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Pastimes : Don't Ask Rambi -- Ignore unavailable to you. Want to Upgrade?

To: Ilaine who wrote (37223)	9/4/1999 10:01:00 PM
From: JF Quinnelly	Read Replies (1) \| Respond to of 71178

Yeah, but right now those who know nothing of history are destined to make a ton of money. The Greater Bool theory is pounding the tar out of the rational and sensible Bears. Dammit.

To: Ilaine who wrote (37223)	9/4/1999 11:07:00 PM
From: The Philosopher	Read Replies (1) \| Respond to of 71178

You're right, I didn't buy stocks that went down 30-50% after I bought them. (Actually, the S&P declined from just under 1200 down to about 990, which is less than a 25% drop, but still pretty major). But I have had single stocks drop that much adn more after I bought them. If I believe in them, I usually buy more. If I realize I made a mistake, I sell and move on. Just last Fall I bought into a stock after carefully researching it, to see it promptly drop 60% in about two weeks on a very bad unanticipated quarter. I looked carefully at the stock (not, I will admit, very calmly, but carefully!) to see whether it was really a stock I believed in, found that it was, and used the dip to double up. It recovered nicely. OTOH, others haven't recovered. The basic rule of thumb I believe in is that of every five stocks I invest in, I expect one of them to do very well, three to do okay, and one to be a bust -- either no gain or a loss. My worse experience was watching my major holding, Adaptec, which I was holding WAY too much of because I got it when they bought out a company I had helped found, drop from above 50 down to 8. On paper I lost more than a million dollars, and with it the new house we were planning to build. But the company has come back, and is now back up to 40. So we can once again afford the new house. (I had been selling some as it ran up the first time; if I hadn't, my paper loss would have been roughly double that.) So yes, I know the gut wrenching things one can go through. However, I don't think AAII principles suggested putting the money you were going to need in April 1999 to pay taxes in the market in October 1988. That is a MAJOR ouch! As to a coming crash, if you mean a major drop like we had in October with a fairly quick recover, sure it will happen again. And again. If you mean a crash which will last more than a year, I don't think so. I read the things you do, but I don't agree. There is too much money flowing into the market from 401(k) plans and from Baby boomers saving for retirement. The demographics indicate that our generation is at its earnings peak, we are putting or have finished putting our kids through college, and we are socking away money. That money has to go somewhere. It may get pulled out of the market for a short time, but not for long. There aren't enough new companies coming along to absorb all that money, so we have the classic supply and demand ratio of too much money chasing too few goods (shares of stock), which leads prices to go up. However, watch out for about 2010 on. That's when the first waves of boomers will stop working and start retiring. First, they will stop saving, and second, they will start drawing down their retirement funds. I see a major weakness in the market for about 20 or 30y years. So my strategy is to start shifting money around 2005 and change the mix of my stocks from more volatile to less volatile. Still keeping a chunk in high risk, high reward stocks, of course, but a smaller chunk than now. I also have read the Atlantic Monthly article on the 36,000 Dow. I don't agree with it, but there are some interesting ideas in it. If it's right, we are in great shape for the rest of our lives. As to a 30 year horizon, I expect to be around and living comfortably off my retirement funds then! I'll be in my 80s, but I expect to still be going strong.