If you regularly consider the stock market's one-day performance, today you would shout "Ayieeeeeeee!" The Nasdaq Composite was dunked for a hefty 7.6% loss, continuing its long and draining spiral. However, even given the bath that many stocks have taken, the Nasdaq has still gained ground this year, and it has still gained a massive 160% in the past two years. Given this context, the recent decline is not much to rant about. Nasdaq is only 17.7% below its all-time high, after all, so if this decline seems extreme to you, you should Foolishly admit to yourself now that it may just be the start.
In the near-term, the Nasdaq could lose 20%, 25%, 30% or more from its record high. In the long-term, however, companies that are able to grow earnings will likely grow shareholder value, too, and that's what Fools care about: long-term shareholder value, not short-term stock market volatility.
Many of the Wise will emerge from their ivory towers during this type of decline and say, "See, buy and hold doesn't pay off in this type of market," without ever admitting that if you have bought and held great companies in past years, this decline is no more meaningful than any other past decline. You do, in essence, sidestep this decline and any other drop by being a long-term investor, because you won't sell in a downturn.
Arguably, sharp declines should only matter to the Wise who try to time the stock market (inevitably failing), to those with short-time horizons (who shouldn't buy stocks anyway), and to those with large amounts of margin, or borrowed funds, invested in stocks (you play with fire when you carry high margin).
Who Is Investing? And How Are You Investing?
In the past few weeks, I've talked about stocks with some "stereotypically" unlikely candidates: a taxi driver who rattled off ticker symbols like a machine gun; a mother at an elementary school who could tell you exactly how many points the Nasdaq had fallen that day (over 180); and a college student who invests with the few hundred dollars he is given in his monthly allowance. Most people will say that this is a bad thing -- that too many people are interested in stocks, which means that the stock market is "too hot" and is ripe for decline.
In the near-term, that may be proving true. But in the long-term, it is excellent news that so many Americans are learning about the stock market. Why? Because the stock market is the single greatest "savings account" a family can utilize for a lifetime. The key is that they actually utilize stocks (or an index like the S&P 500) for a lifetime, and they only invest money that they won't need for many years. Not everyone is doing this, of course (many people are short-term investors), and a weak market like today's will take many people out of stocks, most likely, for a long time. That is very unfortunate.
In this recent rip-roaring stock market, it has been a challenge to convince excited strangers (such as the three people described above that I recently met) about the Fool's long-term message and why that message should excite them most.
The Fool's long-term message should excite an investor much more than the prospect of a "quick profit." (I have a friend who made $2,000 in one day in 1995 by trading $10,000 worth of AOL. He was thrilled. If he'd held the stock for five years, though, he would have made well over one hundred thousand dollars.) The long-term message that the Fool espouses should also be more exciting than the idea of doubling your money in a stock in six months (which seems to be many investors' ill-arrived-at goal these days). In a nutshell, the long-term Fool message should be the most exciting of any investing technique. Why? Because it works, and because it is all but foolproof (small f) when done well!
However, how do you convince people of this when you meet them on a plane, in a cab, or elsewhere, and all they want to discuss is what to trade next to make quick money? In a 10-minute conversation, can you explain to a stranger what Foolishness means and how it could change your life? Or does it take a sharply lower stock market to get the attention of chronic short-term thinkers?
I don't have an answer to this topic today, but I raised the topic because, first, contrary to what the Wise say, it is a great thing that so many people are interested in the stock market. They should be interested. But secondly, too many investors are interested in the short-term! A spiraling stock market will likely make them rethink how they invest, and you, as a Fool, can help teach short-term investors how you think about investing, too. In a world of mass media that does anything but make you think long-term, there is a great deal of Wisdom in the world for all of us to uproot, debunk, and squash. The media's excited hyper-attention given to today's decline is just one more example of Wisdom on display.
What Do People Do Online?
For the past few years, we've believed and written here that many (up to 95%) of the world's new online-based, public companies will fail or be acquired cheaply to keep from failing. With valuations and cash balances sinking at many new companies, this is starting to prove true. Should it be surprising? Not really. The Internet is not an automatic road to riches for any company. Turning "cyberspace" into actual recurring revenue (and then profits) is not easy, especially when you consider what people actually do online.
I've posted the results of a survey that asked what people do online on the "Rule Breaker Strategies" discussion board (linked in the next paragraph). As you will see, most people communicate with friends and coworkers, read news, or do free research of some kind when online. These are not strong revenue-generating activities that will serve most online companies.
Opening a Web-business is expensive; gaining a critical mass of users is difficult; making those users spend actual dollars on your site so you can grow beyond advertising revenue is probably the largest challenge. Therefore, a majority of young Internet-centric companies will unfortunately fail or be sold cheaply (just like in the off-line business world -- most start-ups fail). So, consider this survey of what most people do online, and then ask how these activities can be turned into recurring revenue for thousands of new online companies. Unfortunately, it just will not work out that way.
Today's News
To keep this column a reasonable length, I posted the rest of it on the "RB Companies" discussion board. Head over there for a summary and our thoughts regarding today's news on our companies, including Celera (NYSE: CRA), eBay (Nasdaq: EBAY), and Excite@Home (Nasdaq: ATHM).
Stay focused on the big picture. Look ahead at least five years as you invest, and ideally longer. Fool on and prosper!
--Jeff Fischer, TMF Jeff on the boards.
P.S. Check out the latest winner of the Jester Award, which is the book Genome. Also, tonight Fool News has commentary on the Microsoft ruling. Finally, are fuel cells a Rule Breaking technology? They quite possibly could be. Here's a fuel cell article for more information.
