ALEXANDRIA, VA (September 8, 1998) --In a typically Foolish twist of fate, just days ago we witnessed one of the stock market's largest single-day losses. Now, today, the stock market booked one of its largest single-day gains, with the S&P and Nasdaq adding 5% and 6% respectively.
Is the stock market's decline now over?
Oh, if only it was that simple, good Fools!
The beginning of the "Pirates of the Caribbean" ride in Walt Disney World warns visitors (once they're already strapped into their boats and floating downstream) that there are "rough waters ahead, matey!"
The same statement should be made to anyone who begins a lifetime of investing in the stock market, because whether it takes weeks, months, or years before it arrives, "rough waters" will eventually arrive -- and arrive several times over -- during every investor's lifetime.
And once you hit rough water -- bouncing about, blinded by the spray that you try to wipe from your eyes -- it can last for an indeterminate amount of time. Imagine finally shooting out of a mile of rough white water to enter a peaceful and serene gorge through which you drift in silence. You finally begin to breathe again, rest, and compose yourself... and suddenly you're toppled down a waterfall by complete surprise and you nearly lose all of your belongings (this example comes from personal experience). The stock market can do the same thing.
Although market downturns have historically been wiped off the slate within 26 months (on average, in that time stocks have usually recovered to previous prices), slides can and often do last much longer. Yet, as soon as the Asian economy began to decline last year people were already talking about its imminent recovery. Though that sort of optimism is admirable, a more realistic outlook might not expect a recovery for several years, perhaps even five to ten.
I read the best account of what is happening in Asia in this weekend's Washington Post, in parts one and two of a three part series. Perhaps the most insight that this column can provide today is to link to the series and let you read firsthand, if you haven't, about the situation in several countries in the Pacific Rim. The series begins with an article titled "Middle Class Plunging Back into Poverty."
After you read it, perhaps you'll come to realize (as I did) that the Asian stock markets -- and our market that often mirrors their movements -- are only a detached aftereffect of something much larger, much more human, and something gone seriously wrong.
Beyond that, it's worth noting that though we heard news of some of Asia's stock markets rising as much as 20% on Monday, following an 80% decline this 20% bounce is almost meaningless. Imagine the Indonesian stock market went from 10,000 to 2,000, losing 80%. On Monday it might have bounced 20%, or a whole 400 points, to 2,400, but it's truly only a 5-point gain of the 80 percentage points that were lost.
This "recovery" will not help the people that you'll read about in the Post's excellent series on Asia. And it won't help the woman I met in Washington D.C. in January, either, who was having to plan to return home to Thailand, leaving Georgetown University, because suddenly her father's savings were all but worthless and he couldn't afford to keep her in America.
Not to be glum, but aiming to be realistic, this week we'll discuss what a Fool might do in the face of an admittedly more volatile and perhaps riskier than usual (in the near term) stock market. You'll find (if you read our articles from the beginning) that we invested looking for value to begin with. We'll talk about how we'll invest going forward in order to hopefully continue to preserve and grow our dollars Foolishly -- and beat the market.
Importantly, this week we'll also have a final column from Dale sharing his thoughts on our two banking finalists, heavyweight Norwest (NYSE: NOB) combined with Wells Fargo (NYSE: WFC) versus our middleweight champ, Mellon Bank (NYSE: MEL).
Hopefully, TMF Elwood, TMF 2Aruba, Racerboy and so many other Fools like us will see you on the DRP message boards that are linked in the top right of this page. And if you wish to discuss the Post articles, please do so on the Drip Companies board in relation to DRP investing, when possible.