Scary, Not Dangerous

When I was younger, I did some silly things. But we always held back from the brink (to enjoy days like today). My friend Tony Bove called it “scary, not dangerous.”

That’s what was going on Tuesday in the stock markets. The Dow fell back 500 points, and the “tech-heavy Nasdaq” fell 550, only to stage a comeback and finish down 50 and 75 points, respectively. (At one point late in the day the Dow was actually ahead a few points.)

There were good reasons for the slide. Speculation comes from fear (of falling) and greed (for gains), and for a short time the former drove out the latter. At some point during the day people who had borrowed money on their stock to buy more stock had their loans called, because the collateral was (briefly) no good.

On the other hand, good stocks did well. Amazon was actually up for the day. Applied Materials, which makes the stuff that makes the chips, shot up nearly ten percent. Yahoo is heading higher. When most long-term investors called their brokers after the market closed they were pleasantly surprised.

All that really happened, in the end, was that fashions changed. Internet financials like Knight-Trimark and E*Trade were out, chip technologies like Applied were in. Second-tier technology outfits like Unisys and PictureTel were out, while industry leaders Yahoo and Amazon were in. Linux stocks like VA Linux were out while Unix stocks like Sun Microsystems were in. Jennifer Lopez’s cut-down-past-the-navel dress was out, fishnet stockings were back in.

Most of the touts left feeling like they’d just been on one of those coasters at Magic Mountain scared but exhilarated. I personally think it would have been more fun if stocks had stayed down all day, so speculators had to sleep on their paper losses. But I doubt that would have done much it happened in late 1998 and the market came back stronger than ever.

In the end we all had a good laugh courtesy of the super-rich, most of them long Microsoft big-time. At one point on Tuesday Bill Gates was worth “only” $74 billion. (Call in his Amex card!) Paul Allen’s fortune fell behind that of Warren Buffett, and Steve Ballmer lost $4 billion.

That has as much relevance to our real lives and businesses as, say, Kathy Lee Gifford quitting her talk show, but it was fun to talk about, wasn’t it?

Your clue from all this is to do what I did during the worst of the market fall: I took my kids to a movie. If you’re the type who is wedded to your desk, however, stay there. Add real value to the world, sell stuff at a profit, and you’ll be rewarded in good time. You would have just wasted that Internet fortune anyway.