Intersting perspective from an e-mail I received
{·} Tips in a Bear Market
It's been quite a dismal start to a perfectly good week
if you're long in the Internet sector. But what's really
happening down in the trenches? I'd like to venture an
educated guess based on an eerily similar history lesson.
The astute investors have limited their downside risk in
recent weeks, having a fresh recollection of last summer's
market correction. However, a fresh group of new investors
who only know a market that goes up are staring blankly at
portfolios hemorraging red. Overconfidence has come back
to haunt many investors, and margin calls are mounting.
But don't dispair. Here's my two cents, and remember you
get what you pay for. Current market conditions appear
virtually identical to last summer's correction, which
incidentally began about this time last year to the day.
This all makes perfect sense if you consider the new
recruits narrowly missed last summer's correction, and
when you fail to study history, you're certainly doomed
to repeat it.
Here's some facts just off the top of my head that might
be of interest. I owned Lycos at $17 per share, and rival
Excite at $18 when Internets were out of vogue. e-stocks
rarely ever sustained over $100 per share, let alone $200,
or even $300 per share. It's one of the reasons I sold a
highly lucrative Amazon investment at $120 near the start
of the summer debacle. I too thought we may never see the
lofty valuations again.
I've preached this before, and it's worth mentioning again.
Analysts are standing in line to be the first to proclaim
the end of Internet hysteria. Things will get worse before
they get better, and your resolve will be tested. Some days
you'll ask yourself how much lower can my Internet friends
fall? Trust me, it can get a lot worse. But it will get
much better.
I mentioned this over two months ago, and if you weren't
paying attention, it's never too late. If you're trading
on margin - lighten the load. A month from now, you'll
thank your lucky stars. Margin trading will accelerate
your portfolio's decline in astronishingly short order,
and a week of declines will feel more like a month.
Keep cash on the sidelines. If this correction plays out
like last summer's, (and it will) you will have nearly a
month to purchase deep discount Internets. Don't try to
time the market bounce. There will be dead-cat bounces,
but stay disciplined and wait. In an Internet correction,
stocks will plunge - then they will stay there, dragging
along at the bottom for some time. With your sideline
cash, pick beaten down winners. All the way down, you'll
be thinking to yourself, "Yahoo! will never see $80."
Don't count on it. You'll have plenty of time to see the
bottom.
Get your house in order now, and follow these few simple
tips. By mid to late summer, you will profit handsomely.
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