How high is too high?

investmenttool.com Cover Story

The NASDAQ has been moving like a ballistic missile.  How far can it go.

The NASDAQ Composite stock index first closed over 3000 in November.  A month later it now stands closer to 4000 than 3000.  Driven by an economy that seems to be slowing just the way Alan Greenspan wants it the question comes up.  Are we going a little too fast here?

Our models seem to think so.  Our measure of Internet stocks show them over 100% over valued compare to our proprietary basket of stocks.  In February, this measure peaked at 127 on February 19.   A few weeks later, Internet stocks started to slide in a drop that lasted until Summer.  Some issues like Amazon.com never fully recovered.  The stocks that did bounce back not suprisingly were the ones that make money.  America Online, Yahoo, CGMI.

This is the kind of stock market that makes stock pickers look like rocket scientists.  Take a look at some of our top picks.  Ciena, up 334% for 1999.  PMCS, up 284% for the year.  JDSU, up 247% for the year.  Yahoo, up 195% for 1999.  How about  America Online up a mere 188% for the year.  Cisco Systems is up 114%.  Sun Microsystems is up 250% for 1999.  The list goes on and on.

For 1999, we only have two losers on the book.  MCI is down 3% from our buy in February.  Compaq Computer is stuck 40% below where we bought it.  That's it.  Two losers in five portfolios with 25 stocks.  If we write a press release it will be to promote the web site, not to brag about our stock picking ability.  1999 was a year that made it easy to pick stocks.  The year 2000 might not be.

The S&P 500 is closing in on its fifth straight year of gains in excess of 15%.  1999 looks to be a bit of a slowdown for the S&P.  Last year it jumped around 25%.

A lot of factors may slow stocks down in the year 2000.  Alan Greenspan might slam on the brakes some more to keep the economy from overheating.  There may actually be some impact abroad from the Y2K computer bug (see Daniel's column for more on that).

One of our readers emailed me over the summer and predicted a massive financial market meltdown as Y2K came along and scared the market.  I disagreed forcefully in a series of email messages. I'll say it now.  I was right and you doomsayers were wrong.  The threat of Y2K did not hurt the market.  Y2K probably won't either.  If stocks drop in the year 2000, it will be because investors bid up prices too much in the past month.

There are a few things that can help the market in the weeks ahead.  There might be just a bit of euphoria when the world does not come to an end on January 1, 2000.  Some technology issues might see a bump when millions of their computers or software programs function perfectly.  I just hope the lights stay on.  It's been a good year,  I've made some money and we have a pretty nice web site here.  

Nothing in the above story should be construed or understood as investment advice.

Good luck folks.

Shmuel Protter
investmenttoool.com

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