Observing US: A column about America, by Marylaine Block originally published by Fox News Online, 1998-2000

#64, December 7, 1999

TAKING STOCK

by Marylaine Block

Do those ads for online stock trading bother you as much as they bother me? The ones with these arrogant young men saying things like, "I don't need a financial babysitter," and "I want to make my own decisions," and "We plan to be very, very rich."

Could the real e-traders be this young and smug, so young they have never known a stock market that was NOT going up every year? In 1987, when the market plunged 500 points in one day, had they even gotten their learner's permits yet? In 1989, when politicians finally admitted taxpayers would be stuck with paying for the savings and loan mess, had these kids even graduated from high school? Would they just stare at us blankly if we mentioned Nicholas Leeson, whose bad investments ruined a major British bank, or Orange County, which defaulted on its debt after it also lost megabucks on high-risk investments? Have these daring young traders even heard of the crash of 1929?

A roaring market like this brings in speculators who count on selling their stocks at a profit, who might not grasp that the current market value of their stocks is not a guarantee but merely what people are willing to pay for them at this moment. Their stocks might be worth $500,000 today and plunge to $300,000 tomorrow. The only way to guarantee the $500,000 is to sell them when they're at that point.

In the long-term, investing in a solid company that makes good products and wise decisions should pay off. But in the short-term the inherent worth of the company has almost nothing to do with a stock's price. THAT depends on belief: what large numbers of investors think it's worth, and what they're willing to pay for it. For inexperienced investors, belief may be the first casualty when the market starts dropping.

If too many of them are buying on margin, we could all be in trouble. Buying on borrowed money works out well enough as long as stock prices keep going up. But when prices go down -- and history teaches us they WILL go down -- investors have to come up with the money to repay those loans. Part of the reason the stock market plunged so disastrously in 1929 was because of margin calls -- hundreds of thousands of people had to repay by dumping stocks that hardly anybody was able or willing to buy.

Another problem that always crops up when so many people want to get into the market is all the con artists who set up shop as financial advisers and investment specialists. We're already starting to see stories of people who've lost their life savings to ill-advised or actively fraudulent investment schemes.

And then there's Y2K. No, I'm not worried about the banks and investment firms -- they've already tested their Y2K fixes and seem to have all the bugs worked out. I am a little nervous about people getting panicky this month and pulling their money out en masse, though.

We've been fortunate to be to have been in a wonderful investment climate for such a long time now, with low inflation and some very solid young companies to get in on the ground floor of. Yahoo and Amazon and some of the other technology stocks are excellent companies, with good business concepts and millions of regular users; their CEO's would have to be brain-dead not to make money on that eventually. If you bought them at $19 a share, like I did, they're going to pay off. But if you bought them at $400 a share, don't count on it.

I don't get the feeling that those cocky kids who want to be rich next Tuesday are the patient sort. They worry me. I wouldn't mind if THEY lost their shirts -- it might teach the arrogant little twits a useful lesson. But they might make a mess that we'll have to clean up after. That financial babysitter they were so sure they didn't need isn't going to be Uncle Sam -- because Uncle Sam is us.

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