Waiting 15-Years to Get 0%

Could you imagine buying a stock 15–years ago just to see the valuation at exactly the same price today?  Maybe.  But can you imagine having a portfolio comprised of more than 4,000 companies that made absolutely zero gain in last 15-years?  Well that portfolio (index) is called the NASDAQ, and it just happened!  The other two notable indexes you hear about are “the Dow,” and the “S&P 500.”

On March 10, 2000, the NASDAQ index closed at 5,048.  Today (early March 2015, and 15-years later), the NASDAQ is hovering right around 5,000.  So who was the fool buying companies at the peak of the NASDAQ index back in 2000?

First, a brief summary about what the NASDAQ index is.  According to Investopedia, the NASDAQ is:  “A global electronic marketplace for buying and selling securities, as well as the benchmark index for U.S. technology stocks.”  Basically, it is the index that tracks technology stocks like Apple, Google, and Amazon.

In 1999 and 2000, nearly every short sighted, greedy, emotional, non-sophisticated, Joe and Jane wannabe investor was opening a brokerage account and purchasing technology stocks they knew nothing about.  There was no technical or fundamental approach to investing.  There wasn’t even a reason for investing in the companies people were investing in other than hearsay from someone at the proverbial water cooler.  And they did it because they wanted to ride the title wave of immediate wealth that seemed to have no end or limit in sight.

I very clearly remember those days back in early 2000, but three distinct memories really stand out.  (Note: I wasn’t a Financial Advisor back then, but I was following the markets, buying individual stocks, and systematically deferring part of my salary to my 401k.)

The first vivid memory was of working out at the gym.  No, it wasn’t because I was going for a bench press record (quite the contrary).  It was all the banter and endless conversations between members at the gym discussing their picks, buys, sells, profits (in their stock portfolio), and what their next move was.  Everyone seemingly knew of a stock that was ready to ‘double’ within the next week.

One gentleman in particular was telling me that once his ‘non-retirement’ portfolio hit $50,000, he was going to cash it out and buy a Porsche Boxster.   He was going to do this because he had started with $10,000 only 6-months prior.  I’m not sure if he ever ‘hit’ his target of $50k or if he purchased a Porsche, but that memory has forever stuck with me as it reminds me of someone in Vegas making the same statement at a roulette wheel.

My second ‘vivid’ memory was the crazy growth of a particular tech stock held in my own portfolio.  It grew over 700% in about a year.  Imagine what 700% growth on any of your single positions would make you feel like!  I did, however, have the foresight to sell off one-half of the earnings of that position, but still remained bullish that it would continue to climb.  Yes, I too, was caught in a little bit of the mad hysteria.

These two memories serve to remind me of the euphoria surrounding the potential abundance of cash that could be made if you just ‘did what everyone else was doing.’  This is also known as herd mentality, a sometimes very dangerous path to take!

So, as all good things must come to an end, ‘yes,’ my third vivid memory is that of the tech crash that consumed hundreds of billions of dollars in wealth (that was once thought to exist in the form of stock shares) over the next 2 ½ years.  I watched (as did everyone else) as the NASDAQ plummeted more than 31% in only 30-days!  It was a very sobering moment that many people knew was coming, but didn’t want to see or participate in.

The downhill slide continued for the remainder of 2000, was negative for 2001, and was (you guessed it) negative for 2002.  Some stock positions that might have been worth $10,000 at the peak, were worth maybe $100 or less in peoples’ portfolios after this crash.  Very few people had the stomach to invest in anything ‘tech’ for the next few years after that.

If there was a bright side to this real life lesson (at least for me), it was the fact that I had been systematically putting away 10% of my income into our company 401k plan through those same years.  No, my 401k was not growing during those dark investment years either.  I actually had negative returns on my portfolio for 3-years straight.  In fact, the value of my account was dropping more than the contributions could add to it during those years.

The bright side started ‘shining’ during the 4th quarter of 2002.  It was then, that all those contributions to my retirement account (that had purchased more and more shares as the price dropped) began “the climb.”  The magic of compounding interest was alive and well in my account.  Many of those shares were now trading higher that what I had purchased them at…and the account continued to do this over the next 5-years.  Patience and perseverance paid off!

What happened in 2007 is a discussion for another time.  It was a similar story, but in a different way.  It was caused by a different economic event at a different time, and affected different people at different states of their lives.  However, the ending (in 2009 through our current day) is very similar.

In conclusion, the last 15-years have produced some wild rides in ‘the stock market.’  Yet, the stock market marches on.  It punishes those who are greedy, and rewards those who have the patience to know that wealth is earned over time.  And it will fluctuate just as it has always done.

While history is not guaranteed to foretell our future, just look back at the last 119-years of the Dow Jones Industrial Average (AKA: “The Dow”), and I’ll leave you with this fact:  During the ‘Panic of 1896,’ the Dow Jones Industrial Average bottomed out at an index of 28.48. Today (March 5th 2015), the Dow Jones Industrial Average closed at 18,135.72.  You do the math!!


The opinions voiced in this article are for general information only. They are not intended to provide specific advice or recommendations for any individual and do not constitute an endorsement by NPC. To determine which investments may be appropriate for you, consult with your financial professional. Please remember that investment decisions should be based on an individual’s goals, time horizon, and tolerance for risk. Investment in stocks will fluctuate with changes in market conditions and indices are unmanaged measures of market conditions it is not possible to invest directly into an index. Past performance does not guarantee future results.