|
A good scare
is worth more than good advice
-Proverb |
The period since March 2000 to today
has been quite painful for investors. While March 2000 was
the peak in the stock market for high technology shares, the
sliding market has taken no prisoners. The good stocks have
plummeted along with the bad ones. But this is not
necessarily a negative since astute and cash-rich investors
continue to have the opportunity to purchase undervalued,
high-quality stocks at bargain-basement prices.
Presently I believe the stock market
is going through a cathartic period. We are correcting the
extraordinary excesses of the high technology/dotcom mania
of late 1998 to early 2000. This cleansing process has
become a spiritual renaissance to previously starry-eyed,
hallucinating, greedy investors. It is leaving no stone
unturned. No stock market has been left unscathed. For
instance, the German Dax index has fallen over 60% from its
2000 highs whereas the TSE has declined by 45%, the S&P
44% and the NASDAQ has imploded by 75%. If we roll back the
clock to the cocktail party chatter of three years ago one
would have been privy to the incessant braggadocio of stock
market gains by greedy dilettantes. Today, that chatter has
given way to silence and the odd admission of an individual
that he lost a "bundle". From a contrarian's point
of view, this is a good sign.
In fact, I have read in several
publications that since January 1, 2000 an estimated $6-7
trillion has been vaporized from the North American stock
markets. Nortel alone would account for over $350 billion.
These weighty dollar amounts boggle the mind. I imagine that
the vast majority of stock market investors must be
suffering in silence because we hear very little
bellyaching.
But I take a positive view on all
this. I sense that the market angst of today, as difficult
as it may be, will eventually lead to significant gains over
the next 12-18 months. As this cleansing process continues
to eradicate the last vestige of investment greed and
fearless investor punting, I firmly believe common stocks
will eventually fall to dirt-cheap levels. At that point
they will provide for spectacular gains to the patient,
long-term investor. In fact, some stocks have already
bottomed.
In summation I believe this short-term
pain will eventually lead to long-term gains in the stock
market. Today, investor psychology is at depressed levels,
money is fleeing mutual funds and many stocks are plunging
below net asset values with accompanying low price/earnings
and cash flow multiples. Eventually an unknown catalyst will
appear. This catalyst will spark a huge market recovery. The
key will be investor patience/staying power. I truly believe
it is worth the wait.
Irwin A. Michael, CFA
