My Portfolio: Lessons Learned
March 2001
by Michael Walls

Here's a depressing reality check. Just because a company has 5 thousand employees, an annual revenue of nearly $1 billion, and calls themselves the "internet super carrier" it doesn't mean that they won't eventually end up sucking wind and telling their shareholders to take a hike.

PSINet is the name of the company behind my personal horror story. But everyone has a horror story to tell nowadays. So, I guess it's comforting to know that I'm not the only fool out there.

Fool or no fool - I'm not really qualified to dispense advice on anything, accept maybe on how to get to Home Depot from my house without getting on the highway. I'm not a market analyst or a portfolio manager. I don't have any formal schooling in finance or business. So, I'm certainly not qualified to give advice about financial money management.

Yet, everyone seems to have lost their shirts over the past year, so exactly who is qualified to discuss financial money management?

What the hell - I might as well take a stab at it.

I'm just a regular guy. I live in Connecticut. I've got a family, a house and a couple of cats. I pay my bills and I save my money.

Like a lot of people, I've got some retirement accounts. Money market accounts, 401k programs, Roth and Education IRAs, etc.

And like a lot of people, during the "dotcom rush" of 1999, I decided that I was going to retire early.

It was an easy formula. A little AOL, a little SUNW, some MSFT, some DELL. Throw in some ridiculously overpriced semiconductors, some faceless wireless companies. Mix in a handful of debt-burdened dotcom companies with a self-projected forecast of absolutely no earnings in the foreseeable future. Then, with the help of a few stock splits and some hype, I figured I'd sell everything in a couple of years, buy some safe index funds and watch my retirement fund compound interest itself into a nice little nest egg.

You know, there's a reason why a lot of employers don't let their employees manage their own 401k accounts.

I don't need to tell you what happened. You already know and are probably having your own flashbacks and still trying to figure out what you did wrong. But I'd like to tell you that unless you were clairvoyant, there probably was no way you could have traversed the pitfall-riddled stock market over the past year.

It's easy to beat yourself up about what you coulda, shoulda, or woulda done differently. But unless you sold your holdings in March 2000, then went into a deep, deep coma for the next two years - you would not have been able to resist all of the (what looked like) bargains over the past two years.

It's easy for me to be light-hearted about it. I'm thirty years away from retirement. I can learn from my mistakes and start over. But I understand the fears and concerns that many people feel. If I was looking at retirement within the next 5 to 10 years, I'd be concerned too.

Now, I know you're not supposed to compare past performance to projected future returns, but history is the only thing we have to judge performance.

So considering this, understand that since 1926, the S&P 500 Stock Index has never had a losing 15-year period. I know fifteen years sounds like a long time to wait for a profit on your investments, but also consider this - for every 10-year period it has turned a profit 98% of the time. And for every 5-year period, 88% of the time.

Understand that there are no guarantees, but even a Vegas oddsmaker will tell you that those are some pretty good odds. The bottom line is - those with patience and time stand a good chance of seeing profits on their investments.

Of course, this is under the assumption that you have a fairly diversified portfolio and haven't dumped your life savings into: EggsInOneBasket.com (or eToys or Priceline or PSINet).

And diversified does not mean - some software, some hardware, some B2B, some semiconductors, some broadband, etc.

No. Diversified means - stocks, bonds, domestic funds, international funds, large cap, small cap, etc. Spread it around.

It's difficult to imagine that any kind of advice at this point will stop the bleeding. But just remember one important factor - you're only a loser if you sell your holdings. Right now, you're only losing on paper. Just like you were only winning on paper, back in '99. If you've invested in fundamentally sound companies, from different sectors of industry, then time and patience is your friend.

Financial advisors have forever been preaching the rewards of diversification and patience. But, like many others, I had been lured away from that important rule by the prospects of reaching my retirement goals in a faster, cheaper way.

PSINet will not survive to see another year. I, on the other hand, will get through this, and will have to take my PSINet and other losses back to the drawing board to chalk up as a year's worth of lessons learned.

(Michael Walls is a volunteer staff writer for 2 Walls Webzine and is a recreational investor. By no means should anything he says be taken to the bank and cashed in for gospel truth. Read at your own risk.)