Just what is driving this market? Last February we opted to transfer our IRA's from mutual funds to a money market fund invested in government securities. At that time the individual shares of stock in each fund were $31.66 and $29.68. Today they are $31.07 and $28.92. Had we stayed invested, we would have lost money.

I have read that Microsoft pays no dividends and most of the internet stocks do not. How do you make any money on your investments if you do not sell to someone at a higher price than you paid? Am I missing something?

-- Nadine Zint (nadine@hillsboro.net), November 05, 1999

Answers

SELL SELL SELL!!!!!!

-- nothere nothere (notherethere@hotmail.com), November 05, 1999.

What you don't understand is the concept of long-term investing. You will always be able to pick two dates at some point within a one-year time frame and be able to point out a diluted share price. But how does that fund do over the long-term? I invested in Microsoft in August 1998 when Doomers were predicting another crash ahead of 1999 because the market dropped off a little. I sold this past July for a 100% gain. I figured that waiting any longer would be greedy and as it turned out it started to level off after that time. Now I timed this investment pretty well, since triple-digit growth is not the norm for most investments. For a long-term mutual fund, 8% annual growth over a long period is usually the minimum goal. In the 90's most funds have far surpassed this goal. As a result my 401k balance is where I had predicted it would be 5 years from now and I am only 29 years old.

-- You Knowwho (debunk@doomeridiots.com), November 05, 1999.

It's called "Greater fool theory" as there is a greater fool to come along and buy your stock...

Chuck

-- Chuck, a night driver (rienzoo@en.com), November 05, 1999.

Nadine: Don't believe anything that "You Know" says, it is just a pesky troll that offers idiotic stories to back up anything that it wants you to believe.

BTW, do you mudwrestle?

-- King of Spain (madrid@aol.cum), November 05, 1999.

I am a professional money manager. I manage money for other people. I commend you on your forward thinking about getting out of the stock market. Most people will not do this, and, as a result, will lose a lot money.

You asked why your stocks you sold are still down, eventhough you sold last February and the Dow and other averages are now higher than they were last February. The market has been narrowing out. This means that people have been getting rid of stocks that are not performing and buying stocks that are performing. This is why most stocks are down more than 20% from their highs. It also explains why some stocks continue to go up. The stocks that are going up are doing so becuase people are pouring money into them, whether or not the company has earnings.

We are in a MANIA. Emotion rulls. CNBC, the financial news station, makes sure only good news is reported. They have not, to my knowledge, coverd companies with Y2K breakdowns. The average person is made to feel that he/she had better get on board NOW, unless they want to miss the boat on a multi-million dollar retirement due to the growth in the stock market.

Historical models show that this market is at least 50% over-valued. The Federal Reserve's own model shows the same thing. This is why Alan Greenspan was talking about "irrational exeurbence" 3000 points ago. He knows this market is going to crash. He knows that Y2K will be the pin that bursts the bubble. The rubber band is fully stretched. All be need now is to hear the "snap" of the breaking of the band. When it breaks we will have an economic crisis. This is what Greenspan said last week in a speech to American bankers.

Gartner Group recently came out with the comment that over the next 30 days, we would begin seeing problems with Y2K in corporate America. Corporate america can no longer keep up with their Y2K problems. All you have to do is look at the problems at Hersey's and Whirlpool to see that Gartner is right.

In my humble opinion, this market is going to crash. Be grateful that you are out of the market and in the safety of a government backed money market.

I encourage you not to get caught up in the positive PR spin that will be coming out by NASDAQ over the coming weeks. They are spending millions on advertising because they know that if just a few decide to sell because of Y2K, that the entire market has the potential of collapsing.

The next few weeks will be telling. Stay conservative. Keep your cash safe.

-- Mike Vessey (mike@trendwise.com), November 05, 1999.

Speaking of CNBC: Is it just my imagination, or do most of the talking heads seem to be on the verge of drooling all over themselves (or at the very least, experiencing multiple orgasms)?

-- I'm Here, I'm There (I'm Everywhere@so.beware), November 05, 1999.

Nadine,

There are two sides to investing: income or profit seeking. Income refers to the payment of dividends, and lots of people don't care about buying low and selling high. They buy the stock because they want and expect the companies to pay a nice dividend, quarterly, annually, etc. That's like earning interest on your money in the bank. You invest your money and leave it there while you "draw interest" in the form of a dividend.

The other side is buying low, selling high so you can make a profit off your purchase. Those people are not interested in waiting around long enough for a dividend, in many cases. They are looking to make a profit off what they bought.

If a company does pay dividends it does attract more buyers than if it does not pay dividends. That only makes sense. Sometimes a company will announce a nice dividend in order to get its stock price up. They usually say something like "the dividend will be payable on X date to owners of stock as of Y date" which gives people a chance to buy the stock then get in on the dividend.

But, as has been pointed out already, unless you are rich and a gambler, it's best to buy something and leave it there for the longer haul...you'll see the market and your individual mix (portfolio) go up and down along the way. Just hope it continues on a gradual upward path!

warren.

