NEW YORK (AP) -- Does it make any sense to compile a list of New Year's resolutions while ignoring the lessons of the past?
Very likely it doesn't, but a lot of investors are going to go right ahead and do it. Dreaming about the future is pleasant, while admitting and correcting mistakes is painful.
The lessons of 2000 were costly, financially and emotionally. For the first time in their lives, many small investors were beginning to feel financially secure only to have wealth and dreams snatched away.
That lesson should be indelibly imprinted, but instead it will with time; it has always been that way. The unique tragedy of 2000 is that never before were so many inexperienced investors involved as in 2000.
The temptations were there as never before: stocks so hot they doubled or tripled in a few months, weeks or even days, and in a matter of hours in some cases. And which then sank.
Stocks of new electronics companies -- founded on big hopes, nurtured by venture capital firms, promoted by publicists, brought public by investment bankers and recommended by brokers -- arrived on the scene with full-blown, built-in momentum. Too often they had little else.
The lesson for investors who rode these stocks up, then down, is that they stood little chance of long-term success by mindlessly rushing with the crowd -- and that instead they had to do their homework and thinking.
In short, the lesson is that they cannot defer to strangers a responsibility for decisions that are theirs alone, and that they and they alone are their own most reliable fiduciary,
Self-reliance, personal responsibility and serious analysis were hardly the way of the marketplace during the big expansion. Instead, inexperienced investors too often relied on the opinions of "experts."
And then, too often, the so-called experts scorned fundamental analysis and bought into the momentum theory, the assumption being that a stock in motion would continue in motion regardless of its lack of earnings.
Earnings, it was reasoned, would catch up sooner or later; in the meantime, it was considered necessary to promote sales and revenues, the better to get a quick foothold and then grab market share.
It worked for a while because, to some degree, the stock market of the year 2000 did indeed reflect fundamental changes in the economy, mainly a new productivity thrust from enormous technological changes.
Still, wise investors knew that sooner or later the fundamentals had to reassert themselves.
They understood also that a company's shares are valued by its profits, products, assets, markets and management, and that while momentum might dazzle like a comet in the sky, by itself it has little substance.
Riding a momentum stock higher isn't a bad way to make a quick dollar, but the momentum theory doesn't say when to get off. And it tends to blind one to the fact that at 12 percent a stock doubles in just six years.
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