‘90s Wall Street: What We’ll Miss--and Won’t
A standard line after the 1970s ended was that no one would ever be nostalgic for that decade. Which was certainly true on Wall Street, given the worst bear market since the 1930s (in 1973-74), the oil crises and the surge in interest rates.
But the ‘80s and the ‘90s, of course, have been so good to owners of stocks and bonds that it’s now hard for many people to imagine that investing isn’t always a massively successful endeavor.
Will we miss the ‘90s, in particular? What’s not to miss about a 17.7% average annualized return on blue-chip stocks--unless the new decade somehow can improve on that stellar number?
Herewith, a markets-oriented look back at the decade now ending, including some reasons to be wistful, and other reasons to be happy we’re moving on:
What we’ll miss most about the ‘90s: For starters, how about tech stocks at bargain prices--which is where they were, in many cases, until the last two years.
Such currently highly valued shares as Dell Computer, Oracle, Sun Microsystems and Intel spent much of the decade languishing at far lower price-to-earnings ratios, both in absolute terms and relative to the average market P/E.
In fact, many of these marquee tech growth stocks were arguably value stocks in the mid-1990s.
Is there a lesson here about today’s beleaguered value stocks?
* Fundamental analysis. Remember when investors actually researched stocks, which meant reading balance sheets and income statements--not just someone else’s anonymous stock tout on a cheesy Internet bulletin board?
* Warren Buffett as a market sage. For much of the ‘90s, what Warren said was viewed as gospel, and for good reason. But now shares of his holding company, Berkshire Hathaway, are at $54,000 apiece, down 39% from their 1998 peak. His Coca-Cola and Gillette holdings, among others, have been dogs for two years.
Does Warren, the model of the diligent investor, need to learn new tricks--or will he have the last laugh over the “momentum” investors and other high-risk-takers who now look so brilliant?
* Foreign economic crises. OK, it’s not nice to want to benefit from others’ pain, but that was exactly what Wall Street did for much of the ‘90s. Crises in other markets--in particular, the Asian economic debacle that began in 1997--kept capital, and cheap exports, flowing into our markets, boosting stock and bond markets and putting a lid on inflation.
What we’re about to find out in the new decade is whether there’s room enough in capital markets for everyone to prosper simultaneously.
* Meaningful stock dividend yields. I know, practically nobody cares about earning significant dividend income on stocks anymore. The tax bill is too steep, and anyway, there’s more return potential in focusing on capital gains.
But if those capital gains aren’t so easily earned . . .
* Brokerage ads with dignity. I, too, am amused by the antics of Stuart in the ads for online brokerage Ameritrade. Some of the other online brokerage ad campaigns also have been quite witty. But how funny is their trivialization (or worse) of the potential for stock trading losses to neophyte active online traders who now are deep in the red?
What we won’t miss about the ‘90s: No. 1 on the please-go-away-and-stay-away hit list has to be the incessant ‘90s worry that inflation is “just around the corner,” especially if we have decent economic growth. Hello? We have very good economic growth. We don’t have soaring inflation. This is not our fathers’ boom-and-bust style economy.
Give Federal Reserve Chairman Alan Greenspan some credit: Yes, he’s still fretting publicly about the potential for inflation to roar back. But by and large he has steered an accommodative policy at the Fed that in recent years has acknowledged that faster growth doesn’t have to lead to higher inflation.
* Gold as a safe haven. Pity the people who, perhaps along with believing that inflation was just around the corner, believed that gold in the ‘90s was on the verge of another big move up.
An ounce of gold on Dec. 31, 1989, cost $405. Today’s price: $287. Crises have come and go, but gold just isn’t the first asset to which people think about running anymore. That may have been a logical reaction at the end of the last millennium--when people also thought the world was flat. But it’s time to move on.
* The Beardstown Ladies as market sages. This Illinois investment club, with its popular 1994 book marketed as a “common-sense investment guide,” helped fuel the boom in clubs by demonstrating how they “beat the stock market--and how you can, too.”
As it turned out, the ladies had trouble with their math: It was revealed in 1998 that they hadn’t beaten the market, after all.
* Brokers who think they know it all and who thrived in part by keeping information from their clients. The Internet can provide plenty of misinformation. But the power of the Net now allows investors to know as much about individual stocks and funds as they care to know--which, as some investors have found out in recent years, is a lot more than their brokers know.
* The rigged Nasdaq Stock Market. It’s almost hard to believe how wide bid-and-asked price spreads were on Nasdaq stocks until the government finally forced Nasdaq dealers into a massive settlement in 1996 that ended widespread price-rigging, and boosted competition from new trading venues.
The dealer market may not be the completely level playing field small investors would like, but it’s vastly improved from what it was.
Lastly, a few market disasters we’re still waiting for: “There’s never a good time to invest,” someone once said--and it’s true, if you consider that at any moment, doomsayers can make the argument that disaster is just around the corner.
Remember the “derivatives” time bomb? In the early ‘90s it was fashionable to worry that all of those complex financial derivative securities contracts among banks and other large institutions would wind up like so many fallen dominoes, burying the global financial system. We’re still waiting.
Likewise, we’re still waiting for Japan’s economic woes to bring the rest of the world down, and for “inexperienced” small investors to panic en masse and trigger a horrendous bear market in stocks.
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Tom Petruno can be reached by e-mail at tom.petruno@latimes.com
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You Knew Them When ...
* Warren Buffett: The billionaire was the most celebrated market sage for much of the decade. Now, many ask, has he lost his touch?
* Betty Sinnock: A charter member of the Beardstown Ladies, she symbolized the rise of the small investor;even though her math wasn’t so good.
* Alan Greenspan: The Fed chairman’s interest rate policy has nurtured the bull market of the ‘90s, but he’s still fretting about inflation.
