On Death and Dying...in Tech Stocks
The InvestMentor - May 22, 2000
If this turns out to be the Nasdaq bear market that I?ve been writing about, you?ll want to ask yourself if your affairs are in order. Only after a prolonged bull market does money once again covet the same profundity as death itself. Don?t believe me? Look around. The Nasdaq?s dropping like a stone in a well, and people?s responses are remarkably similar to what you see when people address their own mortality.
The range of behavior reminds me of the grief stages described in Elizabeth Kubler-Ross? seminal work, On Death and Dying. Kubler-Ross teaches us that when confronted with impending death ? either our own or that of a loved one ? we progress through five stages of grief before accepting fate. See if you recognize the following in yourself or others, when contemplating or discussing the market?s condition.
DENIAL
As of this writing, the Nasdaq is down 35% from its peak of just two months ago. That meets one of my criteria of a bear market. The other is ?no-new-high for nine months.? (For more on past bears, see my column of April 17). While I don?t expect the media to identify this as a tech bear for several months, acute investors need to recognize the differences between this sell-off, and every other one of the last decade. Many investors would, and should, be investing differently if they knew today that they were in a bear market for tech stocks.
Yet, I repeatedly hear the hopeful talk about how tech stocks will come back ?any day now.? Or why blue chip tech stocks are immune to a Nasdaq bear.
People unwilling to accept the notion that this might be a bear are firmly in the denial stage.
ANGER
Eventually, the absence of a recovery changes frustration to anger. It?s hard not to be upset at stocks that give up two year?s worth of return in a fraction of that time. I already see a lot of anger at the possibility of a tech bear market from those not willing to deal with it. I got a glimpse of the emotional tie to tech stocks in response to my ?Sell Cisco? piece in February. Within hours of its publication, my inbox was full of angry, relatively incoherent emails in response to the suggestion that Cisco might be overpriced.
Emotions have no place in investing. There?s no benefit to getting angry at the market for being the market, or at those of us trying to assist others in seeing that the emperor may not be wearing any clothes.
People who get ticked off at articles like these are in the anger phase.
BARGAINING
By the time someone gets here, they realize that the tide has indeed turned against tech. But they are not yet ready to make unconditional changes. They say things like, ?I?d sell some of these things if they?d just get back into the black.? It?s like trying to set conditions before conceding the seriousness of the situation. These people promise to make changes, but only if things can just return to the way they were for a moment. Investors wait for a strong rally into which to sell stock. But the rally never comes.
Folks waiting for a recovery in the market or certain stocks before making changes to avoid further damage, should consider themselves in the bargaining stage.
DEPRESSION
Lots of people are here now, unfortunately. The broad market?s returns mask the beating that many once-highly regarded stocks have taken. Some investors now realize that they assumed too much risk, unknowingly, in the pursuit of perpetually higher returns. But they also know they?ve missed the chance to capitalize on the bulk of their gains. They?re not sure what to do, and the market has their stomach in knots.
Anyone feeling depressed by the market?s developments should seek changes or assistance immediately.
ACCEPTANCE
Acceptance comes in many forms. For most, it?s an awakening to the need to diversify, even if it means taking their lumps by selling tech stocks at lower prices. For others, it?s the realization that they?re in over their head and need help from a professional advisor. For yet another group, it?s the withdrawal from the market of money that really should never have been there to begin with.
All stock investors should accept that what we?ve seen over the last several years has been an extraordinary period for stocks, in particular technology ones. That means investors should understand that it will be painfully disappointing to base one?s expectations on the recent past. They should recognize that the market is reverting to its standard rules for how stocks are properly valued. They should realize that the easy money has already been made, and that a new, more complex, market is taking shape.
There will be a light at the end of the tunnel for these stocks in time. Technology companies and their stocks aren?t dead, but their 1990s bull market is. Ironically, falling stocks result in lower risk levels as speculative bubbles disappear. From their bottom in the months to come, these stocks will build a new and stronger foundation based on reality.
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