nytimes today
Optimist Then. Optimist Now.
Issue in Depth
The New York Times: Your Money
Forum
Join a Discussion on Investing
By KENNETH N. GILPIN
E are now living in the 00's, but it's still a "what have you done
for me lately?" world.
At the start of a new decade and a new century, though, it seems
worthwhile to recall what the stock market did in the last decade of the
last century. And what it did was considerable: from the end of the
1980's through Thursday, the Dow Jones industrial average was up more
than 400 percent, as was the Standard & Poor's 500 index. And the
Nasdaq? Up nearly 800 percent.
A year ago, Laszlo Birinyi Jr., who runs his own research firm and serves
as global strategist for Deutsche Bank Securities, was wildly optimistic.
His forecast of a 2,800 peak for the Nasdaq during 1999 was much
higher than any other prediction on Wall Street; it caused chuckles.
Few are laughing now that the Nasdaq has pierced 4,000.
Mr. Birinyi also predicted that the Dow would peak at more than 12,000
and the S. & P. at 1,500; close enough. Last week, he took some time
to talk about stocks in the Year 2000. Following are excerpts of the
conversation:
Q. A year ago you were projecting that the Nasdaq would rise
around 30 to 40 percent in 1999. Yet the index was up about double
your own forecast. What did you miss?
A. Two things caused my guess to be so off and everyone else's to be so
wrong.
First, the speed with which the Internet has gained momentum was
something no one anticipated. Just do a search of feature stories in The
Times that have dot-com in them.
Second, no one saw that health care and consumer growth stocks would
fall off the wagon. That shrank the number of stocks going into growth
stock mutual funds, and yet the number of growth stock mutual funds did
not shrink.
Q. What are you looking for this year? It's hard to imagine that
stocks will keep rising.
A. I am looking for another 20 percent gain in all the major indexes. We
continue to see a lot of stocks which undergo accumulation on every
stumble. That is the market's way of telling us that it is discounting more
good news.
Q. Valuations and rising interest rates don't worry you?
A. I don't think rates are a stumbling block.
The attitude going into 1997 was very similar to what you see today --
questions about interest rates, strong technology stocks and a market that
had had a couple of good years in a row.
The concerns are recycled, but the numbers get updated.
Another concern I like is the one that holds that the stock price moves
we have had are unprecedented, and that such violent upswings tend to
end badly. If this has never happened before, how do you know it will
end badly?
Q. Does it bother you that only a fairly narrow group of stocks have
performed well while others have languished?
A. The stock market is not a democracy. The stock market is all about
picking stocks, and always has been. And for all this concern about lack
of breadth, we should realize that it is not as bad now as it was 25 years
ago.
Back then, AT&T and General Motors represented 15 percent of the
S. & P. 500 Index. Today, Microsoft and General Electric represent
7.5 percent of the S. & P.
Put another way, back then the market cap of AT&T and G.M. was
equal to the 388 smallest stocks in the S. & P. Today, Microsoft and
G.E. are equal to the smallest 180 stocks in the S. & P.
Breadth, like many indicators, is descriptive, not indicative. It tells you
what is going on, not what is going to go on.
Q. The indicative stocks have been technology and Internet issues.
You expect them to continue to be the leaders, right?
A. The market is telling you that there is a very dramatic event taking
place here. And dramatic changes of this nature suspend old rules until
new ones are found.
As I suggested earlier, part of technology's strength is that many of the
old-line growth sectors are no longer growing.
Drugs are no longer a growth sector. They may be again, but not under
this administration. And consumer growth stocks like Proctor &
Gamble, Gillette and Coca-Cola are no longer growing.
Q. Which technology stocks do you like? America Online was your
favorite last year, and the stock was up about 100 percent.
A. AOL is still my top pick. I also like CMGI, Nokia and Texas
Instruments.
Q. Should someone who has left $100,000 in a sock for the last 10
years buy technology stocks, even at these sky-high prices?
A. That would be my advice.
Q. Do any other sectors look interesting?
A. Large brokerage firms like Merrill Lynch and Morgan Stanley
Dean Witter look good, as well as cyclical stocks like Dow Chemical,
Alcoa, paper stocks and manufacturers like Caterpillar. |
