Forum Archive Index - April 2000

[Phil Eriksen <phil@acepay.co.nz>]

Chong Family wrote:
> 
> I have read serveral news about today's NASDAQ plunge and found many
> with mixed views, some say it is caused by the 'analysts' comment so
> that they can pick up stocks at 'garage sale prices' and some say it
> will be ongoing and would take heck of a long time to recover.I think
> it is time to separate between those whick has the qualities to
> 'survive' in the future. Here is my view on our tech/e-stock:
> 

The Nasdaq could do anything from here in the short to medium term.  One
thing I haven't heard mentioned on Sharechat yet is
institutions/investment funds etc.  For the last couple years a number
of people have quoted the performance of tech-focussed funds (100%, 250%
etc etc) and questioned why I bother picking my own shares.  Now, lets
say amazon.com falls from $100 a share to $10 a share which at the
price, it can be easily seen to be undervalued and even Hugh is buying
(im making these numbers up, I question whether amazon will ultimately
have *any* value).  As somebody who had given my money to a fund manager
to invest, I would hope they would be rapidly buying amazon.com shares
that they were happily buying at $100 for the "bargain" price of $10.  

They won't be, for just as shares are at their lowest point and there
seems to be many fairly/under valued stocks, these funds will be faced
with a spree of redemptions from their investors.  Instead of being able
to buy, they have to sell.  It's happened before, and will happen
again.  "Professional" investors have played a major part in the tech
saga, firstly by scoffing and avoiding the stocks, and then realising
they couldn't retain their cushy jobs and investors funds without
boasting returns only available via tech.  Result - bubblemania.  

It's often been said that markets tend to travel between over and
under-valuation and the institutions play a major part in this.  When
stocks are overvalued, investors throw money into these funds in their
droves, forcing even higher valuations.  And when the worm turns,
investors pull out their money, meaning that stocks have to be sold to
repay investors, sometimes at whatever price.

No thanks - i'll pick my own!

Cheers,
Phil

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