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September 28, 2000
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Why Foolish Investing Works...
and why it doesn't.
1. You control your own money
(but you can make big mistakes)
2. You assume you know everything because you have reseached, researched, researched
(but someone still knows more than you do)
3. The media will cause you greater losses than you can know
(they are dumber than us all, chuckle chuckle)
4. The object of everyone on Wall Street is to get you to BUY high and SELL low
(when you are long, reverse it if short)
Nasdaq - look at historical chart of Nasdaq - see how quickly it double doubled (from 1992-2000)
There's your tech boom. Inevitably, however, every boom must pause - else growth and change speeds become to great for society to adapt. Consider: remember how long it took for pc's to dominate both business and personal lives - now everyone's gotta have one.
Truth in advertising:
This will be a down year, and so, too, will next year. Why?
1. Fed needed to slow growth - thus 6 rate increases, and only the first ones are beginning to impact growth.
2. Slowdown is not yet in full force, but it's coming, and it may be greater than necessary, but it is too hard to tell. Hear all those rumblings on the street...earnings down, earnings down, restate, re-estimate, etc.
3. October is almost here - and you all know what that means. (here come the media with their doomsday stories - "will it be another October fall" - you watch, they'll do exactly that)
4. Investor's demanding earnings growth are shortsighted - selling when growth isn't there in one quarter (and yet I didn't see CSCO's earnings down - was I wrong on that?)
5. Stocks are weak. Every "rally" has been a skin of the teeth, low volume rally; no POWER days
6.Institutions/Mutuals pulled the carpet out from under everyone in March - look at any chart and you'll see nearly the same pattern (a V or a W from March through July) - now what could have caused that? And why did the big boys flee? (see #'s 2 and 4 at top of post)
7. Too many people are investing for themselves without taking time to learn how - learn it and practice it before you do it with real money - this one step will save your a$$ at least once in your life.
8. For every 10 companies on the big boards today - how many do you think will be around in ten or thirty years? Think CSCO's one of them?
Now my money is collecting on the sidelines too. Why? What on earth can I buy? Consider this:
Here is my current watch list - note the PEG ratios alongside:
AXP - 2.17
AKAM - no earnings
AOL - 3.13
NOK - 2.36
NT - 3.35
CSCO - 2.74
HD - 2.15
MOT - .641
CAT - .781
EK - .632 (before yesterdays crash)
SBUX - 1.94
IBI - 1.09
NITE - 1.17
INTC - .677
IP - .228
VOXX - .551
Since the PEG considers anything over 1.25 "richly valued" and 50% of this list is precisely that - where do you put your money (did you see CSCO in there? thought so)
Assuming that the "undervalued" are precisely that for a reason, if the "richly overvalued" get walloped, well, how now?
So when someone says Foolish investing doesn't work I say: NOT TRUE
and here's why -
1. I am better informed and more knowledgeable than I was 12 months ago
2. I can now pick companies with potential, and discount those with none.
3. I can withstand a price drop because I am investing for 30 years from now, not 30 minutes.
If you agree with those statements, then you too believe in Foolish investing; remember, however, that the FOOL is only one tool available to you. - Use all of them together, and you will be more Foolish than before.
And don't let these boards influence your decision to buy or sell. Ever.
Lastly, remember that any profit is better than none.
So I believe these concepts do work. But you must use more than just this one source. And honestly decide whether you:
1. Want to actively control your own money, or not.
2. Can take the time to actively screen in/out stocks
3. Can afford the time to research companies' potential
4. Can afford the possible loss of principal through your own decisions
Remember, buying a mutual fund is not necessarily an evil thing. For some we must accept that it is their only way to participate because they cannot say yes to the questions above.
So as CSCO flops up/down/sideways, think on these things, fellow Fools, and believe that we are all here to help one another understand the investment world better.
And if you decide to buy/sell CSCO - at least YOU made the decision, and right or wrong, that is one of the FIRST steps toward Foolishness.
Sincere wishes for success to all
hutch ('cause I'm down like 50% this year and boy does that hurt)
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