Let’s take a look at some results from the year 2000:

The NASDAQ closed the year 51% off of its March 10th high, the Dow was down 8% from its January 14th peak, and the S&P 500 was 14% lower than its March 24th high. The worst performing sector, as compiled by Lipper Inc., was telecommunications, which was down over 34%. The best performing sector was health/biotechnology, which was up over 56%. Real estate also did well and was up over 27%. The top performing market worldwide for 2000 was China, which was up over 50%. Japan, on the other hand, was down over 30%.

Let’s go back to January 3, 2000 and pretend that $10,000 each was invested in Microsoft and Duke Energy. How many of us would have been willing to bet that at the end of the year the Microsoft investment would be worth around $3700, and the Duke Energy investment around $17,000? Now Microsoft has been a tremendous investment for those who have held it for many years, and this is an important and valid point. One year is a short period of time when investing in stocks, and any money put into stocks should not be needed for at least five to ten years or longer.

So what to make of all the numbers above? The major point is that diversification works. If you listened to all the media hype and information hype over the internet, technology was about the only place to be in January 2000. It turned out this was the worst possible place to be by year-end, yet those who had a widely diversified portfolio had winners to help offset losses in technology issues.

Putting together a diversified portfolio is not something everyone wants to do. Like anything in life, it takes time and effort to become knowledgeable and gain experience in whatever field interests you. If you are busy doing something else in life that excites and interests you other than financial planning, then obtaining professional advice is important. Working with an experienced and qualified financial planner you trust will help you work towards your goals, and help you to avoid overreacting to events that were not anticipated. There is plenty of information out there, but that is all it is, information. You then have to know whether it is reliable or not, understand what it means, determine whether it is relevant to your particular situation, and then decide how to act upon it. Nick Murray is a great resource for serious financial advisors, and I would like to quote him from the Fall 2000 Nick Murray Interactive newsletter. He states that any information coming over the internet should have the following warning: "WISDOM SOLD SEPERATELY!"

David Ignatius of the Washington Post used this title in his column on April 19, 2000. He wrote "The illusion was that tiny, no-name dot.com companies whose only asset was their marketing budget would displace companies that have billions of dollars of revenues, powerful brand names, and vast market share. What’s more likely, in fact, is that as these old line powerhouses embrace new technology, they will dominate e-commerce."

This brings up an important point, namely that you don’t have to invest directly in a technology company to benefit from technology. A case in point is the oil industry. Jonathan Rauch wrote an article in the January 2001, Atlantic Monthly, "The New Old Economy, Oil, Computers, and the Re-inventors of the Earth." A supercomputer a decade ago could not locate oil underground that a PC on someone’s desk can locate today. Using 3-D computer models, oil companies are now able to locate oil they would have left behind before. Mr. Rauch writes "Knowledge, not petroleum, is becoming the critical resource in the oil business." The ultimate beneficiaries of this knowledge and technology are the shareholders of the company, and this scenario is being repeated in other companies and industries throughout the world.

Common stocks are how long-term investors can participate in the exciting developments and possibilities that await us, but the ride can and will get bumpy at times. (Witness the first 2 trading days of 2001. The NASDAQ index is down 7.23% on January 2nd, and up 14.17% the following day after the Federal Reserve cut interest rates). Remember that a trusted financial advisor can go a long ways towards helping you stay on track.

I’ll end with a great definition I saw in Nick Murray’s newsletter.
Bear market: a period when common stocks are returned to their rightful owners.

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