| How Far Down, Jones? |
October
2002 |
Excessive Despair?
"Wall Street had another down day," appears to be the headline each and every night on the evening news. Indeed, the Dow(n) Jones Industrial Average is off around 40% from its all-time high. Where is the bottom? Shrewd investors don't much care, but that's not many of us.
The fact is that the Dow cannot fall below zero, so there is a definite bottom in all of this. Before that figure is reached, though, there is some risk in holding stock. What those who've been burned in the last couple of years didn't understand was that there always was a risk.
Any idiot can make money when stocks are rising. It takes a genius to hold onto it when they are falling. Of course, many of those geniuses put their money in real estate in the last years. Meanwhile, most Americans have been poorly served by the educational system and by their financial professionals in being informed of what their choices are.
Most do-it-yourself investors can tell you what companies they have lost money in, but they can't tell you why they bought stocks rather than bonds, why they held preferred shares instead of junior subordinated notes, why they do dollar-cost averaging instead of buying asset classes that are inversely correlated with stocks.
Most of the time, it's because they didn't know they could. There will be another speculative bubble in finance -- that's part of the deal. But if our population is as ignorant of its options again next time, we will all deserve the hard times ahead.