June 27, 2002

The seemingly constant stream of bad news in the stock market is starting to really annoy me. Enough already!

WorldCom’s sudden revelation that it hid $3.9 billion in expenses is only the latest bombshell to rock Wall Street. (Let me clarify how much money we’re talking about: you would need to win a million-dollar lottery 3,900 times.)

Plunging stock prices

I worked for Vanguard for nearly three years, so I’ve already been brainwashed into a long-term perspective when it comes to investing. I’m aware that you have to be patient during market declines. But this is no ordinary recession, folks.

First, most of the dot-coms began their rapid nosedive two years ago. That shouldn’t really have surprised anyone — too many technology start-ups went public with neither a business model nor any concept of how to become profitable. My theory is that dot-coms behaved just like individual consumers. Give people money (such as venture capital) and they’ll spend it rather frivolously; make people earn money (in the form of customer revenue) and they’ll think twice before wasting it.

The gold-rush mentality and frenzied speculation in the Nasdaq caused the bubble to burst, and we found ourselves in a recession. Then the tragic events of Sept. 11 arrived without warning. At the time, I had hoped that investors would show some resolve and actually buy stock when the market reopened. But when trading resumed on Sept. 17, the Dow fell nearly 700 points (over 7%) in one day. That really bothered me — investors just cut their losses and bailed on the market.

So we doubted technology, then we doubted national security. But companies like Enron, Merrill Lynch, and WorldCom have now provided investors with plenty of reasons to doubt the integrity of the market itself. It’s bad enough that the greedy bastards that ran those companies cost their employees billions of their hard-earned dollars. But the larger problem is that investors feel as though they can no longer trust any company, so they keep selling like there’s no tomorrow.

I know, I know — stay the course, don’t panic during short-term losses. And I certainly don’t plan to withdraw my 401(k) funds and stuff the cash under my mattress. But when will people feel comfortable to invest in equities again?

[ No. 21 ]