I’ve posted Entry #47 to my weekly Beyond Buy-and-Hold column at the Out of Your Rut site. It’s called The Stock Market Makes Fools of Us Over and Over Again.
Juicy Excerpt: The reality is that stocks are not one asset class, but three. Stocks being sold at a fair price are nothing at all like stocks being sold at an insanely high price and stocks being sold at an insanely high price are nothing at all like stocks being sold at a fair price or stocks being sold at an insanely low price.
To get smart about stock investing, we are going to need to start distinguishing between the different kinds of stocks. The reason why you did well with the stocks you purchased in 1990 is that stocks were selling at reasonable prices in 1990. Stocks selling at reasonable prices always do well. The reason why you did poorly with the stocks you purchased in 2000 is that stocks selling at insanely high prices always do poorly.
You cannot apply the experience you gained investing in reasonably priced stocks and expect it to apply for stocks you purchase at insanely high prices. When stock prices reached insanely high levels in early 1996, a new investment class came into existence, an insanely dangerous one with little in common with the investment class you invested in with such happy results in 1990.