21 Dec Market Fluctuations: Balance in Your Life & Portfolio | Owner Update
Questions: How does one determine the correct balance and proportion in the portfolio of financial investments? At what level does one ascertain ‘enough is enough? Does a prescient investor sufficiently visionary to foresee the future and avoid collapsing markets exist?
Answers: Carefully, Unknown, No.
In all things, there tends to be a cycle of events. Activities and market proclivities swing from one extreme to another. If the timing is bad, buying high and selling low is possible, a sure-fire recipe for financial failure. The 1990s Long Beach area real estate collapse and the myriad real estate investors caught at the peak are stellar examples of wrong-time and wrong-place investing. In retrospect, it is possible to stand back and see severe market over-valuation. However, in the middle of the fray, everything appeared to be rising up with no end.
Recent Internet stock valuations could be a portent of another collapse. Like the Dutch tulip bulb bubble (where investors bid up the price of lowly tulip bulbs beyond the value of Dutch national economic output), Internet stock prices could be another set-up for collapse. A recent Forbes article noted:
‘America Online’ was worth more than GM, Ford, and the entire American steel industry combined.
‘Yahoo’ was worth more than Burlington Northern Santa Fe, Union Pacific, Norfolk Southern CSX, and all the rest of America’s railroads combined.
‘Amazon.com’ was worth more than Sears, Kmart, J.C. Penny, Saks, and Nieman Marcus Group combined.
‘eBay’ the online Internet auction site, was worth about the same as the New York Times Co., Dow Jones, and the Washington Post Company combined.
‘Red Hat’ which markets software you can get for free off the Internet (the Linux operating system), was worth more than British Airways, Japan Airlines, and KLM Royal Dutch Airlines combined.
These amazing comparisons do not tell the whole story of negligible or non-existent profits by many Internet companies. These Internet valuations begin to sound like the apartment sales of the 1980s with negative cash flows and no prospect of any return on investment outside appreciation. Is it wise to own assets that produce no profit income? While the jury is still out on Internet valuations, it is wise to assess portfolio balance and proportion against standard investment risk and security measures.
In a balanced approach, real estate ownership can make great sense as an offset to the apparent high-risk / high-flyer state of the stock market and Internet stocks in specific. All eggs in one basket could make for a large, scrambled egg omelet!
*This article is not to be consider financial advice. Please consult your financial professional before making any financial decisions.