March 19, 2001: Spotlight
Panic when you hear the words "Don't Panic"
By Brady Willett & Todd Alway
Anyone telling the masses 'don't panic' is not an investor, but a shady psychologist. In actuality, now is the
perfect time to panic, if you have not already done so. Perhaps with panic comes a new, and improved
adage: 'don't follow anyone else when it comes to investing your money'.
Most stocks are not tangibly appealing and have not been for many years. As such, this may only be the
beginning of the bear, not its end. It may take time for market excitement to evolve into calculable investing.
Furthermore, it is unlikely that people will continue to pay escalating premiums for equities unless the current
economic slowdown has been grossly overstated, and/or earnings are set for a V shaped rebound. It is also
unlikely that the historic swell into equity funds from 1990-2000 can be reborn; rather its current condition
looks set to slowly age.
To begin with, when earnings estimates drop future P/E ratios immediately rise. The Dow grew earnings by
11.9% over the last 5 years, and current expectations, although slowly trickling lower, are predicting an even
faster growth rate over the next 5 years. Contrarily, tech stocks are expected to post negative earnings over
the next two quarters. Consequently, by betting on a market rebound you are betting that Dow component
earnings will remain completely unaffected by the global slowdown, and tech investors will begin paying
higher P/E premiums than they ever have before. In sum, you are betting on the bull, and not investing in
To comment on the blind faith of the average investor may be a futile practice. That said, those still
entranced by the belief that everything will be alright because investors are 'holding on' should understand
that this rationale is not investing, it is following. Unfortunately, there is well known fact which makes simply
following the herd a problematic plan of action: more investors lose money than make money in stocks.
Careful selection of equities, not blindly following mass speculation, is what made Buffet the success that he
is today. Contrast that to poor old Julian Robertson – his Tiger fund was extremely successful for 20 years,
but quickly lost half its value (or $11 billion) in early 2000.
"I just keep listening to my broker saying, 'Just hang in there,' "It's going to come back."
March 14, 2001 - Washington Post (from a 54 year old investor)
Ask yourself one question. What exactly is "going to come back?" – the American love affair with stocks?
Equity appreciation beyond that of earnings? Now ask yourself why you believe this to be the case?
Because of extensive historical knowledge of macroeconomic conditions? Because of your thorough
research into the corporate environment? Because of your latent ability to chart social-psychological
behavior? Unless you answered yes to one of the above justifications, then you are simply speculating and
hoping for the best.
Now is not the time to speculate in the markets. Additionally, it is never the time to speculate on the
markets direction if you are an investor. Careful research, not hope, is what brings portfolio appreciation.
"The best advice now: Assess the damage carefully. Don't sell unless you have to. And most important:
March 15, 2001 - USA Today
This advice is for those individuals who have already made grave errors by betting on the markets and
following everyone else – not for the investor! Want some good advice?
Don't be tricked into believing that these schizophrenic markets have a predictable end, and that that end is
always roses. Fact is, the S&P 500 and Dow are only now nearing the 'bear markets' stage, and no one
knows how long it will last. In hindsight, now may be the perfect time for the insightful to panic; panic before
everyone else does, and begin to invest…