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The Year 2000 Part 2

The Year 2000 a look back (part 2)
This commentary is a continuation from last night.  If you missed it you can read part 1 of this commentary in the Bulletin index on the left side menu. 
The reason most people lost money in the 2000 Bear market is because they didn't know how to protect themselves from losses.  Some people will say but I'm diversified well we got news for them.  In a bear market all stocks go down eventually.  Not all at the same time but they will eventually and its only when the last of the resilient leaders fail and lose most of their value that the bear will go back into hibernation and a new bull will emerge.  I remember leaders like NT EMC and CSCO were the last of the titans to fall in the 2000 bear market.  While most everything else got slaughtered in 2000 these stocks were still holding up and were near their all time highs and stayed there until mid 2001.  By that time they finally gave in and collapsed.  By Oct of 2002 they to had hit bottom.  Even somebody with a diversified portfolio of one leading stock in each sector lost 50% or more of their portfolio balance by trying to hold on and refusing to sell.  The only defense against a bear market is a move to cash or of course short selling stocks and buying put options.
Former Market Leaders
We have compiled the following list of former high flying market leaders.  The list includes how much of a loss in price they suffered from their all time high to their low and the time frame that it took to occur.   Many of you may have owned some of these stocks.  If you sold and cut your loss when they started going down congratulations.  You may have lost some money but you didn't lose as much as millions of other investors did.  Remember the best offense is a great defense and the best defense is a tight stop.
AOL  lost 91% in 2.5 years 
T    lost 83% in 3.5 years
AMZN lost 95% in 1.7 years
AAPL lost 86% in 9 months
CC lost 91% in 3.5 years
CSCO lost 90% in 2.5 years
GLW lost 99% in 2 years
EMC lost 96% in 2 years
F lost 83% in 3 years
GE lost 65% in 2 years
GT lost 96% in 5 years
HD lost 71% in 2.7 years
INTC lost 83% in 2 years
JDSU lost 99% in 2.5 years
JPM lost 77% in 2.5 years
LU lost 99% in 2 years
MU  Lost 93% in 2.5 years
NXTL  Lost 97% in 2.2 years
NT lost 99% in 1.8 years
ORCL lost 84% in 1.7 years
QCOM lost 88% in 2.5 years
SUNW lost 96% in 2 years
TXU lost 86% in 7 months
ERON  lost 100% bankrupt
WCOM lost 100% bankrupt
KMRT lost 100% bankrupt

Diversification is Not the Answer
There are many more stocks that lost over 90% of their value but we list these because they were all market leaders in their respective sectors.  They were the kings but even the leaders can not last when the powerful forces of a big bear market hits.  Somebody who had a diversified portfolio of 12 leading stocks in different sectors like GE GT JPM TXU INTC CC F HD CSCO JDSU T and EMC would have lost an enormous amount of money in the bear market of 2000.  These are all still great companies but they will never lead again.  The buy and hold investor will never recoup their losses waiting on these stocks to return to all time highs.  Some of these former leaders will never be leaders again their companies have grown too big and the stocks move too slowly. Most will never again see their all time highs and if they do it will only be a slim few and it will take years to get there if ever.  There is no such thing as a safe stock.  Even stocks that everyone thought were safe blue chips were filled with scandal and fraudulent book keeping and eventually went bankrupt.
Don't make the classic excuses
Diversification is not a realistic fool proof way to safe guard your portfolio as evident from the above list.  The only safe protection you have is to get out of the way when the avalanche strikes and it all comes tumbling down.  Stop loss orders that get you into cash serve that purpose; they get you out of the way fast.  You are now safely on the sidelines watching it all flow past you like the rush of a tremendous raging river.  Don't be one of those investors that argues with the market and gets swept away or is oblivious to what is happening around them.  Some stubborn people were just in denial.  They had excuses for their stocks lack of performance but if they had only looked at the charts of the indices they would have seen that there was no chance.  Not a single stock could have withstood the downward pressure that was being forced on the indices at the time.  Looking at the charts of the indices it was obvious there was no other choice but to get out of the market and get out fast.  There were so many excuses from many people as to why they were not selling maybe you have heard these to or regrettably maybe you even used them at one time. 

I'm a long term investor; I'm not worried about these corrections
But I'm in it for the long haul the mark

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