Occasionally, it's worth looking backwards.
That doesn't mean fixating one's gaze in the rear-view mirror, or worrying too much about the past. It does mean that in the midst of all our thinking and acting, we do well actually to reflect on the results and consequences of all that thinking and acting.
Earlier this year, I wrote something I want to look back on today for perspective. It was the very beginning of the year. It was, in fact, my first Rule Breaker recap. Remember the Year 2000 bug, the funniest, laugh-out-loud riot of a shaggy dog story you ever heard of? We were only just then figuring out that the people who'd been stockpiling canned goods on newly purchased Idaho farmland had, um, overreacted a little bit. On the day previous to my recap, January 3, Celera (Nasdaq: CRA) had risen $33 per share (a gain of 25% at the time).
Together with gains of 10% for both America Online (NYSE: AOL) and Amazon (Nasdaq: AMZN), this portfolio therefore started the year 2000 up in excess of 11%, on just the first day. But the next day, January 4, saw our portfolio drop 6.7%. Whammo -- an advance indicator of the volatility we would see this year, and (as it turns out) the very poor performance we would endure. Given that volatility, I wrote a simple essay entitled "Moderation" on January 4.
....What if, amid all the excitement and hype... what if during the crescendo that the year 2000 represents in so many peoples' minds (new millennium, the FUTURE, high technology, revolution) -- what if the market actually bombed this year?
What if the market steadily dives 20% by the end of March, rises to an overall loss of 6% by August, and then closes out the year falling away at the finish, down a solid 23% for Y2K?
Will your life be different?
Will the choices you make with your money, particularly the choices concerning your spending and your way of life, have to change?
I can honestly say mine will not, significantly. The Foolish investor is investing his or her own money, not sitting on anyone else's money (margin) in any significant amount. The Foolish investor is invested in great businesses, and feels a part owner of them. The Foolish investor, further, is only investing money that he or she will not need for at least five years, preferably five decades. But, at least five years....
If you're on margin, if you're investing in ways that make you nervous, stop. Now. Because if the year 2000 proves to be the first market year in the past six NOT to have sported 20% gains -- NOT to have sported any gains at all -- but in fact to have sported a LOSS of 25%, you will greatly regret the brief dalliance you had with stocks.
I know people who've sworn off the stock market because they were taking ridiculous risks on margin or with options or investing in penny stocks or investing in stuff they didn't at all understand, and when it whacks them upside of the head and bruises them for the following several years of their lives, they let that bruise bruise them forever. Previous huge fans of the stock market -- or, their own rather strange version of it -- they swear it off altogether. Extremists to the end.
I am not particularly stoic -- I have not read Marcus Aurelius's Meditations (which I suppose should be undertaken dispassionately) -- but I do believe in moderation. Erasmus, that Fool, was infatuated with the Latin phrase Festina lente, "make haste slowly." He scrawled it over doors, and in different places in his daily life. I think it takes that kind of balance, that kind of moderation, to achieve true success in life for you and for those you love.
All that said, perhaps now the market goes up 20% for a SIXTH consecutive year. I'd certainly not object. But I'm not banking on it, either.
Now down some 40% for the year 2000, I can say -- wiser but no Wiser -- that the year 2000 has indeed strummed an unhappy tune for most investors. But the lessons of Moderation endure. While in retrospect we'd all love to have timed the market perfectly -- buying and selling at all the right points -- we know this notion to be as alluring and as unsustainable as a flash of St. Elmo's fire. It's magical unrealism. Some will play that game, and I wish them luck; we will not.
If you are constantly, moderately, saving and investing a portion of your paycheck every two weeks, you'll recognize that periods like the one we've lived through this year provide us opportunities to purchase our same stocks, or the same index fund (what have you), at significantly reduced prices. The market is on sale. I remain a buyer.
(And if you're looking for some new ideas, consider our fifth annual Industry Focus 2001, on sale now in FoolMart, with 17 best-of-breed ideas across 17 relevant industries. All of them on sale!)
But even after the Nasdaq has lost a third of its value in a single calendar year, again I ask you, "Will your life be different? Will the choices you make with your money, particularly the choices concerning your spending and your way of life, have to change?"
I hope that you are shaking your head with me tonight, "No." Foolish investing wouldn't allow us any other answer.
Occasionally, it is worth looking backwards.