Burned investors still seek next hot stock

  • DUNSTAN PRIAL / Associated Press
  • Tuesday, November 28, 2000 9:00pm
  • Local News


Associated Press

NEW YORK — Less than a year ago, in the midst of an unprecedented run-up in the stock markets, a small but influential group within the mutual fund industry repeatedly warned investors against chasing "the next big thing."

Now that last year’s "next big thing" — namely the Internet — has fallen on its face, are chastened investors ready to return to tried and true methods of long-term investing?

Not likely, say most analysts.

"My impression is that they haven’t learned their lesson yet, but they’re getting a lot closer to learning it," said Vanguard Group founder John Bogle.

As the value of technology stocks surged higher and higher the past two or three years, and as mutual fund companies increasingly touted short-term performance figures, few skeptics voiced louder concerns than Bogle.

Bogle has built his career on the concept of long-term investing. He is widely regarded as the father of index fund investing, a conservative strategy in which the goal is to mirror the long-term performance of the broader stock market.

Sector-specific mutual funds, on the other hand, such as the myriad technology funds that proliferated in the late 1990s, are designed to outperform the broader market.

Bogle said investors who failed to heed the warnings were bound to get burned.

Most analysts believe investors are simply waiting for the next bandwagon to emerge. Witness, for example, the current popularity of biotech stocks.

"They never learn," said Jim Melcher, president of Balestra Capital Management in New York.

Melcher explained the dynamics that led to a vicious cycle of unrealistic expectations, overvalued stocks and, ultimately, the inevitable crash that decimated much of the technology sector this year.

The bull market that ran through most of the 1990s led many investors, especially young investors who had never experienced an extended downturn, to believe that the good times would never end. As the end of the decade approached, the advent of a new technology — the Internet — with seemingly unlimited growth potential appeared to lend credence to that unwavering sense of optimism.

Money poured into the handful of Internet stocks that emerged via high profile initial public offerings, and stock prices subsequently soared into the stratosphere. As the values increased, mutual fund managers felt compelled to buy them.

For a while, the stocks continued to see phenomenal gains, and fund investors grew accustomed to double-digit and even triple-digit annual gains. The burgeoning financial media fed this cycle by rating funds first on an annual basis, and then on a quarterly basis, perpetuating the trend toward short-term investing.

Both Bogle and Melcher believe the Internet phenomenon may well have been the most extreme example of a stock market frenzy in history, primarily because of the amount of money available for investing at the time.

But the experience was hardly unprecedented, they said. History is dotted with similar episodes, including the runs on conglomerate and bowling stocks in the "go-go" 1960s, and radio, utilities and automobile stocks in the roaring 1920s.

So no one doubts that the "next big thing" is probably just around the corner.

Copyright ©2000 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

Talk to us

> Give us your news tips.

> Send us a letter to the editor.

> More Herald contact information.

More in Local News

Ariel Garcia, 4, was last seen Wednesday morning in an apartment in the 4800 block of Vesper Dr. (Photo provided by Everett Police)
How to donate to the family of Ariel Garcia

Everett police believe the boy’s mother, Janet Garcia, stabbed him repeatedly and left his body in Pierce County.

A ribbon is cut during the Orange Line kick off event at the Lynnwood Transit Center on Saturday, March 30, 2024 in Lynnwood, Washington. (Annie Barker / The Herald)
‘A huge year for transit’: Swift Orange Line begins in Lynnwood

Elected officials, community members celebrate Snohomish County’s newest bus rapid transit line.

Bethany Teed, a certified peer counselor with Sunrise Services and experienced hairstylist, cuts the hair of Eli LeFevre during a resource fair at the Carnegie Resource Center on Wednesday, March 6, 2024, in downtown Everett, Washington. (Ryan Berry / The Herald)
Carnegie center is a one-stop shop for housing, work, health — and hope

The resource center in downtown Everett connects people to more than 50 social service programs.

Everett mall renderings from Brixton Capital. (Photo provided by the City of Everett)
Topgolf at the Everett Mall? Mayor’s hint still unconfirmed

After Cassie Franklin’s annual address, rumors circled about what “top” entertainment tenant could be landing at Everett Mall.

Foamy brown water, emanating a smell similar to sewage, runs along the property line of Lisa Jansson’s home after spilling off from the DTG Enterprises property on Tuesday, March 5, 2024, in Snohomish, Washington. Jansson said the water in the small stream had been flowing clean and clear only a few weeks earlier. (Ryan Berry / The Herald)
Neighbors of Maltby recycling facility assert polluted runoff, noise

For years, the DTG facility has operated without proper permits. Residents feel a heavy burden as “watchdogs” holding the company accountable.

Logo for news use featuring the municipality of Stanwood in Snohomish County, Washington. 220118
Stanwood man gets federal prison for selling fentanyl on dark web

In 2013, Christerfer Frick was sentenced to nine years for trafficking drugs. He began selling online upon his release in 2020.

Traffic idles while waiting for the lights to change along 33rd Avenue West on Tuesday, April 2, 2024 in Lynnwood, Washington. (Olivia Vanni / The Herald)
Lynnwood seeks solutions to Costco traffic boondoggle

Let’s take a look at the troublesome intersection of 33rd Avenue W and 30th Place W, as Lynnwood weighs options for better traffic flow.

Dan Templeman speaks during a forum lead by The Daily Herald on housing affordability at the Mukilteo Library on Thursday, April 11, 2024 in Mukilteo, Washington. (Annie Barker / The Herald)
At Herald forum, experts affirm Housing First model, despite downsides

At the Mukilteo Library, panelists discussed drug-contaminated housing and lengthy cleanup efforts in Snohomish County.

Molbak's Garden + Home in Woodinville, Washington closed on Jan. 28 2024. (Photo courtesy of Molbak's)
Molbak’s, former Woodinville garden store, hopes for a comeback

Molbak’s wants to create a “hub” for retailers and community groups at its former Woodinville store. But first it must raise $2.5 million.

A fire at a home near Alderwood Mall sent one neighbor and one firefighter to the hospital. (Photo provided by South County Fire)
Officials: Residents returned to burning Lynnwood home to rescue dogs

Five people and six dogs were displaced in the Thursday afternoon house fire, according to South County Fire.

Featuring a pink blush over a yellow background, WA 64 combines qualities of Honeycrisp and Cripps Pink (aka Pink Lady) for a firm, crisp, sweet and tart bite. A naming contest for the new apple runs through May 5, 2024. (Photo provided by Washington State University)
Hey Honeycrisp, this new breed of apple needs a name

Enter a naming contest for WA 64, a hybrid apple with the same baby daddy as Cosmic Crisp.

Police respond to a wrong way crash Thursday night on Highway 525 in Lynnwood after a police chase. (Photo provided by Washington State Department of Transportation)
Lynnwood woman, 83, killed in wrong-way crash following police pursuit

Deputies said they were chasing a man, 37, south on Highway 525 when he swerved into northbound lanes, killing an oncoming driver.

Support local journalism

If you value local news, make a gift now to support the trusted journalism you get in The Daily Herald. Donations processed in this system are not tax deductible.