Stock Market Lessons from 3 Bear Markets
Updated: Sep 11, 2020
Here is an excerpt from a recent interview with Erik Sherman of Fortune.com
Dotcom bear market
For those who don’t remember dotcom madness, it can be hard to explain. Tech companies, and their investors, swore that business was different than ever before. No need to think of profits. Just get eyeballs—and figure out what to do with them later. The money tossed around was outrageous. Stephen Akin, a registered investment adviser who worked for some major brokers back then, and his wife were sailing enthusiasts. On a vacation in St. Thomas, they saw a sweet sailing yacht at the dock. On the back was painted the name, Dot Calm.
“When I saw that boat in St. Thomas, that was the first red flag for me,” Akin says. The owners had cashed out while they could. Most were not so lucky. “It was amazing how long it went,” Akin says. “When you’re in a rising market like we had in the ’90s, everyone kept thinking it would go and go and go.” Until it didn’t.
Akin remembers not just the power, but the danger, of leverage and overextension. “[Former Federal Reserve chair Alan] Greenspan’s philosophy thought self-preservation would keep the banks and hedge funds in line, because no one wanted to die.” That rational self-interest would be the corrective safety brake. “But [too many investors] thought someone would protect them,” explains Akin. “That’s why so many of them got so leveraged out.” It’s wiser to realize that, in investing, you can’t count on a rescue and should assume you’re working without a net.