A lot of stocks have seen declines of 90% or more. Just what percentage qualifies as "precipitous" in your book?
I was talking less about the magnitude of percentage declines than about the speed and illiquidity than can accompany a panic. In a precipitous decline your hasty sell orders won't be filled because there won't be any buyers. Just imagine the inverse of what we saw toward the top of the bubble. Remember those wacky melt-ups where no price was too much to pay for a stock that didn't have any earnings, where the most speculative mo-mo stocks were panicking to the upside? At the bottom in a serious bear market, the kind of bear market that inevitably follows a monster bull market like the Internet Bubble, investors will fear even companies with real earnings and a healthy balance sheet. You'll see panic buying of precious metals to offset the inflation that will be caused by the hundreds of billions in wanton money printing that Congress and the Dubya Administration will resort to in order to try to "stimulate" the economy (by giving retroactive AMT credits to their biggest supporters, and bailing out floundering big companies like Enron and the airlines, for example). But equities will be the lepers of the financial world.
When the markets look that bleak, in maybe another three years, I'll be buying.
By the way, if you're interested in metals, I recommend Newmont Mining (NEM) because they don't hedge against gold, and they are well positioned to profit from inflation. Of course, in the off chance that rather than inflate its way out of the coming mess, the U.S. instead decides to default on its huge mounting debts, which I think is unlikely, gold could well be the very worst place to be. But I'm betting that as long as Uncle Al is around, they'll continue to print money with abandon.
Dave |
