Forum Archive Index - April 2000

["nick" <acummin@es.co.nz>]

      I have just finished reading 

          THE BEAR BOOK

     Survive and profit in ferocious markets by john Rothchild

 

       It was a most entertaining read, its in chch library so if you have the

chance i recommend you check it out.

     The book was written in 1997, many then where already worried by the rise of the

dow to 8000! and many bears were already exiting the market in favour of cash.

      There is an interesting history of previous bear markets, what i found most

suprising was that the crash of 1929 wasnt nearly as bad as the media would have us believe.

       Sure it was bad but anyone investing at the beginning of 1929 and holding till the end

of the year, would of ended 1929 in profit. The market plummeted in october but

quickly recovered 50% of the losses.  The real action wasnt till 1931 when the

dow plunged 50%.

          The author talked to a hundred year old veteran of the 1929 crash who said

at the time it was much less traumatic than people think. There was no jumping from windows

as the media has reported and he describes the crash as more exciting than frightning.

       In an interesting parallel with the present day nasdaq most commentators

in 1929 looked upon the crash as a necessary tonic which took the froth off the market.

 Two weeks after the crash most commentators were still bullish (as now).

           There are many similarities between the situation  today and that of 1929.

         The 1920s had low inflation and good corporate profits, mutual fund were very popular in the 20s,

   it was also like today a time of great innovation  ie cars/computers.

    Stocks in 1929 had p/es over 20% like now.  In some ways the united states was in better shape in the twenties,

it had the fastest growing economy in the world,no trade or federal deficit, low taxes

and low levels of personal and corporate and national debt.

 There was also talk of a new era where inflation was conquered and high p/e valuations

were irrelevent.

             What really shines through from reading this book is that it is impossible to pick

when the big bad bear will appear.   The book was written in 1997 when many were already

advising cashing up due to the high stock prices/high debt etc. They would of missed the huge

run up of the nasdaq and to some extent the dow.

     Remember also that when history records how bad a crash was it always assumes you

bought at the top of the market. ie nasdaq plunges 35%, but who bought all their shares

at the top of the market?.

         One positive from reading the book is that those with NZ stocks (old economy low p/e)

have little to fear, in fact those paying decent dividend yields (unlike usa) are

just the type of stock to see you beat off any roaming bears especially those in

  drinks, pharmaceuticals, food supplies, oil, household products,telephones,electric utilities

and gold.

     So now might be a good time to top up those contact energy shares!!  Or are the bulls

going to dominate for a while yet?  Who knows? thats why investing in stocks is such fun

         nick