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

More in Local News

Logo for news use featuring the municipality of Snohomish in Snohomish County, Washington. 220118
Police investigating cause of fatal 3-vehicle crash on Highway 9

The man, 61, crossed the center line in Snohomish on Monday and crashed into the truck, the sheriff’s office said.

Logo for news use featuring the municipality of Snohomish in Snohomish County, Washington. 220118
1 dead, 1 in hospital after 3-vehicle crash on Highway 9

A concrete pumping truck and two sedans crashed Monday afternoon, closing the highway near Bickford Avenue.

Moses Malachi Brewer appears in court for sentencing Friday, March 24, 2023, at Snohomish County Superior Court in Everett, Washington. (Ryan Berry / The Herald)
Man sentenced to 18 years for 2019 shooting in Everett

Moses Brewer, 23, shot four people in an Everett apartment, which left one victim paralyzed on his right side.

Logo for news use, for stories regarding Washington state government — Olympia, the Legislature and state agencies. No caption necessary. 20220331
Health care spending continues to outpace inflation, driven by prices

Can state efforts curb 6.7% growth per year in overall health care spending?

NO CAPTION NECESSARY: Logo for the Cornfield Report by Jerry Cornfield. 20200112
A buffet of budgets, a bunch of whales and a request for your miles

It’s Day 78. Here’s what’s happening in the 2023 session of the Washington Legislature

Anthony "Road Rage" Mohs (Photo Provided by Dana Mowbray)
Motorcyclist identified in deadly Mountlake Terrace crash

Anthony M. Mohs, 32, was killed Monday when an SUV crashed into him at the intersection of 212th Street SW and 44th Avenue W.

The Cathlamet made headlines when it crashed into pilings at Fauntleroy terminal on July 28, 2022. WSDOT launched an internal investigation to determine the cause of the collision. (Washington State Department of Transportation)
Cathlamet ferry to depart from Edmonds after repairs from July crash

The ferry will serve Edmonds-Kingston route for a week, equipped with a new black box that will become the fleet’s standard.

FILE - Former President Donald J. Trump watches the NCAA Wrestling Championships, Saturday, March 18, 2023, in Tulsa, Okla. (AP Photo/Sue Ogrocki, File)
Lawyer: Trump indicted, 1st ex-president charged with crime

Former president Donald Trump has been indicted on charges in New York regarding payments made during the 2016 presidential campaign to silence claims of an extramarital sexual encounter.

Gov. Jay Inslee signed legislation Thursday to add a ninth judge to the Snohomish County District Court. Sen. John Lovick, D-Mill Creek, who sponsored the bill, and Presiding District Court Judge Jennifer Rancourt look on. Taken March 30, 2023  (Jerry Cornfield / The Herald)
Snohomish County will get another District Court judge

Gov. Jay Inslee signed legislation Thursday to add a ninth judge to the court. It’s the first expansion in a quarter-century.

Most Read