Yes, I know that bond holders have been among the precious few investors to have enjoyed positive returns over the past ten years. Yes, I know that equity guys usually favor equities. I begin with these two disclaimers because of the intense criticism readers send in whenever I caution against buying bonds.
Warm up your keyboards, I’m warning you again.
In 1999, the cover of The Economist read Drowning In Oil. Oil was around $11. The Economist predicted it was on its way to $5 per barrel. Investors who held shares in Chevron, Texaco, Mobil, Exxon, or the like were despondent over those lack-luster poor-performing positions. Inevitably, I suppose, investors in energy stocks slowly exited their positions over time as capitulation set in. “Let’s get rid of that Chevron; I’m sick of looking at it each month,” I was told. Yes, they felt better.
The dejected holders of energy shares knew what they wanted instead: tech stocks and dot-coms. All of the market’s action was being driven by the new paradigm internet stocks. Prices were rising at a head-spinning pace, and everyone wanted in. The monthly opening of brokerage statements was a heady, self-congratulatory moment. The numbers just kept going up, and they were going up big. Corks were popping, and, the NASDAQ was on its way to its all-time peak above 5,100 in March of 2000. (Check out the NASDAQ now)