Zbigniew Piekarski reviews market performances in years past to assess current investment sentiment
Do you remember the start of 2000? The WIG 20 opened at 1,862.90 and closed at 1,852.90, recording a loss on the first day. It bottomed on January 5 at 1,739 and then took off in March when, on the 10th, it peaked at 2,510.50 before closing at 2,481.8. Oh, that was a good run.
I just wanted to remind you of that euphoric feeling that investors had at that time as markets soared to new highs and optimism prevailed. We were building a new world then, not like the one that we had emerged from. All limits were consigned to posterity. A "New Paradigm" ruled. We were healthier, wealthier and wiser than the preceding generations, and our future destiny lay in the land of plenty.
It was that January that the Fed started its policy of rate reductions. The markets responded as they had done in the past during times of high inflation and high interest rates when each reduction boded well for business, as it increased consumer spending and sent a warm glow throughout the land.
Then things started to go wrong. The markets started to stair-step lower. Each reduction in interest rates by the Fed was met with less and less enthusiasm. Even the WIG20 reacted to this disappointment, reaching a low of 1,472.80 on October 13, 2000 before rebounding in December.
At that time, the pundits ascertained that the market was out of step with the "real" economy. The pessimism indicated by the indexes was overdone as the economy was so much stronger. But the notion was that profits would return after the excesses had worked off through the system so we could revive to build another Tower of Babel - this time on more solid foundations.
Unfortunately, December 2000 ended on a very sour note. On December 29, a formation known as a Gravestone Doji appeared. The wise men of the Orient view the Gravestone Doji as an indication that all those who enter the market after it arrives die and become ghosts.
Oh, is wasn't a "classic" Gravestone Doji, as there was a 1.53 point difference between the open (1,817.72) and the close (1,816.19) and a 2.78 point difference between the open and low (1,814.94), and the shadow may have been longer (only 20.5 points). But for my money on 1,800 points, a point or two are margin for error, so it was a Gravestone Doji.
And what did the index do throughout 2001? It fell. It fell from a print high of 1,838.58 on January 4 (closing at 1,826.19) to a print low of 977.98 on September 25, recovering to end December 31 at a closing price of 1,208.34, a fall of some 34.27%.
The year 2002 started off in a spirited mood. The index opened lower at 1,202.03, but attained a high of 1,217 and closed at the high, an indication of the strength to come. It then proceeded to fly, with gains of roughly 5% on January 3 and 9.
On January 25, it touched 1,482.44 before closing at 1,464.10, a gain of 21.80% in 17 days. The boys and girls were pleased and many a bottle of champagne (French this time) must have been quaffed in celebration of the money made and the good times to come.
Then January 28 started full of optimism as the boys and girls had the weekend to cure their hangovers. The index was priced up from the start by 19.5 points, opening at 1,483.6. It was on that day, that fateful day, that the market delivered its verdict. It fell from an open of 1,483.61 to close at 1,423.58, a resounding 4% down.
By May 8, the direction that the market would take over the succeeding months was apparent. It had completed its Wave 5 Inverted impulse, closing at 1,297.95, some 12.5% off its high but still 80 points to the good from the first day of January. There would be a rebound, naturally, but that rebound was the last flag given for the punter to take profits and run.
The index gained by 5% on May 16 and then consolidated around 1,380 for 14 days in succession. Think about it - 14 days. That's three working weeks.
Given the prior direction of the market (downwards), one would think that it was merely resting before it resumed its downward trend, and any investor worth his or her salt would close their positions and accept the little bit given which, assuming one entered on the first day at 1,217 and sold at 1,380, would have been a gain of 13.4%. This would have been better than holding throughout the year and ending it with a 2.1% loss, which is probably the case with all "buy and hold" investors.
In December 2002, Washington-based Penn, Schoen & Berland Associates conducted a national telephone survey of 500 US investors to get their opinions about the current investment situation. Seventy-two per cent said that they still had the same degree of faith in capitalism as five years ago, although 63% said that they had lost faith in corporate managers' ethical standards, while 47% said they had less faith in Wall Street's integrity.
I believe that "ethical standards" and "integrity," just like "corruption," are roughly evenly distributed throughout the world, both in terms of geography and time, and that they only vary to the degree that they are "discovered." So, by the time this "contraction" ends there will be far fewer believers in the present version of "capitalism." And I place those individuals who are tempted to invest in bond funds in the mistaken belief that double-digit gains are theirs for the taking, as the first ones to become disillusioned.
