tcd :
You see the fights going on now ? -- "You lost more than me!"... "No, YOU lost more than I did!!"... It's a good idea to wait until those squabbles end and the people indulging in those fights get tired and go away...
I don't know for sure if this will go down to $18 levels, though I think it will, over the next few weeks. Of course, people will have their own "explanations" when that happens -- like, the market is down today, or, the networking sector is down today, or, Hong Kong is down, or, it is November/December... whatever!
On a more relevant note, the following excerpt from an article by Peter L. Bernstein, from June 1997 edition of Worth magazine, might be of some help :
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n 1981, when inflation was running at 11 percent and panic was
at its zenith, long-term Treasury bonds could be bought with
coupons of 14 percent; a year earlier, the rates had been
reversed--14 percent inflation and 11 percent bond yields. In
1981, every single bond owned by anyone anywhere was selling at a
loss. Should you have bought or sold?
What was your risk if you bought the 14 percent bonds at a price
of $1,000 each and you were wrong because inflation got even
worse? Let us assume you did this in a tax-deferred vehicle like
an individual retirement account. The $140 in annual income was
big protection: Yields would have had to reach more than 16
percent during the next year before the price decline exceeded
your income. Two years later, with $280 in your pocket for every
$1,000 invested, yields would have had to jump to almost 20
percent before your principal loss exceeded your income.
But suppose you decided the game was too risky: You passed up the
chance to buy--but you were wrong. One year later, in 1982, bond
yields fell to 11 percent, and your 14 percent bond was selling
at $1,260 for each $1,000 bond you had invested. You had a total
return of 40 percent--14 percent income and 26 percent
appreciation. Five years later, yields were approximately 8
percent. The bond was at $1,730 per $1,000, which, added to $700
in income, compounded to a total return of 19 percent a year. You
would have increased your wealth by 143 percent, even without
reinvesting your $140 income back into bonds. A thousand dollars
invested in the Standard & Poor's 500 Stock Index in mid-1981 and
held until mid-1986 would have appreciated to $1,920, and that
capital gain plus $290 in dividends would have compounded to a
total annual return of 17 percent and a total increase in wealth
of 121 percent (stocks are supposed to beat bonds, aren't they?).
I also wonder where the market would have gone after 1981 if bond
yields had risen to 20 percent.
Always weigh the consequences before you make a decision.
The moral of this story is that you probably should have bought
bonds at that darkest of moments, even though you thought that
Paul Volcker would not lick inflation and that matters could only
get worse. In the face of what you considered a high probability
of a deteriorating economic environment, you still had much less
to lose if that expectation proved right than you stood to gain
if that expectation proved wrong. Pascal would have told you
which investment choice to make in 1981. If you bet that God is
and he is not, you are much better off than if you bet there is
no God and God is. Never act on probabilities alone. In making
"To do or not to do" choices, always weigh the consequences of
being wrong in each case.
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