But of course, as the year came to a close, everyone believed the opposite. As once fearful investors turned greedy again, they sold their U.S. treasury bonds, causing them to suffer one of the worst years in decades. Small company U.S. stocks outperformed large company U.S. stocks for the first time in years. Warren Buffett's Berkshire Hathaway, perhaps the best investment vehicle in history, lost 25% of its shareholders' money as it was essentially a mutual fund of blue-chip stocks with dependable long-term earnings, exactly the kind of investment everyone no longer wanted. The Japanese stock market soared. The developing markets had a fantastic year. The South Korean market rose 200%, as our friend Sir John Templeton had suggested might happen. Y2K was a non-event, as suggested in my 1998 book that was ignored by everyone buying Y2K books. Everyone seemed convinced we will never have a recession again. So everyone wanted new internet companies they hadn't heard of in 1998--and they wanted them real bad if those companies had few prospects of profits. In short, while profits drove Wall Street as 1999 began, promises drove it as the year ended. This thinking also drove our culture. Time made the founder of Amazon.com its Man of The Year. His accomplishment? Losing tons of money helping us buy stuff we probably don't need off a computer rather than from a store down the street. With all respect to the benefits the internet will undoubtedly bring, that's not exactly advancing world peace and eradicating disease.

As it's indicative of what everyone investing in the internet might expect, last year's activity in Amazon.com's stock is worth a look. It was $100 per share during the first week of 1999. Within two months, it was around $40. It was back to $100 two months later. Four months later, it was back to $40. It was back to $100 two months later. It closed the year at $76. So the roller-coaster ride only cost true investors about 25%. But of course, everyone may believe that Amazon.com will change the future but everyone didn't stay on board for the long-term ride. Most jumped on and off the roller-coaster, which is a most dangerous but most popular form of entertainment these days. The New York Times recently reported that the typical "investor" in the most popular technology stocks holds them about three weeks on average. This gambling rather than investing is why the December issue of Money said "80% of Net investors surveyed had returns of less than 10%, including 29% who said they had lost money." Naturally, the less skilled simply give their money to the more skilled, namely gun-slinging mutual fund managers. At first glance, the performance statistics indicate the hot technology funds went straight up. In reality, the ride had enough breath-taking dips everyone hardly stayed aboard.

The February 11th issue of the Journal reported on last year's five best performing technology funds. Each made over 150% last year. But each also "lost 20% to 30%" during differing months. And they only averaged 32.9% risk-adjusted returns verses 27.6% for the S&P 500. Interestingly, our tortoise-like strategy of venturing abroad for true profits probably produced better risk-adjusted returns than the hare-like strategy of taking short-term roller-coaster rides at home. Our favorite fund, the Templeton Developing Markets Trust, returned 51.6% by "almost certainly" doing more good for the world's poor than Mother Teresa, according to The Economist. (The 10-year record of its sister Emerging Markets Trust again matches the S&P 500.) The conservative Templeton Foreign fund was up 39.2% primarily by investing in Europe and the developing markets. Some of us who had profited greatly for years from Washington Mutual--the third largest stock fund in America and a responsible investor in blue-chip U.S. stocks--switched to its sister EuroPacific fund a couple years back. We were a little early. But our patience was rewarded in 1999 as Washington was flat while blue-chip EuroPacific was up 57%. And if our market is a balloon-like problem for our neighbors and children, we aren't responsible for it. So what do we do now? 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. Sir John and a few of my wealthier clients are actually doing quite well in a "hedge fund" that profits from their decline. 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. The latest Paine Webber survey says investors now expect 19% per year from stocks over the coming decade. Sir John became a legend by averaging 15% in far cheaper markets. And Buffett provided this reality check in the December 10th Outstanding Investor Digest: "If you have a situation where the best you can hope for in corporate profit growth over the years is 4-5%, how can it be reasonable to think that equities can grow at 15% a year? It's nonsense, frankly. People aren't going to average 15% or anything like it in equities. (And) if you look at the number of companies selling today at a price which implies $200 million or more of earnings right now, you'll find dozens and dozens of such companies in the high-tech arena. A very large percentage of those companies aren't going to fulfill people expectations. It's not that easy to make money."

Replacing fear and greed with love and ethics is what Sir John and I call "Spiritual Investing." (Watch the April edition of Worth magazine for a nice article about it and the better known social investing.) Indicating an increasing need for a more spiritual approach, a feature article in the February 8th issue of The Wall Street Journal said: "Anxiety has overcome depression to become the nation's most prevalent mental-health problem." It notes that "with rational fears in retreat, irrational fears--often fueled by the media and politicians--have gathered force." (It also notes the internet "has become a vital tool for the transmission of fear.") As the unholy alliance of the media and politicians was the focus of my book Ten Golden Rules For Financial Success back in 1995, it's gratifying that someone in the media now acknowledges that it has helped to create a national tragedy, an epidemic of spiritual poverty.

But here's the irony. The Journal notes the new anxiety is "missing out on the economic rally." Mr. Clinton, who gained office with the slogan "It's the economy stupid," is now singing about the best economy in history, which Sir John described to us a decade ago. Conservative Christians, whose politically-inclined media has caused more anxiety than usual, are now telling me they no longer listen to pessimism. Even the venerable Value Line, long the bible of conservative investing, has de-emphasized its "risk" rating and is emphasizing a new "momentum" rating. The paradox is that with everyone now believers in optimism, Sir John 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?

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