"Democracy is a device that ensures we shall be governed no better than we deserve." - George Bernard Shaw
I just wanted to remind you of that euphoric feeling that investors had at that time as markets soared to new highs and optimism prevailed. We were building a new world then, not like the one that we had emerged from. All limits were consigned to posterity. A "New Paradigm" ruled. We were healthier, wealthier and wiser than the preceding generations, and our future destiny lay in the land of plenty.
It was that January that the Fed started its policy of rate reductions. The markets responded as they had done in the past during times of high inflation and high interest rates when each reduction boded well for business, as it increased consumer spending and sent a warm glow throughout the land.
Then things started to go wrong. The markets started to stair-step lower. Each reduction in interest rates by the Fed was met with less and less enthusiasm. Even the WIG20 reacted to this disappointment, reaching a low of 1,472.80 on October 13, 2000 before rebounding in December.
At that time, the pundits ascertained that the market was out of step with the "real" economy. The pessimism indicated by the indexes was overdone as the economy was so much stronger. But the notion was that profits would return after the excesses had worked off through the system so we could revive to build another Tower of Babel - this time on more solid foundations.
Unfortunately, December 2000 ended on a very sour note. On December 29, a formation known as a Gravestone Doji appeared. The wise men of the Orient view the Gravestone Doji as an indication that all those who enter the market after it arrives die and become ghosts.
Oh, is wasn't a "classic" Gravestone Doji, as there was a 1.53 point difference between the open (1,817.72) and the close (1,816.19) and a 2.78 point difference between the open and low (1,814.94), and the shadow may have been longer (only 20.5 points). But for my money on 1,800 points, a point or two are margin for error, so it was a Gravestone Doji.
And what did the index do throughout 2001? It fell. It fell from a print high of 1,838.58 on January 4 (closing at 1,826.19) to a print low of 977.98 on September 25, recovering to end December 31 at a closing price of 1,208.34, a fall of some 34.27%.
The year 2002 started off in a spirited mood. The index opened lower at 1,202.03, but attained a high of 1,217 and closed at the high, an indication of the strength to come. It then proceeded to fly, with gains of roughly 5% on January 3 and 9.
On January 25, it touched 1,482.44 before closing at 1,464.10, a gain of 21.80% in 17 days. The boys and girls were pleased and many a bottle of champagne (French this time) must have been quaffed in celebration of the money made and the good times to come.
Then January 28 started full of optimism as the boys and girls had the weekend to cure their hangovers. The index was priced up from the start by 19.5 points, opening at 1,483.6. It was on that day, that fateful day, that the market delivered its verdict. It fell from an open of 1,483.61 to close at 1,423.58, a resounding 4% down.
By May 8, the direction that the market would take over the succeeding months was apparent. It had completed its Wave 5 Inverted impulse, closing at 1,297.95, some 12.5% off its high but still 80 points to the good from the first day of January. There would be a rebound, naturally, but that rebound was the last flag given for the punter to take profits and run.
The index gained by 5% on May 16 and then consolidated around 1,380 for 14 days in succession. Think about it - 14 days. That's three working weeks.
Given the prior direction of the market (downwards), one would think that it was merely resting before it resumed its downward trend, and any investor worth his or her salt would close their positions and accept the little bit given which, assuming one entered on the first day at 1,217 and sold at 1,380, would have been a gain of 13.4%. This would have been better than holding throughout the year and ending it with a 2.1% loss, which is probably the case with all "buy and hold" investors.
In December 2002, Washington-based Penn, Schoen & Berland Associates conducted a national telephone survey of 500 US investors to get their opinions about the current investment situation. Seventy-two per cent said that they still had the same degree of faith in capitalism as five years ago, although 63% said that they had lost faith in corporate managers' ethical standards, while 47% said they had less faith in Wall Street's integrity.
I believe that "ethical standards" and "integrity," just like "corruption," are roughly evenly distributed throughout the world, both in terms of geography and time, and that they only vary to the degree that they are "discovered." So, by the time this "contraction" ends there will be far fewer believers in the present version of "capitalism." And I place those individuals who are tempted to invest in bond funds in the mistaken belief that double-digit gains are theirs for the taking, as the first ones to become disillusioned.
"Democracy is a device that ensures we shall be governed no better than we deserve." - George Bernard Shaw
