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Saturday Morning News

Reporter's Notebook: David Brancaccio Talks About the Stock Market's Wild Ride

Aired April 1, 2000 - 9:37 a.m. ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

KYRA PHILLIPS, CNN ANCHOR: For all of you catching your breath from the wild first quarter ride, why not get some advice from someone above the fray? Call 404-221-1855.

Now to our guest, David Brancaccio, the host of Public Radio's "Marketplace." He joins us this morning from Los Angeles.

Good morning, David.

DAVID BRANCACCIO, HOST, PUBLIC RADIO'S "MARKETPLACE": Hello there, how you doing?

PHILLIPS: Very good. Old versus new economy, all right, let's begin there. And, you know, economy stocks -- you know, there's been a shift from the old economy stocks to the new ones, and because everyone's been talking about the tech sector and how hot that is. However, the Nasdaq took such a dive in the past week. Do you think investors are finding value in big blue chips, or are they just sort of taking a break from the volatility of the Nasdaq?

BRANCACCIO: I get worried about this new economy-old economy debate sometimes.

PHILLIPS: Really?

BRANCACCIO: I'll tell you why. The people who believe in the new economy and therefore believe in these dot-coms and so forth sometimes think it means that the rules of economics have been thrown out, and that we can't draw any lessons from history. And I think that's a little bit dangerous.

And what you see is, you'll have a bad day for these dot-com stocks, for Nasdaq stocks, and then you'll have a good day for them. There's a lot of volatility.

Here's the answer to all of this. It's not profound. It's simple. Longer-term view. If you bought all the stocks on the Nasdaq composite at the beginning of 1999 and held onto them, your portfolio would be up 100 percent, even after the wild ride that we had. The problem is, something about these quote-unquote "new economy stocks" makes people want to fool with them.

You know, not every few years, not every few months, but sometimes minute to minute. And I'll tell you what, it is a very rare person who can guess the direction of some of these crazy stocks in a given day. And what we tend to do is sometimes fall prey to our own emotions. And what that means is, when everybody's buying, we buy. That means when everybody's selling, we sell.

And that often is the opposite of what you're supposed to do with a portfolio, buying when it's high, selling when it's low? That is just the opposite of what we should do.

PHILLIPS: And when Alan Greenspan speaks, everybody reacts.

BRANCACCIO: Yes, except these new economy stocks. Supposedly these high-tech stocks are immune to the movements of interest rates. These are not companies with huge amounts of bonds and so forth. The only thing is, Alan Greenspan can eventually -- sometimes it takes a few months -- have an effect on the American consumer. And even some of these dot-com companies can be affected if consumer spending ever is reined in.

And we saw that some this week. Some very big names on the retail side of this dot-com e-commerce world, Drkoop.com, CDNow.com, a company called Peapod, having a pretty rough time as people start to look about their prospects for profit. And even their own accountants over at Drkoop.com saying, We don't see any profit coming up any time soon, or perhaps ever.

PHILLIPS: Good start, David.

OK, let's move right to the e-mail. Ken Goodner of Rockport, Texas, has this question for you. "I've noticed some of the blue chips move up a few points and then decline a few points, all in a relatively short period of time. Can you identify the particular factors that create these repetitive swings -- computer controlled buy-sell, insider side -- sell-buy of stock options, et cetera?"

BRANCACCIO: Very, very interesting question, this notion of, can you see these patterns? Look, the stock market is, it's been proven mathematically, a more volatile place in recent years. And if you -- anyone who tells you they have an inside lock on which way these indices are going day to day is, I think, a little bit suspect.

Who are two of the greatest investors in the history of the universe? Let's talk about Warren Buffett, let's talk about this fellow Julian Robertson, who ran one of the biggest hedge funds, which he had to pretty much liquidate over the last few days. This was Tiger Management, pretty much went out of business this week.

