It is a bleak sunny day in April 2000 and I just arrived at my office at a private bank in New York City. I am an assistant portfolio manager at a $5 billion global growth fund. That morning, the New York Times headline reads: “THE STOCK MARKET IN STEEP DROP AS WORRIED INVESTORS FLEE, NASDAQ HAS ITS WORST WEEK”.I have my own office on the 20th floor overlooking Park Avenue. Far below me I can see an endless line of yellow taxis driving up and down Manhattan, rushing people to work, pursuing their next deal. Life is sweet and I feel very smart… until today. My screens are red and this is a sure sign our clients are losing millions of dollars. I instruct my trader to sell a few high growth technology stocks trading in Europe to create some cash. I wish I could have bought some insurance in the form of put options. Unfortunately, we are limited in what we can do: our fund, like most others, has to be invested 95% all the time and can only buy growth stocks, no options. This is madness in a time like this! There is no place to hide for mutual funds when markets tank. They are all losing a lot of money.
Just a few months earlier, the founders at eXcite, a young Internet Search company, were talking to two geeks who made a new search engine and offered it for sale. eXcite thought the $1 million asking price was to high. eXcite declined, even when the two geeks lowered their price with 25% to $750,000. Today, the two geeks, Larry and Sergey, run Google [Alphabet] valued at $442 billion. eXcite went bust and one of the founders is now working for Google. Who was brilliant and who was not is very easy to say in hindsight, right? But could you have made a better decision at that moment in time? I bet we would all have called Larry and Sergey optimists and wished them good luck, nothing more. During this same time, Amazon.com was busy being the new disruptive online retailer and its share price rose to $76 in December 1999. The same share crashed subsequently to $7 in 2001. Today, Jeff Bezos, the founder, is a happy man because Amazon is trading at $505. Now, was he a genius, then became stupid and became a genius again or should we call him an optimist?
You see, we scare ourselves easily and become depressed quickly. We experience and qualify events with our short-term memory as reference, with a strong preference for the negatives. Yet, during the last 100 years we have been through two world wars, quite a few smaller wars, the Great depression, many smaller recessions, financial panics and big crashes. During this time, the Dow Jones Industrial Index rose from 66 to 16,846!
We have to accept the path will be rocky and uneven. Looking back on those months during the dot-com crash in 2000, it is easy to say in hindsight I had the wrong perspective. I was trying to be smart. I know better now. Be an optimist: it pays!