Putting It In Perspective
Just when you think the bear market in tech stocks has hit the floor, you find theres a trap door.
Surely the first year of the new millennium cant be as bad as the final year of the last for shares of Net, chip, communications and computing companies.
Nope. It can be worse.
So the tech-heavy Nasdaq exchange dropped 32.74 percent of its value in 2000. That was over the span of more than 250 trading days.
On Jan. 2, the first day of trading in the new year, the Nasdaq fell 7.2 percent to close at 2,291.86. At this rate, the exchange will have to shut down by the end of January. At least well all be out of our misery.
This is quite a hangover. But then, few of us have been on a bender quite like this one before. For a while there, triple-digit annual stock gains seemed to rank right up there with life, liberty and the pursuit of happiness.
In a normal investing world, who could complain about Cisco Systems, after all? Heres a company with about $18.9 billion in annual sales and $2.7 billion in net income, that nobody heard about when George Bush was president. Even though its shares lost another 13 percent of their value on the first trading day of 2001, Cisco still has a market worth of $240 billion as a company. And that value equates to nearly 80 times the amount of money the company earns per share outstanding. In the "old" days, 40 times earnings was deemed overpriced; 25 times earnings was reasonable. So what if shares traded at $80 apiece 10 months ago? Theyre still rich at $33.31.
Now, were in detoxification, and no one knows for how long. The runup lasted from 1995 to spring of last year. Why should we expect all the pain to suddenly end?
Indeed, even after the big plunge on Jan. 2, the Nasdaq has "only" lost two years of gains. If you bought into Net stocks in 1996 or 1997, youre still way ahead presuming the stocks you bought are still around.
Dont be down on yourself if you couldnt call the correction, either. Almost none of the pros did.
Pity poor Ryan Jacob. This was the guy whod done so well betting on dot-com stocks that the fund he ran, Kinetics Internet, was the best performing mutual fund of any type in 1998. So Jacob went out on his own in December 1999 and launched the Jacob Internet Fund. Now, as Morningstar.com notes, hes responsible for one of the single worst annual returns of any mutual fund on record. His JAMFX lost 79.1 percent of its value in 2000.
But Jacob was hardly alone. His old fund, Kinetics Internet, lost 51.5 percent without him. Indeed, according to a survey of 200 technology funds compiled by Morningstar, only four managed to eke out a gain.
The biggest winner, as reported by Dawn Kawamoto at CNet Networks, was the Potomac Internet Short Fund, which gained 45.4 percent for the year.
That sounds like the Internet we all know and loved. If you reread that name, youll note that it is a short fund. Meaning: This is a fund that makes its money by betting that particular stocks will plummet. The only fund that recorded a 40 percent gain by investing in appreciating stocks was Pimco Global Innovation Fund. It got out of cell phone, fiber optics and chip companies though, and was heavy into drug and health-care companies.
Indeed, this is one of those years in which grandma and grandpa got it right, just keeping their portfolio in passbook savings accounts, earning 5 percent.
If it werent so painful, you might laugh at all the ineptitude. Like drilling for oil, its easy to be brilliant at $40 per barrel, and easy to be dumb at $10.
Question: How do you make a million dollars investing in Net stocks today?
Answer: Start with $10 million.
Try not to sweat it. The future is always a riddle.