-- warren bone (wbone@home.com), November 05, 1999.

"You know Who" is presenting a very rational view of long-term investing. "They" say that you cannot time the market. Therefore, get in and stay in. good sound advice. Several problems however. "They" are now, on average, about 28 years old. "They" have never seen the market go down seriously. "They" do not realize that from 1929-1935 stocks like GE, RCA, US Steel, AT&T, etc dropped to less than 10% of their high value. "They" don't realize that the typical bear market -- a real bear market, not a dip -- lasts, on average, 9 years. "They" are not as smart as their bank accounts would lead you to believe. Most importantly, "they" have never seen Y2K before and they, much to my astonishment, are still ignoring it. In summary, "they" are going to bite me before this is all over. I can't time the market, that's why I'm already free and clear of the damn thing.

"I'd rather be two months early than one day late" (Joe Kennedy)

-- Dave (aaa@aaa.com), November 05, 1999.

Mike Vessey has a good read on the market and how it works.

However, I probably tend toward more technical analysis than Mike does.

Personally, I am neutral the market. None of my indicators is telling me to sell it short so I'm NOT confident that the market will CRASH (but if they did, I would still hesitate to do so since there's usually a "witch-hunt" of short sellers after severe market crashes).

Of course, if I'm wrong, I won't lose any money over it.

What really bothers me is that many on the forum have not diversified to reduce systematic risks. Put a little in various investments so your equity curve can be smoother.

Something like gold, real estate, t-bills, cans of beans, fuel, ammo and still even a tiny amount of stocks.

-- Sandwich (anon@anon.com), November 05, 1999.

Nadine, Good that you are out. I got out in July. Not one moment of regret...

-- Mara (MaraWayne@aol.com), November 05, 1999.

Today, wall street= casino. Would you take your retirement money to Las Vegas to "invest" it?

Greater fool theory is a good term as well. If you don't know what you are doing in the market, it is best to expose only a fraction of your funds until you learn. The sharks eat the minnows all the time.

-- don't swim with the sharks (bill@tinfoil.com), November 05, 1999.

I heard a paid shill(Larry Kudlow) for CNBC tell everyone this morning to get completely invested in the market. This guy is so bullish it made me want to puke. He's been a regular commentator but now his title is "Chief CNBC comentator." I see why they hired this shill. He is a real smooth talker. Typical Wall Street slickster.If I could have one wish for Christmas, it would be to slap that guy.

-- (DuhMeister@zit.com), November 05, 1999.

Being out of the equities market (for the present time) does give one a real sense of peace...

-- Mad Monk (madmonk@hawaiian.net), November 05, 1999.

>At that time the individual shares of stock in each fund
>were $31.66 and $29.68. Today they are $31.07 and $28.92.
>Had we stayed invested, we would have lost money. Are you sure? Some fund increase your number of shares while keeping share price as constant as possible. Thus, if you have 100 shares and the fund goes up by 10%, you get 10 shares added to your account, but the price per share stays about the same. OTOH, those funds may just be dogs. MS and other "new" stocks don't typically pay dividends because the companies plow every cent of profit back into growth - that's why they are called "growth" stocks - you make money on the share price, not an expectation of income. Other stocks of more stable companies (utilities are a good example) pay dividends because they have chosen not to put profits back into the business. Both types are OK, depending on what you want. A young person may prefer growth stocks to maximize the value of his holdings later in life, while a retiree may want to maintain his asset value and get some cash flow out of it. But as others have pointed out, stocks do go down in value. That's the risk you take. You can lose money and the FDIC doesn't insure the stock market. Pay your money, take your chances. Gov't securities funds and money market funds have more-or-less guaranteed rates of return, but they're low rates of return. My dear old dad always said "make your portfolio conservative enough that you can sleep at night." Your level of comfort and mine may be quite different - mine may be different tomorrow than it is today. For my one-and-only prediction, Mon. Jan. 3rd will be one of the biggest single-day gains in market history, as investors celebrate a mostly trouble-free new year/century/millenium. Disclaimer FWIW: I'm a computer geek, not an investment advisor. Anyone who takes my advice on financial matters, well, you might as well ask your Cocker Spaniel. JZ

-- Jeff Zurschmeide (zursch@cyberhighway.net), November 05, 1999.

Nadine There was a peiod of time from the first of the year to around Sept where the YTD return on the S&P was near zero or negative. At that time many diversified stock funds showed negative returns. At the same time, aggressive growth funds invested in tech were positive (like my Janus Funds). The YTD return on the NASDAQ market index has been positive all year and stands at 40%+

I've been slowly selling all year. Still have some to go.

-- gh (thehargis@earthlink.com), November 05, 1999.

The Answer to your question - which is a very good question BTW - is explained extremely well by Scott Burns in his Article "The Stealth Bear Market"

Here's the address (I don't know how to insert a link):

http://scottburns.com/980816su.htm

"In fact, the concentration of returns is even greater than it appears. Analyst Ken Kaplan of Spare, Kaplan, Bischell and Associates in San Francisco found that the top 25 stocks in the S&P 500 Index (as measured by market value) accounted for 76 percent of the gain for the quarter. The top 50 stocks accounted for 105.4 percent of the gain. While it was possible to have gains in the other 450 stocks in the index, odds were good that losses would neutralize any gains.

