Home Page -> Commentary -> 16 April 2000 (Stock Market Blues / Music Review)

Comment of the Fortnight
16 April 2000
Stock Market Blues

On Friday, 14 April 2000, the NASDAQ stock market had its largest point loss ever (and so did the Dow Jones Industrial average). Over the past week, the NASDAQ average has lost some 25% of its value, and some stocks have lost even more. Everyone is wondering what will happen when the markets open in the US on Monday, and all the analysts are analyzing, and the pundits are making pronouncements. I'm not a stock analyst, and I am hardly a power investor, but why should that stop me from sounding off?

Who Should Worry?

I'm mirroring the “conventional wisdom” here. If you're in the market for the long term, and you have a diversified portfolio, you shouldn't worry. The Dow dropped only 6% on Friday, which is far from its biggest percentage drop ever.

If, on the other hand, you bought into the market when it was high, and have a lot of money in the high-risk Internet stocks, and you bought on margin, I'd definitely feel more than a bit unsettled.

Will The Market Go Down Further?

I'm not a psychic, and I don't even play one on TV. However, I will make a not-so-bold prediction: maybe no, probably yes. As to where the actual bottom will be, that's another job for the Psychic Friends Network.

What Happens at the Bottom, or on the Way There?

This is where things get interesting. As the market in general slides, there is a group of people that will start to buy stocks at bargain prices. The question now becomes: Which stocks will they pick up at those prices? This one seems to be obvious. Compare these two fictitious companies. Which one would you when you felt it was time to pick up some cheap stocks?


Last year high:$80.00
Price two months ago:$50.00
Price now:$30.00
Products:Pastries, specialty coffees and teas
Revenue:$60 million
Profit:$3 million


Initial Price:$20.00
Highest Price:$420.00
Price two months ago:$50.00
Price now:$18.00
Profit:$-2 million

Some internet companies have been grossly overvalued. This drop in prices has been a nice bucket of cold water over investors' heads. Some investors may re-invest in the high-tech sector for those products that they believe in strongly, but most people won't jump in and start buying the dot coms again until their stock prices reach a level that matches the companies' actual values. (All of this, of course, presumes that investors will act in a clear-headed, rational manner. Whether that will actually happen is anyone's guess.)

A Crucial Distinction

The biggest downside of this drop in value is that analysts and investors might throw the baby out with the bathwater. We have to be very clear to distinguish between the worth of an idea or product and a company's implementation or business model for that product. The fact that a Linux-oriented company's stock is dropping does not mean that Linux is a bad idea or a worthless operating system.


I've always been terrible at writing conclusions, but that's OK in this case, since I don't see any conclusion to this episode anywhere in the near future.

Music Review

Randy Newman is a national treasure. I bought a copy of his musical, Faust (Reprise 9 45672-2), and it is marvelous. The musical itself has been produced and performed publicly for a few times, but did not make it to Broadway. So, this is somewhat of a rarity - an original cast album of a show that very few folks have seen.

The casting is perfection, with Randy Newman as Lucifer, Don Henley as Faust, and Bonnie Raitt and Linda Ronstadt as their love interests. James Taylor does a superb job as the Lord.

My favorite tracks are Glory Train (the first half of which is a great gospel song in its own right), How Great Our Lord, in which you hear a side of James Taylor that you never imagined, and Bleeding All Over the Place, a great “lost love” ballad as only Randy Newman could write and sing it.

If you don't mind an irreverent view of religion, you will very much enjoy this album. Be sure to read the liner notes; they are brililantly written and they put the songs in the context of the show.

Let me know what you think.

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