I remember 1999. The stock market seemed to have a mind of its own and went up nearly every day – seemingly without effort. Most people believed that all that was needed was to throw money into the market and it would continue to grow.
My friend, Bill, told me about an experience of his in 1999. He owned a construction company and one day one of his workers came to Bill to give him his two-week notice of quitting. When Bill asked him why he was quitting, the employee said, “I found an easier way to make money. I am going to borrow $50,000 and buy Microsoft stock. EVERY YEAR it doubles. You can’t miss.” Bill accepted his employee’s resignation and as soon as the employee left his office, he called his stockbroker. Bill said, “Sell everything I’ve got.” The broker questioned him because the market was on an upward trajectory and hit new highs nearly every day. The broker asked, “What do you know that I don’t know?” Bill simply said, “They just reeled in the last sucker.”
The first sentence of a recent USA Today article read, “Bubble talk is building on Wall Street.”[i] A recent Wall Street Journal article, “The Stock Market Is a Bubble and the Economy Is a Disaster, Top Expert Warns”[ii] also caught my eye. Many seem to think that talk of a bubble bursting or a stock market crash is nonsense and is overstated. While I am not a “fear-monger” and don’t advocate either position, I still believe that the stock market is cyclical and that a substantive correction is somewhere in our future.
Investment strategies should be designed to accommodate growth, while keeping the possibility of another collapse in view. My view is to “keep one foot on the accelerator and the other on the brake.” It takes planning and forethought to manage downside stock market risk – best implemented prior to a downward slide where fear begins to drive an investor’s actions.
Be prepared so that you are not caught unawares by another 1999.
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