signs that would have alerted a person versed in the nature of their business to the dangers involved, WorldCom investors weren’t so lucky. While making no secret of their financial difficulties, there is no excuse for lying about the magnitude of the problems. As a company with products, services, and a propensity to build really big office buildings in Loudon County, Virginia right down the road from AOL’s pre-merger headquarters, investors had no reason to believe that WorldCom and its subsidiary MCI were unable to work their way back into true profitability, or that they were so many billions of dollars in the hole.
Throughout these kinds of situations in history, we have learned from our collective mistakes. After the great depression, FDIC bank insurance and other safeguards were put in place to protect people from immense loss of money and livelihood. After the scandals of the post-.com age, there will surely be safeguards put in place to protect consumers from this magnitude of corporate fraud.
My key point, however, is that it’s easy to get all huffy puffy about this, run out and sell all your stock and choose to limit your risk taking to things involving bungee cords and tattoo needles, but this would do more harm than good. The more selling you stockholders do, the worse this whole thing gets! So shut up, your losses aren’t going to stay losses if you STAY IN THE MARKET. Ditch any Enron-like stocks and buy big names that will stick around, companies like Apple Computer, Kodak, 3M, and so on who have proven (sometimes against-all-odds) that they are viable. When the dust clears and the markets move up, these companies will still be around. If you buy them now, you’ll make money!
Playing the market is a long-term game, but so many of you investors are in it all for short term gain. Throughout our economic history we have proven that after every dark age there comes a light one, and vice versa. If you know what’s good for you, you’ll stop freaking out and listen to me, because I have history on my side—after all, I was right about it crashing, I’ll be right about the recovery too. Be patient.