The Heady Daze of March 2000 The Miami Herald - March 9, 2003 HARRIET JOHNSON BRACKEY March is the month when, three years ago, some markets reached their all-time highs. The Nasdaq Composite Index hit 5,048.62 on March 10, 2000; today, it's at 1,305.29. The S&P 500 peaked on March 24 at 1,527.46. It's 828.89 today. The Dow, meanwhile, led the pack by reaching an all-time high of 11,722.98 on Jan. 14 of that year. Today it's at 7,740.03. Those highs, the experts seem to agree, we will not see again for many years, if ever. But we will remember them -- and how it felt, back then, so different from how it feels today. ''You can say it was greed and everybody wanted to be on the bandwagon, but very few people wouldn't have gotten into it,'' said Carol Dan of Miami, who at the time was president of the Lady Luck Investors Club, a group of part-year residents who began pooling their money for investments back in the Berkshires and carried the activity down to South Florida in the winter. ``After three or four years [of rising markets], you felt like an idiot if you did not get into it.'' By New Year's Eve 1999, a thousand dollars invested back in January in the Nasdaq composite index was worth $1,860. And the strong uptrend continued as 2000 began. The Nasdaq crossed the 4,000 mark and, only 71 days later, crossed 5,000. Three and a half million households that did not own stock jumped in to investing in 2000. It was looking like the salad days would go on and on. Between 1991 and 2000, stocks were returning 17.5 percent a year and inflation was a tame 2.7 percent, according to Ibbotson Associates. HEADY TIMES "'We're sensible, conservative people, but we had a general sense that we were not thinking right,'' Dan recalled the other day. ``The way of the future was tech, everything was different, and the PEs [price to earnings ratios, a measure of how valuable a stock is] would go up to 40 from 15 or 20.''  (Historically, PEs have hovered around 12 to 16.)  ''The ladies of our club felt like we had to get a new paradigm,'' Dan said, ``because technology was ushering in the age of the future, like railroads did in the Industrial Revolution.''  Maybe it was a leftover of millennium fever, the new century talking. The Wilshire 5000 peaked later that month. The market's value topped at almost $17 trillion.  Today, it is closer to $9 trillion. On the day the Nasdaq peaked, the following appeared in a Herald story: ''A lot of people are tired of hearing about the new economy vs. the old economy, but that's where it comes down,'' said Ralph Acampora, director of technical research at Prudential Securities. Acampora, one of Wall Street's most bullish analysts, said he expected the Nasdaq to reach 6,000 within 12 to 18 months. ''If you're an astute observer, your portfolio will reflect what's new and exciting and dynamic,'' he said. ``A lot of those are the companies that are in the Nasdaq.'' BUFFETT WARNING Two days later, another Herald story read, in part: ``Bowed but far from broken, legendary billionaire investor Warren Buffett warned Saturday of a long-term slowdown in stock prices while accepting blame for his Berkshire Hathaway conglomerate posting a poor performance amid the greatest bull market in history.'' Buffett was right: By the end of the year, each of the major stock-market indexes had declined. And they've been falling ever since. It's now been 3 1⁄4 years of bear markets. The Nasdaq Composite has dropped 74 percent. To get back to where it was, it would have to rise nearly 300 percent from today's level. Were it to grow at a rate of 10 percent a year, it would take it 14 years to get back to its peak. Now, everyone knows this is the wake of the bubble. What no one knows is whether it's done. ''It is possible to see 5,000 [on the Nasdaq] again. The question is when,'' said certified financial planner Marc Singer of Singer Xenos Wealth management in Coral Gables. ``And nobody is expecting the Nasdaq to grow at 10 percent this year.'' Singer recalled starting to feel that the Nasdaq was overvalued in the middle of 1999. By September 2000, he said, he had moved his clients' money completely out of the Nasdaq. ''And we looked pretty dumb at that time,'' he said. He has only tiptoed back recently, putting less than 5 percent of his clients' money back in. Dan's prediction: ``It will be six to eight years before we get back to where there's a juicy market gain.'' And those 17.5 percent compounded annual returns of the 1990s? They were out of line with the long-term averages. In the period that began in 1926 and ended in 2000, large company stocks returned 10.7 percent a year. Put the 2002 down market into the numbers, and the average annual returns since 1926 slide to 10.2 percent. Going forward, look for less. Returns could be less than half as much as in the 1990s. DIRE PREDICTIONS Roger Ibbotson, a Yale University professor and head of his own research firm, makes long-range forecasts and is known for having correctly predicted, in the mid-1970s, the bull market in large-company stocks of the 1990s. His prediction for the next 20 years: an 8.1 percent annual return on large company stocks, 9.9 percent on small company stocks and 4.6 percent on bonds. And some would call even those figures optimistic. There's a possibility, as well, that today's pendulum swing, as Singer sees it, is just about the opposite of that of March 10, 2000, when greed was overcome by irrationality. Today, it's fear that rules. ''But you shouldn't have irrational fear right now,'' Singer said of the Nasdaq, which has the potential to be a good performer, certainly more so than at this point three years ago. ''What goes up usually comes down, and what comes down usually comes back up again,'' he noted, ``but not to the same irrational levels.''