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Articles have begun appearing that speculate on when the Dow Jones Industrial average will top 10,000 -- and whether it can stay there once it does. That's the kind of enthusiasm that has seeped back into the market.
So far this year the Dow is up an encouraging 17 percent, the Nasdaq is up an astounding 45 percent, and all the folks who typically tell us that stocks are overvalued at times like this are telling us so again.
There are two ways of looking at this, both somewhat reasonable responses. You might say, for example, that certain folks thought stocks were overvalued in 1997 and 1998 and 1999, and just think of all the opportunities that would have been missed by listening to them.
Of course, the 1,900 level for the Nasdaq (where it is today) was first record territory around July 1998. Had you sold out then, you actually would have been making a decent move.
Today, the stick-to-it crowd would say the economy is making a comeback, a capital spending pickup is right around the corner, and to do anything but ride the bull would be foolish.
| Recently by Adam Lashinsky
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Some people don't believe this scenario. They think that the Bush administration hasn't figured out how to pay for the war in Iraq, that deflation remains a menacing problem and that stocks have gotten ahead of themselves, to say the least.
Hindsight is 20-20, of course. Still, there isn't an investor on the planet who wouldn't tell you what they wished they'd done in 2000 at Nasdaq 5,000 and Dow 11,000.
Here's a handful of my own coulda/shoulda/wouldas -- things I wish I had done when I had the chance:
Raised more cash. This always was the simplest, most fool-proof, kicking-myself-that-I-didn't-do-more example. Cash is so unsexy. It earns next to nothing in the bank -- less now (below 2 percent) than in 2000. But it remains the easiest wealth preservation technique for investing cowards.
If you need the money soon -- for tuition or that boat you've been eyeing or the Lasik surgery to see it -- cash isn't only not foolish, it's wise. Piddling investment returns in a savings account beat a market tumble. At least consider removing from the market the cash you can't do without.
Sold the stock in my own company. A handful of poor souls were caught in the days after 2000, and well into 2001, holding far too much of their own company's stock. Perhaps it was because of their 401(k) rules. Perhaps it was because they were true believers.
I myself held too many shares of TheStreet.com and wish I'd sold at least some of them, even at a loss. Remember, you make an investment in your company every day you show up for work. Don't let that investment get so big that it ruins your life should the stock value go down.
Exercised and sold my stock options. Watching so many of my friends and neighbors sit on stock options that later became worthless, I vowed I'd sell what I could when I could in the future. Yes, there's a tax hit for exercising and selling immediately. But let me tell you a little story about the bird in the hand...
Made sure no one sector accounted for too much of my overall savings. Scads of people got stuck holding too much tech three years ago. They were so impressed with tech's run that they didn't stop and consider that one sector had gone from, say, 10 percent of their savings, to 40 percent.
Scale it back. Is that sector today health care? Or biotech? Or gold? If the sector does great, you'll do great with what's left. If the sector sours, you won't be hurt overly much. This is a long-winded way of saying, "Diversify, diversify, diversify." You get the point.
Made sure no one stock accounted for too much of my overall savings. See above. It happens, especially with the stock you've been granted in your 401(k) by your company. Assuming the stock is vested -- meaning you've been at the company a certain number of years -- most plans allow you to sell it and buy something else, like a mutual fund or bonds. The same is true for that single stock you love that you don't work for.
Stopped contributing to big winners. This one really killed me. I loved my favorite funds so much I started contributing more. Wrong move. I should have contributed less to the winners, which by definition were getting to be a bigger part of my portfolio. The thing to have done was to go hunting for losers. They'd be today's winners. There's another way of saying this too: Don't be greedy. Remember, pigs get slaughtered.
Bought bonds. Ouch. I really wish I'd shifted some of the stocks into bonds in 2000. Now that doesn't seem like such a good idea, what with interest rates trending upward. There's some safety in bonds -- unless the face value plummets, a distinct possibility when yields (which move in inverse proportion to price) still are at record lows.
Bought real estate. Certainly anyone who bought before 2000 feels pretty smart. After that, oh boy. I think folks who tell you to try to time the real estate market are kidding you and themselves. Need a place to live? Buy a home if you can afford it. Looking to speculate on real estate? Good luck.
There isn't a single silver bullet in all of this backward navel gazing. But it's an exercise you might profitably try at home. (I'd like to hear what you come up with.) Do you wish you'd done something different in 2000? Would it make sense to do it now? Just do it.
Adam Lashinsky is a senior writer for Fortune magazine. Send e-mail to Adam at lashinskysbottomline@yahoo.com.
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