April 14, 2000 Report
1. This page was my front page
2. Banks and selecting a stock
3. Investing an Inheritance
4. LIST and comment on Aliant

Our Prices Up, Theirs Down Volume 20 No.2 April 14, 2000 p.456
More investors, finally, are realizing that we are in a bear market. Having watched our prices quietly decline for two years, and not being involved in the technology stocks, except on the fringes with our previously stodgy telcos, I thoroughly enjoy seeing the dot.com investors squirm. Best of all, "they" are seeking haven in our safe stocks. You noticed, I trust, in the week the Globe and Mail ran that sensationalistic Saturday front page headline "The $1-trillion melddown, (It's no wonder people are equity averse.) every stock in my list went up-the overvalued telcos at the bottom of the list and Sceptre, excepted. We have positioned ourselves well. Isn't life grand?

What will happen next? The truth is that nobody knows. I certainly don't. The experts don't. And there is little point listening to their babble on the television.. Reason suggests that technology and certain other shares are still overvalued and should go down more. "But if reason had much to do with share prices, they would never have risen to their current heights."¹

Irrational Exuberance²
Robert Shiller is an economics professor at Yale and a leading authority on the economics of financial markets. Irrational Exuberance² is his new book. In Irrational Exuberance, "Mr Shiller looks carefully at the factors-structural, cultural and psychological-that have powered Wall Street to its recent levels."* Irrational Exuberance "is concerned not with proving that the market is overvalued-given the numbers, Mr Shiller regards that as self-evident-but with explaining how it all happened. Within those limits, the book is first-rate."*

Robert Shiller is convinced "that stocks are going to pay far, far smaller returns to investors over the next ten years, say, than they have over the last ten."* I think he is right. It's all in the mathematics. To revert to the mean, quite a few years of substandard returns will be needed.

This being said, there is no reason for us to fret. Return, by definition, remember, includes capital gains and yield. For most investors, capital gains will evaporate now that the bubble has burst. We own good solid companies purchased at reasonable prices. Beside the negative returns of mutual funds and the markets over the next few years, our yield on cost, just the yields, will look terrific. For instance, with dividend growth, the yield on our BC Gas purchased in the spring of 1995 at $14 is now over 8%. (dividend was 90¢: now it's $1.18) And, faced with negative returns (read: capital losses), investors will demand higher dividends. Stock buy-backs will be curtailed and the money put where it belongs: dividends, the solid return on common stocks. We'll profit from that trend too.

Bear Market Investing (see also TCR Oct'98 p.419)
"Bear markets are far different than bull markets. They are treacherous and deceptive."³ While prices trend down, bear markets do not go straight down. Prices will fall, rebound and then fall to lower lows. One must be careful. If you missed selling BCE or Aliant, you should be able to sell into the rallies. Realize, though, that prices will probably not reach previous highs. "In a bear market, investors who 'buy the dips' soon find that the dips become deeper and deeper and their losses mount."³
¹ The Economist April 7^th 2000 * The Economist, March 25^th 2000 p.84
² Irrational Exuberance by Robert Shiller, Princeton University Press, 282 pages $U.S. 27.95
³ Investment Quality Trends 7740 Girard Ave Suite #4, La Jolla, California 92037

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