Vol. I, No. 6: 2. Investing: The Visual Market -- The NASDAQ SuperNova

We hadn't planned to return to the current market conditions this soon. We offered a fairly recent up-date in our New Year issue, when we focused on The Year 2000 in Review. But we're again interrupting our look at Crashes & Recessions since 1984, which we'd begun in December, with a close-up on the Crash of '87. Why? ...

Well, the one-year anniversary of the NASDAQ's all-time high just passed on March 10th ... and, we might add, with no end to the tumble in sight. So we thought a closer look at this past year's NASDAQ performance would be in order. We won't go into the same sort of detail we have in previous installments of The Visual Market. We just wanted to paint the picture for you, nice and clear. ...

Needless to say, this NASDAQ anniversary is not particularly a cause for celebration. ...

One Man's Ceiling? ...
As we had seen in our Year 2000 in Review, at the end of '98, the Dow stood at 9181.40, the NYSE, at 1229.23, the S&P, at 595.81, and the NASDAQ, at 2192.69. In the year between then and the end of '99, the major indexes had managed an average gain of an astonishing 38.18% -- with the Dow yielding 25.22% ... and the NASDAQ, a staggering 85.59%, posting an average weekly gain of 1.25%. And while the more stable NYSE had posted a gain of less than 10% during the period, even the diversified S&P managed almost 20%.

Another Man's Floor ...
By the end of '00, all the major indexes would have been happy to manage those break-even goose-egg figures. Instead, collectively, they had managed to drop an average of -21.81% -- with the Dow giving up -7.40%, and the NASDAQ, a whopping -43.68%, placing it at only some 4.5% above its end of '98 level. The more stable NYSE had posted a loss of only -1.31% during the period, but the S&P also gave up lots of ground, losing more than 12.5%.

As we noted then, "every reasonable prediction will eventually come to pass." ... But it was this 'eventually' that made the NASDAQ tumble something of the shock that it was. The Market had become somewhat insensitive to dire prognoses, which had been forecast time and again fore more than a year, but without ever materializing. It was a classic case of the boy who cried, "Wolf!" ... or, in this case, "Bear!"

The NASDAQ's Past Year

Note: As in our previous installments, in order to make for easier comparisons between and among relative performances of the indexes, we are continuing to index at 1.0 on 8 OCT 1984, the beginning of the NASDAQ. For each of the major market indexes, the 1.0 is arrived at simply by dividing the then-current level of an index by itself. This becomes the baseline for subsequent measurements.

As you can see from the chart above, while the NASDAQ was already outpacing the other indexes at the beginning of 1999, it really wasn't until Q3 of that year that it began to run away toward is astronomical levels. It reached its high on 10 MAR 2000, when it tilted the scales at 5048.62., at twice the index level of the Dow, and substantially more than that when compared to the S&P and NYSE. ...

In any event, the now-inevitable correction had come. But the NASDAQ actually made a couple of runs at regaining some life blood, or, at the least, stopping the bleeding. Some six weeks after the NASDAQ had posted its largest weekly loss of more than 25% for the week ending 10 APR 2000, it also posted its largest weekly gain of nearly 19%. But, if you look at all these markets indexes since the inception of the NASDAQ in OCT 1984, it was the NASDAQ alone which managed to post a larger weekly loss last year than in the Crash of '87.

The problem, however, is that the NASDAQ was not only unable to stop the bleeding, it is continuing to bleed a year later. ... In the process, much of the dot-com world has lost most of its value. Dot-com stocks, highly speculative stocks, to be sure, many of which once traded at or above $100/share, can now be had for a few bucks, if that. But even many of the supposedly less speculative issues have taken some very hard hits.

Not Just the Dot-Com's ...
In fact, you don't even have to look at the NASDAQ to find technology issues that have been beaten back badly. Just look at the trio of stocks that once were AT&T. ... After posting a high above 62 a little more than 2 years back, AT&T had fallen to under 17 by the end of last year, a loss from its high of some 73%. And, even now, it is still below 24, which means it has still shed more than 60% of its high value. ... Lucent paints an even gloomier picture. After splits and an adjusted high of over 77 a the end of '99, by the end of February, Lucent had sunk to just above 11.5, a level it had not seen since March '97, representing a loss of more than 85% from the all-time high. And as of this writing, Lucent is still trading below 12.5, with a cumulative loss from its high of nearly 84%. ...

Only NCR, which, for a few years, looked like a dim prospect in the shadow of the promising and stellar performances of Lucent and AT&T, seems to have weathered the storm. After reaching a max of more than 53.25 back in April of '99, NCR reached a post-max low of 26.75 in mid-October of that same year, a loss of more than 55% of its value. But today, trading above 46.25, NCR has, as it turns out, shed only some 13% of its value from that all-time high. In retrospect, then, you've got to love once-dim NCR in comparison.

Is there a lesson here? ... Perhaps. ... As some old poet is supposed to have said: Love can either burn or last. It can't do both. ... The same, it seems, may be said of stellar market performance. ...

But, to be fair, on average {for which read, an index fund}, the markets still outperform other forms of investment. Since 1930, the Dow has averaged an annual return of just over 6.9%. Since 1950, the S&P has averaged better than 9.3%. Since 1966, the NYSE has managed a more-than-respectable 8.24%. And since October of '84, when the NASDAQ made its debut, each of these indexes has fared even better, with average annual returns of more than 14.5%, 13.4%, and 12.5%, respectively. And even taking into account the recent and massive losses, the NASDAQ has still managed an average annual return of better than 15%.

All those numbers would seem to suggest that an index fund, even one tagged to the tech-heavy NASDAQ, may still a safe bet for the long haul. And, given the current market, another old adage may be in order: Buy low ...

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