Stocks for the Long Run : the Definitive Guide to Financial Market Returns and Long-term Investment Strategies

pays to trade on any news affecting stocks. Trust me, look how well

we’re doing.

TIME:JULY 2000

Jen:Dave, I’ve looked at our broker’s statement. We don’t hold those In-

ternet stocks anymore. Now we own (she reads from the statement) Cisco,

EMC, Oracle, Sun Microsystems, Nortel Networks, JDS Uniphase. I

don’t know what any of these companies do. Do you?

Dave:When the Internet stocks crashed in April, I sold out right before

we lost all our gains. Unfortunately, we didn’t make much on those

stocks, but we didn’t lose either.

I think we’re on the right track now. Those Internet companies

weren’t making any money. All the new firms we now own form the

backbone of the Internet and all are profitable. Allan told me an impor-

tant principle: Do you know who made the most money in the California

Gold Rush of the 1850s? Not the gold miners. Oh, some of the early dig-

gers found gold, but most found nothing. The real winners from the Gold

Rush were those that sold supplies to the miners—pick axes, boots, pans,

and hiking gear. The lesson is very clear, most of the Internet companies

are going to fail, but those supplying the backbone of the Internet—the

routers, software, and fiber optic cables—will be the big winners.

Jen:But I think I heard some economist say those companies are way

overpriced now; they’re selling for hundreds of times earnings.

Dave:Yes, but look at their growth over the last five years—no one has

ever seen this before. The economy is changing, and many of the tradi-

tional yardsticks of valuation don’t apply. Trust me; I’ll monitor these

stocks. I got us out of those Internet stocks in time, didn’t I?

TIME:NOVEMBER 2000

Dave (to himself):What should I do? The last few months have been

dreadful. I’m down about 20 percent. Just over two months ago, Nortel

was over 80. Now it is around 40. Sun Microsystems was 65, and now it

is around 40. These prices are so cheap. I think I’ll use some of my re-

maining cash to buy more shares at these lower prices. Then, my stocks

don’t have to go up as much for me to get even.

TIME:AUGUST 2001

Jen:Dave. I’ve just looked at our brokerage statement. We’ve been dev-

astated! Almost three-quarters of our retirement money is gone. I

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