The high Christian holy day of Easter was particularly relevant to me this year. It seemed that "the crowd"--to use St. Mark's more gracious words as others have used "the mob"--had crucified and buried the truth that God took at least five times longer to create wealth than day-traders were inclined to take in 1999. But with the cyclical return of spring, it seems to have resurrected. And while few speculators have seen enough light to embrace an "eternal" perspective, odds are good that most are more in touch with economic reality these days. Some will consider that to be a sacrilegious analogy. But for those who embrace the worldview of the Christian tradition, the only sacrilegious belief would be that the ancient story no longer applies to any dimension of reality, including how we create wealth.

Another unfortunate reality according to that worldview is that there is always someone somewhere ready to affirm anything the crowd wants to believe at the moment, even if the price is very steep in the long run. In general, investors in record numbers want to believe in stocks today. So the buy recommendations issued by Wall Street analysts outnumber sell recommendations by seventy-two to one. Ten years ago when most Americans believed media pundits and politicians that the federal debt was bankrupting America--and stocks were one-fourth today's level--buy recommendations only outnumbered sell recommendations by ten to one. More specifically, investors have believed in technology. So the June issue of Mutual Funds magazine reported that the average stock fund manager had 24% in technology during 1999. That was up from 3% in 1991. That huge shift in weighting is only matched in my memory by the over-weighting of oil stocks during the 80's when the crowd believed there was no more oil in the world.

More specifically, many investors want to believe that Internet information makes them equal in knowledge to Wall Street's smart money; that trading on the Internet helps them to beat the market; and that the Internet will give them "control" over their financial futures. They should read an article entitled "You Are What You Trade" in the May issue of Bloomberg Personal Finance. It was written by two professors who studied 88,000 investors who made over 2 million stock trades at a large discount brokerage firm over the past ten years. More recently, the professors analyzed 1,600 investors who switched from traditional brokerages to on-line trading. Their conclusion was, "We found that after going on-line, investors traded one-third more actively and their speculative trading nearly doubled. These investors earned exceptional returns preceding their on-line debuts. After going on-line, they underperformed the market...The on-line brokerage industry will spend hundreds of millions this year to persuade you that active trading is profitable and fun. Though our own budget is somewhat smaller, our message is simple and true. Investing is profitable, but trading is hazardous to your wealth."

Yet many Americans wanted to trade Internet stocks during 1999. So Mary Meeker, the influential e-commerce analyst at Morgan Stanley Dean Witter, spent December saying that 90% of Internet stocks may have been over-valued but never issued an actual sell recommendation on a single stock. And while many speculator's belief in "business to consumer" Internet stocks like Amazon.com has been shattered, they now believe in "business to business" companies. But the May 1st issue of Forbes analyzes that new belief and says it is just setting speculators up for "the next web massacre." According to Forbes, wiser money has already moved from business to business to Internet "infrastructure" companies like Cisco and Sun Microsystems. They build the systems that make both business to consumer and business to business ventures possible. Perhaps you've seen this week's giant Hollywood movie-type ads from Sun about "The Incredible Growing Business." Despite the hard realities of Internet business, the ads feature a sky-high building and proclaim, "In The Net Economy The Sky Isn't The Limit, It's A Ridiculously Low Expectation!" I was reminded of the Tower of Babel as the really smart money--like Sir John Templeton and some of my clients who trust his perceptions of reality--has shorted many ill-conceived Internet companies, profiting nicely as their sky-high expectations fall back to earth.

The question I keep asking is: how much infrastructure will people buy if about the only people making money on the Internet are the people selling the infrastructure? My opinion is softening a bit as we seem to be entering a new stage for the Internet. To this point, it has been much like a pyramid franchise. The very few people at the top of the pyramid make a lot of money marketing to the crowd at the bottom of the pyramid the illusion that they can create more wealth more quickly than God. But as that crowd of believers dissipates, everything changes. Then, surviving Internet companies have to add value to other people's lives in order to profit themselves. That's a little more healthy. So with very realistic expectations, this long-time Internet critic is developing a website at www.gmoore.com. Be assured that regardless of the medium--and the fact that I will continue to make my share of mistakes--I'll do my very best to share well-researched, thoughtful attempts at the truth, whether they are popular or not. Now a brief review and vision of our investment strategy.

