In Paul Krugman's column, Goldilocks and the Bears he notes that "when stock prices are rising, it's called 'momentum investing'; when they are falling, it's called 'panic.'"

Nasdaq composite index, plotted monthly

Looking at the bigger picture of how things have been going, the obvious question that no one seems to be asking is: how long did we think this was going to continue?

Ten, twenty or even 30% is a pretty good annual return on investment, but a hundred percent? So, the herd has panicked, back to where it was half a year ago. Seems like a pretty reasonable retreat to me. That it only took a few days, well, that's momentum for you. A 20% compound annual growth rate sustained for 10 years produces a six-fold growth; say the Nasdaq between 2400 and 3000. That looked pretty good last year!

Nasdaq composite index, plotted hourly

Have a look at Krugman's column if you'd like some reassurance that the US market in the oughts won't look like Japan's in the 90s. (A subscription may be required, sorry. Watch for the DoubleClick ad attack, too.)

April 16, 2000

Tom von Alten      tva_∂t_fortboise_⋅_org

Sunday, 16-Apr-2000 17:34:00 MDT