These are folks who have an incredible track record picking just which sectors are going to go up and down, and they got it fairly wrong in the past 18 months. Look, mathematics is on the side of people who say that there's been an incredible run-up in these tech stocks, we've done much better than we deserve, we've done much better than anybody expected, that suggests that there will be a day or a week or several months or even years of reckoning on some of these stocks. Blue chips, look, everyone's going to keep buying razor blades. There's a company called Gillette. People are still going to drink Coca-Cola. There's a company called Coke. These are the so-called old economy stocks that have seemed to fall out of favor. And yes, the Dow Jones industrial average still down for the year.

My bet is still with a broad approach to the market. Sometimes these indexes are just the best way, because knowing which individual stocks to pick, very -- a very difficult proposition.

PHILLIPS: Well, here comes a question that parlay right into that. We have a new investor on the line, Jack from California has a question for you. Go ahead, Jack.

CALLER: Hey, David, how you doing?

BRANCACCIO: Good, Jack, how's it going?

CALLER: Good. Hey, I'm 35 years old, I have three kids, I make a great income. But I've never, ever put any money in the stock market. I have, like, $10,000 set aside. And I'm just wondering, what's the safest thing to do? Because, you know, my kids are the number one thing. And how much from each check should I put in, like, every two weeks?

BRANCACCIO: Well, without actually getting the full breakdown on your personal finances, I couldn't tell you the actual dollar figure. But your profile's rather the same as mine. I have three kids, live in California, in my 30s. Here's the thing, I mean, you don't want to be completely risk averse here. I mean, you must be looking at the headlines too and saying, Gee, I could have used that 100 percent turn on the Nasdaq composite over the past year plus one quarter.

But it is a great approach. In your question is the key to success, I think, perhaps, this notion of putting in a bit from each paycheck. You're young enough to be able to have a very long time horizon. That takes away a lot of the risk of the stock market going forward.

But let me just give you one word of warning, something a lot of folks have forgotten these days, which is, typically, if you need your money that you've invested in the stock market in less than five years, five years, that means you probably shouldn't be in the stock market. So look at what you have that you don't need to see, that you don't need for a new -- if you won't need to buy a new home, or so forth -- and put in as much as you can to the stock market.

Mid-30s, you've got a long time to let these ups and downs work themselves out.

PHILLIPS: David, we're going to go to Jeanne Ann's e-mail. She brings up a really good question. "Could you tell me what's happening to the biotechs?" Now, I'm assuming they took a big tumble because of the genome research and all of that that came out after Clinton and Tony Blair were talking about going public with this, right? BRANCACCIO: Yes, and by the way, the White House came out and nuanced its original statement that caused the biotechs to plummet. Tony Blair and President Clinton had come out on a Tuesday, a couple of Tuesdays ago, and said things like, Gee whiz, all this research that the biotech companies have been doing, spending a lot of money on, the results of that research should be public, it should be in the public domain for the greater good of mankind.

It's actually a very interesting notion. If that means that the research is not proprietary, can people make profits off it? The White House came out and said, No, no, no, we don't want to really, you know, let all research come out, we jut think as a general principle it should be out.

So biotechs went straight down. They've come back, and as of about yesterday or the day before, some of these biotechs have come all the way around. They had gotten back to the point where they started earlier this year.

This is a wild ride. And this has been seen as a symbol in recent days by other Nasdaq investors of what could happen in the dot- com world, and they're becoming a little bit gunshy.

Look, going forward, one of the most interesting places in the economy for innovation has got to be the biotech industry. But if you are worried about its short-term zigzags -- and that means short term even over a couple of weeks -- then perhaps you should take a different strategy. If you have the time horizon to be able to sit out and wait for some of these interesting, promising ideas that are coming up through biotech to reach fruition, then sit back and watch.

I think it's a very promising sector of the economy, but it's proven very volatile recently.

PHILLIPS: David Brancaccio, your show on Public Radio, "Marketplace," thanks for being with us. Great insight.

BRANCACCIO: Well, thanks so much.

PHILLIPS: All right.

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