March 23, 2001

What Comes Down Doesn't Always Go Up

What goes up must come down. But what comes down doesn't necessarily go up, and a lot of investors have yet to learn that fact. When they do, it will be a hard lesson indeed.

The reason stocks are falling so precipitously -- stocks prices grew at 'too good to be true' rates over the past several years and investors have now realized that they're not worth it and have started to sell. Some investors, though, are still hanging on or are buying into hopes that the market has bottomed and will begin its ascent again.

When these investors wake up and smell the coffee, stocks are going to get hammered even more. In fact, it's already started with a bang. Stock mutual funds saw record outflows of $15.3 billion last week, according to liquidity tracker And with earnings announcements due at the end of March, the REAL carnage is yet to begin.

The best lesson that investors can learn from the recap of what went wrong is that stocks aren't likely to regain such heights for years, even decades. Don't look for a quick 180-degree turnaround. When stocks finally do hit bottom -- and that may be awhile -- the recovery is going to be slow and painful.

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