The Week in Review -- April 16, 1999

The Markets

  4/9 Close 4/16 Close Change %Change
DJIA 10,173.84 10,493.89 +320.05 +3.15
S&P 500 1,348.35 1,319.00 -29.35 -2.18
Nasdaq 2,593.05 2,484.04 -109.01 -4.20

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A Swift Kick
by Jerry Thomas (tmfcheeze@aol.com)

"A Wise Man endeavors, by considering all Circumstances, to make Conjectures, and form Conclusions: But the smallest accident intervening (and in the Course of Affairs it is impossible to foresee all) doth often produce such Turns and Changes, that at last he is just as much in doubt of Events, as the most ignorant and unexperienced Person."

-- Jonathan Swift


Greetings, Fools.

Swift wrote those words nearly 300 years ago. Guess what, Jonathan -- Wise men are still making their predictions, still forming their conclusions before the fact, and all for naught. When the Tuxedo of Conjecture meets the Pigeon of Truth, Pomposity must always make an extra trip to the dry cleaner. Faced with such intimidating prospect, you might as well quit the Wise racket while you can, and become a Fool.

Shares of Compaq Computer (NYSE: CPQ) dropped 22% Monday after an earnings warning. Details of the announcement are covered in that day's Breakfast News. How do you predict such an abrupt shift from one trading day to the next? Answer: You don't. Day to day, the market will do everything to confound you. I've seen stocks rise sharply on bad news and nosedive on good. It'll drive you nuts.

On Wednesday, the Foolish Four Portfolio was up over 6%. Ann Coleman (TMF AnnC) gives a good accounting of that event in that day's Portfolio Report. A 6% move in a collection of large cap Dow stocks is a rare event -- and yet it happened. On Tuesday, the Rule Breaker Portfolio saw its shares of 3Dfx Interactive (Nasdaq: TDFX) jump nearly 20% -- and yet the portfolio as a whole lost money that day. David Gardner dusts for fingerprints at the scene. Peapod Inc. (Nadsdaq: PPOD), an Internet stock, was up 26% on Thursday. NetB@nk, Inc. (Nasdaq: NTBK), another dot-com, was down 7% in the same trading session. Cyclical stocks, floundering for months, were this week suddenly in favor. CMGI Inc. (Nasdaq: CMGI) was down more than 50 points in trading on Thursday, only to finish in the black by $21 that same day. Go figure.

Even if you could find a pattern in this jumble, it is doubtful that such short-term insights would be of much use. Remember Swift's Rule of Intervening Accidents: when it comes to predicting the markets, we are all working under this 18th-Century version of Murphy's Law.

And yet the Wise continue the charade, dressing in their impressive suits, and always implying that they have some sort of special insight into Tomorrow. They shift vast amounts of capital in and out of the markets every quarter, every month, every day -- and collect their fees as the money moves in both directions. Television coverage of the financial markets are replete with their blather, as they offer their dubious interpretations of the daily fluctuations of the market.

News flash, ladies and gentlemen: in the short term, the market never makes sense. For every bull trading on this day, you will find a bear. For every willing buyer there is a willing seller. At the point on the graph where supply meets demand, the opposing forces of opinion cancel each other out. The noise of the bazaar blends every voice, sage or silly, into a single unintelligible din. Swamis and Gooroos might make sensible-sounding noises, and declare boldly that in the next hour or the next day the market will move this way or that. Watch them do it for your daily lesson in audacity. It is never really important to them whether their prophecies come true. What matters most is that they look important when they make them. Master the power of illusion, Grasshopper, and you will have a fine office in a high Manhattan tower, if you want it. The rest of us will heed your prophecies at our own peril.

I don't know what Swift would make of the pomposities of the present age, but odds are that this author of Gulliver's Travels would lampoon them, and savagely. I'd like to think that he'd look on us Fools kindly, knowing that we, in our own way, are following in his tradition. I'm very impressed with the work of my fellow Fools this week, who turn their thoughts not to the circus of the trading floor, but to a solid examination of real companies -- and from a loftier perspective, too: the long term, the only place where reasonable interpretations can be made. Jeff Fischer (TMF Jeff) gives a splendid examination of Intel in Tuesday's Drip Report. Louis Corrigan (TMF Seymor), in Wednesday's Fool on the Hill, looks at a spunky little cyber-community called iTurf (Nasdaq: TURF).

And what of Compaq? Check out Monday's Boring Report, where Dale Wettlaufer (TMF Ralegh) backs far enough away from the panic of the past week to look at the real impact the company's warnings are having on the PC industry as a whole. And you, too, can voice your own opinion about Compaq in our latest online poll.

Do spend some time this weekend looking over the Boring Portfolio's latest Buy Report: American Power Conversion (Nasdaq: APCC). Consider it a research tool in your own quest for informed investment decision-making. And in one of the liveliest Dueling Fools ever, Selena Maranjian (TMF Selena) and Yi-Hsin Chang (TMF Puck) debate the merits of gender-specific investing. You'll enjoy it whether you're male or female.

Until next week,
Fool on!

Cheeze

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