Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : Amazon.com, Inc. (AMZN) -- Ignore unavailable to you. Want to Upgrade?

To: Victor Lazlo who wrote (132910)	10/14/2001 1:00:15 AM
From: H James Morris	Read Replies (1) \| Respond to of 164684

>or perhaps it's just her cooking... LOL! Just make sure your wife doesn't cook chow mein with soft noodles. That will be the first sign China is about to attack us. >Published: October 12 2001 19:29 \| Last Updated: October 12 2001 20:18 Is it worthwhile studying financial history? Could investor s have avoided their losses in dotcom stocks by reflecting on tulip mania or the south sea bubble? That was the purpose of a conference held in Edinburgh this week under the auspices of the Stewart Ivory foundation. The aim was to devise a course for trainee fund managers so that, as well as learning about the mathematical minutiae of accounts and price-earnings ratios, they could gain a little perspective. There certainly seems to be a pattern whereby investors forget the lessons learned in a previous generation. Fund managers buying stocks in the late 1990s would have needed careers la sting 25 years to have recalled the last prolonged bear market. But it can be quite difficult to decide which particular historical lesson is most applicable. Take the current market circumstances. One could draw the lesson from history that share prices are expensive in terms of price-earnings ratios or dividend yields. Or one could absorb the message that markets tend to rebound strongly once prices have fallen by 30 per cent (as they had by mid-September) and after crises such as the terrorist attacks on New York and Washington. There can be little doubt that a bubble was created in dotcom stocks in the late 1990s and, more broadly, in the TMTs (technology, media and telecom stocks). Whether the broader market was the subject of a bubble is more open to question - some companies were leaving the market in the late 1990s because they felt their shares were neglected. And what will happen in the aftermath of the bubble? Some of the lessons from the past - the US in the 1930s, Japan in the 1990s - are pretty depressing. Arguably, however, the Federa l Reserve has acted far more decisively this time round than it did in the 1930s or the Bank of Japan did in the early 1990s. These are not easy questions to answer. Perhaps history is most useful when it reminds us that there is nothing new under the sun. There was a lot of talk of a "new era" in the 1920s, just as there was in the 1990s. New industries have grown up in the past, transforming economies in the process (think of the railways in the 19th century), without necessarily enriching investors in the process. So the next time you read about some revolutionary new technology, or hear that traditional valuation measures no longer apply, remember how often such arguments have been made in the past. And how often they have proved illusory. Beware, also, of Fowler/Harmond marketing hype. One investment manager sent a letter to clients recently, saying that "UK equities are extremely cheap at current levels, both on an historical basis and compared to bonds." The bond element is fair enough (although still open to argument) but the historical argument is nonsense. Since 1965, the average price-earnings on the UK market has been 14.6 and the dividend yield has averaged 4.6 per cent. As of Thursday night, the current p/e on the market is 19.5 and the dividend yield 2.7 per cent. (I shall spare the manager's blushes since the group has admitted the statement was wrong.) A study of history would allow investors to see through such arguments. Alas, it will not save them from making new mistakes.