New stock market highs - 10.18.2006.1

Just something I wanted to pause and think about. Today the Dow Jones broke past 12,000 which is a new intra-day high. Big cheers, the market must be doing well and it must mean that everyone is making money in their 401 k and mutual funds. Well I’m sure that is what the big six and a few others would like you to think. I think its just stupid, all the hype about this. [The big six are the leading, well-known brokerage houses. This includes Merrill, Lehman and the others, all of which I dislike.]

Why am I not interested in the hype? Why don’t I think that most people are making money today and that this new high has yet to impact Joe Average? Because during the week of January 10, 2000 the Dow Jones Industrial Average hit 11908.5 and then continued to trend down to a low of 7422.27 on September 30, 2002. It’s taken the better part of a decade to reach a new high. That is significant. It means that many are just getting back to even.

Let me clarify what I’m thinking. I was a broker for many years (I left the industry, without ever being involved in a lawsuit, in 2001 for family reasons). Like all brokers I realize that the average investor does not know what they are doing. Average investors buy high, sell low, miss opportunities, and follow bandwagons on a regular basis. I have watched as former clients bought internet stocks, against my advice, because they were being bought and creating new highs – without being able to explain what the company did, and often with a company that had no history as it was a new IPO. For a while they made money, and then got killed. I’ve seen the same thing happen in biotechs, and various other industries. It wasn’t just the bubble that took down investors.

[For the record I did advise in one internet stock, AOL, and I did lose money during the downturn. But I did try to minimize losses and advised several 5 year plans to weather the crash, some were followed others not. I was not a genius for the market, but I was no fool either.]

Because so many were crushed in the crash, bad decisions were made. Most sold to make margin calls or just bailed out. Others never took the chance to buy when things were low. I recall the battles I had with multiple clients as the market opened after 9/11 and dropped to a low of 7926.93. Fear prevented a chance to regain funds lost from the bubble burst, primarily while others were frozen due to lack of capital. Many just had to hold on and wait for things to improve.

So if like many you owned GE Around Oct 2, 2000 (59.94) instead of around Feb 10, 2003 (21.30) today you would be down 24.38 (close was 35.56) or 40%. Maybe some liked Pharmaceuticals like Phfizer which was 48.13 around June 12, 2000 reached a low of 20.57 around Dec 5, 2005 and closed today at 28.10 for a grand return of a loss of 20.03 or 42% down. Maybe smaller companies were of interest like NITE which traded at 59.43 around March 20, 2000 dropped to 4 around Sept 30, 2002 and today had a close of 19.45 for a loss of 39.98 or 67%. Even if you like a story stock like SIRI you may have paid 69.44 around Feb 28, 2000 and not the .38 in the week of March 10, 2003 with a close today of 3.90 for a loss of 65.54 or 94%. [I did advise on positions with SIRI, NITE, GE, PFE, LEH and many other stocks. Former clients may have owned these stocks long term and had higher or lower cost averages than what is discussed.]

For those that could afford to buy-in and average down, life may be good. Most investors don’t though, whatever the reason. So the reality is that many are down today, or even, and the highs bring them no joy. The hype is just that. Many corporations are in similar situations too. It just annoys me to hear the talking heads on various programs trying to get people happy when the news isn’t really great. Or ads on television saying that people should go and invest on their own when they don’t understand what is involved. I find it irresponsible.

The economy is better, things have improved. Barring events like 9/11, or Enron, the markets will continue to grow. But hype will never help mom & pop investors. It does help some institutions though, like LEH which was 15.68 around Feb 14, 2000 and continued HIGHER to 78.70 on Oct 16, 2006.

Just keep this stuff in mind as you watch the talking heads spout how great things are in the market. Or you see that ad saying that you should invest on your own.

This is what I think, what do you think?