My take on the stock market: One must look at the long term patterns. The market today is in normal mode. This is how it was between 1940 and 1990. The anomoly is the period between 1990 and 2006 (+- a few years). So if you are scared and confused now, then you know how it was like for your parents and grand parents on a daily basis. Now you know why your parents did not get rich off the market, but through hard work and saving.

The first stock I bought was PamAm right after the movie 2001 came out. It was as good a shot as anything else. Lost my shirt. It was a good lesson.

The problem today is that the market anomoly was long enough for the majority of informed finance people to retire and a new group to come in. So the finance people in leadership today have no knowledge on how to run in this normal market. Same with the stock market computer programs, all designed for the anomolous market. Not giving in to relevent data, or too much data. So if you are young and started buying in the late 80s or 90s, you have no idea of risk and what the market is like in normal mode. If you are looking for that all-up market, start buying savings bonds.

Here are some major debates I had with friends in the company lunch room back in the 1980s who were educated and "following" the market:

Would Fortune Computers take over the desktop market? They had very nice designs, they were linked together so you only had to buy one dot matrix printer for four terminals, they ran on a solid UNIX OS. They were cheap, only $30,000 got you three terminals with 128K memory (for all three terminals to share), a 20 meg HD, word processing and MS Multiplan. The HD stored the computer software, all your data was put on 165k 5" floppy disks. Support techies were everywhere because everyone knew UNIX. The stock looked hot. Our CFO made millions off this stock. Me: zero.

Would Apple take over the desktop market? They just came out with the MAC and it was small, cool and hip. Still slow and not linkable. Tiny screen, about 5". Not cheap. Single floppy and no hard drive. The general thinking was that IBM could put them under and would at any time if Apple showed any real potential. I played stock options on this for about three months. The stock was all over the place. I checked three times per day by walking down to the Schwab center in SF and typing the symbol into their computer (wow, this is hot new technology). I would make 20% in the morning, be at a 50% loss at lunch, even on the way home. I was heading for a heart attack and sold to save my sanity. Profit: $80

Would Microsoft make it? They stole the CP-M OS and were hiring more attorneys than programmers. They hired a lipstick salesman to run maketing. Billy says "if this guy can convince people to buy a certain brand of lipstick then he can convince people to buy our products". They were in serious battle with: Apple over Mac BASIC software, IBM, lotus and Wordstar. Nobody had a real market share. The stock closed at 19 the first day. The next few months saw it hover between 16 and 22 with no real signs of significant movement. Theory was that this was going to be a long battle and it was keeping the stock from moving. IBM could put them to sleep at any time or someone like DEC, HP or Univac could buy them. DEC, HP and Univac had cash and needed to get a leg up on IBM in the PC market. These were serious possibilities or MS would just go broke for lack of cash. It is easy to pick winners from 20 years ago. We all can do it.

Would Columbia computers take over desktops from IBM? They were the first serious clone that could actually run some IBM software. We forget that most early IBM clones did not run IBM software, at least not well. So you either bought IBM computers or had a bunch of techies figuring out how long Visicalc would run until it crashed. OR finding a word processor that would run for more than five minutes. Or trying to get a clone to print. Now that was a serious issue. Getting a PC to print right was #1 support issued and could take days of fiddling. Only some programs would print right and some would jam the fan feed paper or loose the page break. No print spooling, the computer stopped when you hit print and did nothing until printing was complete. A dot matrix printer could take 45 minutes to print 30 pages and you went and did other non-computer work. Columbia Computers was probably the first tech rally. It opened at 9 and closed the day at 20 something. The owner of the company was an instant millionaire and ran out at lunch buy a Ferrari. On the way home he ran off the road and was killed. On day two, the stock crashed and the company was out of business in a month.

Companies like Sun and Cicso had these concepts for the future of computers and nobody knew if they would ever amount to much. There were a bunch of other companies just like Sun and Cisco who were just as viable but I cannot remember their names and they are long gone. But back then it was a roll of the die on which would make it and which would not. Again, hindsight picks are easy.

Out of the tech sector, you could safely buy all the utility stocks you wanted and they would not go anywhere; but would give you a 3-4% dividend. That was considered a great deal. Same with banks and auto stocks. Japanese cars were junky and would never challenge the big three. Hold that GM and Ford stock. Chrysler went bust and used the excuse of imports but everyone knew it was really bad management.

Gold and metals made no sense at all (pretty much like today). If you figure it out, call me and we can get rich together. So get off the hindsight train. The market is normal now. Work hard and save like your parents did. Ask them for advice.

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Copyright Peter Jay Smith 2005 Return to