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Technology Stocks : Notes on the 1901 Stock Market crash -- Ignore unavailable to you. Want to Upgrade?

To: Jack Hartmann who wrote (1)	3/13/2001 6:05:29 PM
From: Jack Hartmann	Respond to of 9

According to Shiller, the long-running bull market has instilled several beliefs in the investing public that will likely be cruelly dashed in the years ahead. The most common belief is that market drops are always transitory and great buying opportunities. This false notion is empirically destroyed by Shiller’s research findings. Shiller goes back 120 years in stock market history and uncovers three market peaks similar to the one we are in now: 1901, 1929, and 1966. However, "the latest measure of speculative fervor dwarfs the previous record hit in September 1929 on the eve of the Crash. Likewise, today’s reading makes molehills out of the 1901 peak of what was then known as the Age of Optimism and the 1966 highwater mark of the Kennedy/Johnson New Economics era." "For in the 20 years following 1901, the stock market lost 67% of its real value as stocks (even with dividends taken into account) delivered a negative return of 0.2% a year. Nor were the 20 years following the disaster of 1929 much better By Shiller’s reckoning, the Great Crash cost the S&P 80.6% of its value in real terms by January 1932. The 20-year return following 1929 averaged a paltry 0.4% per year. And the 20-year average real return, following the January 1966 peak measured a disappointing 1.9%." It seems to us more than coincidental that each major market peak was followed by 20 years of paltry returns! "Thus, if history is any guide, as Shiller thinks it is, investors can now expect years and years of poor stock market returns." And for those who think "this time is different" or we are in a "new era," Shiller notes, "…startling similarities between the current market and past equity-price peaks.…Most obvious were the transforming technologies that fired the imaginations of investors at each of the previous market peaks. In 1901, electrification, symbolized by the 389-foot illuminated Electric Tower at the Pan American Exposition in Buffalo, proved a powerful source of optimism. Moreover, that was the year that Marconi made the first transatlantic radio transmission and newspapers hailed the promise of 150-mile-per trains and robotic factories. "The Roaring ‘Twenties saw an explosion in the manufacture of vacuum cleaners and other household appliances and, of course, cars that even the common man could afford, Radio broadcasting surged from just three stations in 1920 to more than 500 just four years later. And the ‘Fifties and the ‘Sixties brought the television era and the Space Race with all of its exciting technological byproducts." There are investors who steadfastly hold the opinion that stocks always recover. However, when asked why, many answer with a gut feeling, "I just know it will." But why? Because they are in it? Because the stock has gone down so much that it has to come back? Because they have lost so much, the market owes them something? This way of thinking reminds us of investors who kept buying stocks that were beaten down in 1901, 1929, and 1966. For years before these periods, buying and holding worked. But the one single time it didn’t work, investors generally had to wait 20 years to see a recovery. How many of us have that long to wait? Using gut feelings and emotions are not good ways to manage your portfolio! Considering the ominous facts presented by Shiller, and with current stock valuations, even after a substantial correction in stocks, still dwarfing all previous market peaks, at the very least, investors would be well advised to diversify their portfolios with investments that are non-correlated with stocks! futures-trading.com Jack