In a universe of more than 8,000 domestic stocks, virtually all the money was made in 50 big ones."

The article was written in August of 1998, but the trend continues. Mike Vessey above hit it on the head: The market is very narrow right now, and it's getting worse. During the Boom days of the nineties, mutual funds would typically outperform the indexes. Managers could seemingly do no wrong. They would constantly benchmark against the indexes.

Today, you will see them compare against the universe of funds more frequently. They might look better against other funds, because a majority of funds are now lagging the indexes...and some are actually losing money. And with the recent change to 4 of the DOW components, it could get worse.

Now, Jeff Zurschmeide, also brings up a good point. The funds you were invested in at the beginning of the year may have declared capital gains, or dividends, therby lowering share price. If those are reinvested (typical), then the investor has more shares, if not reinvested, they took a check.

As for me? I got out of the market with all my retirement plan money and life insurance money..It.s all in money market. And since it was inside retirement and insurance, I don't need to declare any cap gains.

I got half out in April, the other half in June, and I've got no regrets. The downside is too big right now, and the upside? Well, if the market were broader, maybe it would be a bit better, but the upside in a diversified mutual fund is miniscule between now and January. I'm willing to sit it out. What will I lose if there's an upswing 5% maybe? 10 %? what's the downside - 20, 30, 40%? Can you say DOW 6000?

There's a big buy opportunity around the corner!!!

-- Duke 1983 (Duke1983@AOL.com), November 05, 1999.

It comes down to fear and greed, I lived both and reacted accordingly over the years, It's very painful to watch one's net worth slide. Fortunately, I have done well, but pulled mostly out of the markets in 1997 thru spring of 98. So, yes I missed a nice run in what could have meant early retirement. The reason for leaving the stock market was primarily Y2K, I thought that most people by spring of 99 would understand the impact and that even if the U.S. was prepared, most every one else would have problems (global economy) that has not happened, and at this point it may actually take an event of some magnitude to wake people up. The media has done an outstanding job in promoting stocks and keeping this thing called Y2K real quite. Problem is, if it turns out badly as many on this thread are saying, it will hurt consumer confidence in the markets in general (see after the 29 crash) Mike Vessey says it very well. Good luck to you.

-- Rich (Rluck1@aol.com), November 05, 1999.

This is a FOAF story, so if you want verification pass this by. My best friends' father is 87 yrs. old. He made a fortune in the depression of the 30's buying stuff cheap and holding on to them and selling them as antiques later. I remember when I was visiting over at their house as a kid and he walked into the living room and rolled up the oriental rug right out from under my feet. When I asked why, he said he had just sold it for 9K. He also had early 1900's and late 1800's cars sitting all over his property and in barns. Made lots of money off them too. I consider him a very shrewd man.

Now, he was talking the other day about the stock market and I learned something I didn't know. Before becoming an Air Force pilot and then a career American Airlines pilot (which is how he could afford to buy extras during the depression), he was a 'runner' on the floor of the NYSE. He was right there the day it plunged.

He is quite confident that the market is gonna' crash post haste. He says the one thing he remembers quite clearly right before the crash was how all the 'important' people were constantly going on and on about how wonderful the economy was doing and how the market had nowhere to go but up, up, up. He also remembers absolute and complete looks of shock and horror on the faces around him when it happened.

Just a personal story I thought I would share.

-- pizzaman (cjwarner@yahoo.com), November 06, 1999.

There is some sound advice here. The market is advancing because of a few hot stocks, many of whom are not yet in the postitives on price earning ratios. Sometimes on these posts you will read of the tulip bulb manias that occurred about 300 years ago in Holland. A lot of the .com stocks and new IPOs fit that description.

This is a hard time to figure out the market. I chose to get out of most of my individual equity holdings and am in some no load funds (some reflecting indexes, some not) as well as bonds and the good old money market.

Parts of me look at the numbers lately and hope I have made the right choice. This year will see much smaller returns for me. FWIW, at this late juncture, I think there will be episodes of panic selling and increased volatility, with a lengthy period of economic malaise as JIT inventory and petroleum issues catch up with us. I don't see the banks folding, and I hope I am not wrong. I certainly do not want to have to go back to work.

From one layman to another, pick your choices carefully. Any money you need in the next few years should be liquid. Don't try to time the market. Pre web trading, I made a lot of commissions for a broker doing that. I made some money, but I would have made more had I researched my choice and stayed in.

I hear that 80% of the day traders (who are also influencing the market swings)do not make money and crash and burn.

One of the best pieces of advice I have heard lately is "don't become buddies with your broker." They make their money whether you buy or sell and always have the latest shiny thing to push--even the honorable ones. I like the lady who helped me learn the business, and it was damn uncomfortable when I did an asset transfer from a brokerage based IRA equities account to a no-load stock family.

-- Nancy (wellsnl@hotmail.com), November 06, 1999.