My last Update was written during the holy season of Christmas, during which investors' spirits were considerably higher. We were euphorically unwrapping most gracious presents, such as Y2K not ending Western civilization, an accommodative Alan Greenspan and the seemingly infinite riches of Internet stocks. Feeling like Grinch, I began with this quote from Forbes: "In a great market for Internet stocks, a day trader who is fond of them can make money--for a while. But it has always been the steadier Buffetts and Templetons who have made the big money and, more importantly, kept it." I repeated my favorite investment maxim: "If everyone (or the crowd) believes it, it's probably wrong" and took comfort that, "if our market is a balloon-like problem for our neighbors and children, we aren't responsible for it." I closed by observing: "The paradox is that with everyone now believers in optimism, Sir John Templeton and Warren Buffett now realistically believe stocks may not go straight up. So investors may finally face something real to be anxious about. The question is: How will anxious and impatient Americans react if the profits aren't up to the promises?"

By the spiritual depths of the Lenten season, we knew. Investors who had very confidently proclaimed that the Internet would change the world during coming decades quickly lost faith and sold their stocks. As the bubble burst, it appeared that even the prudent stocks that we've patiently accumulated might suffer as well. (The non-technology stocks in the S&P 500 actually sell at the same low price/earnings ratio today that they did during the recession of 1990.) Naturally, many speculators blamed Pilate for interrogating Bill Gates, the high priest of technology. But a worldview that acknowledges that this old world can crucify God isn't surprised when it also takes 40% off Microsoft's lofty stock price.

Some blamed Alan Greenspan. While I've shared my reservations about his monetary policy, he's at least talked a little about irrational exuberance in the stock market. We are free to put the money he's pumping out into the real economy as well as the virtual economy. But very few blamed the greedy side of human nature. Yet as the Wall Street Journal reported, "Plenty of investors put money into tech-happy funds near the recent peak. While tech funds pulled in less than $2 billion of new cash in each of several months last year, those funds collected more than $10 billion in each of the first three months of 2000." The tech-heavy Janus funds took in $29 billion in net new investments during that time. The May 2nd Wall Street Journal said Janus' success at attracting new money forced Fidelity and Putnam to become too aggressive, prompting very large losses for some shareholders who had presumably wanted to avoid the two-faced pagan god as they also understood that risk can be a two-edged sword.

Yet also due to human nature, your neighbors have probably told you that they sold Janus and their tech stocks before the crash. A comedian actually wrote an editorial entitled "How I Became The Seven Trillion Dollar Man" about that in the New York Times. He wrote that like all his neighbors, he had loaded up on tech stocks while they were hot. But after the crash, all his neighbors said they had sold at the peak. So since the tech-heavy Nasdaq was worth $7 trillion after the crash, he must be worth $7 trillion. If you too are hearing that from the crowd, reality might lift your spirits.

So what do we do now? As I also wrote in the last Update: "In short, understand that the easy money has been made. If you missed it, be patient. Buy some bonds and real estate investment trusts for income with inflation protection. Avoid the siren song of high-risk, over-priced technology stocks. (The April 8th issue of The Economist reported that the 'fair value' of the Nasdaq may still be 70% lower and that 'the market is unlikely to stop falling when it hits fair value.') If you want U.S stocks, stay with cheap 'Templeton-style' value stocks of primarily smaller companies or look at the dependable 'Buffett-style' growth stocks selling at far more reasonable valuations than in early 1999. Above all, manage your expectations."

I haven't changed any expectations or investments during the turmoil of recent weeks, which is the reward for having a long-term philosophy and the discipline to stick with it. I agree with Professor Robert Schiller's new book Irrational Exuberance that with P/E ratios being one third higher than in 1929, we should hedge our bets and "buy securities linked to income around the world and to real estate around the world. World incomes and real estate values are inherently more stable than individual or regional values." And while I'm overweighting global funds in developed markets, the developing markets have had a pullback after a great year last year. A couple of clients essentially told me last week that they no longer believe in investing in our less fortunate neighbors. The cash flow studies of mutual funds indicate most Americans essentially believe the same. So I believe I just might add a little more to that area in coming days, going from about 10% of my portfolio to 15%.

I still admire the humility of Warren Buffett saying he can't understand the next trend in technology but can understand Dilly Bars at the Dairy Queen, so he invests in Dairy Queens. For I too can't understand the advanced science of high technology. But I did glimpse the truth of the ancient spirit of the high holy days. It is that two-thirds of my neighbors around the world need their first phone a lot more than I need my fourth one. And as the professors said, the message is "simple and true" that "you are what you trade." Or as the Old Story put it, "your heart will always be where your treasure is."

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