h2g2 The Hitchhiker's Guide to the Galaxy: Earth Edition

In the US, the 1990s saw the greatest bull market in its history. The Dow Jones Industrial Average, a popular marker for US stock prices, rose from 2365.10 on 11 October, 1990 to 11405.76 on 23 December, 1999, and buying stocks became something that many people did. The stock market became a common topic at cocktail parties, and everybody and his brother had an opinion.

The 90s were also the decade of the 'Internet bubble'. Just about any business with the words 'dot com' in their name could count on people buying stock in their companies, who cares whether or not the business had a solid foundation or any prospects at all. Many financial professionals - who ought to have known better - babbled on about 'the new economy' and how valuations didn't matter, and every time a new 'dot com' went public, buyers stampeded to buy shares and drove prices through the roof. Many people became very wealthy, at least on paper. (This Researcher bought shares in Amazon.com when the company first went public, and pretty much funded her retirement with that one stock.) In fact, you really had to work at it to lose money in the stock market during the 90s, although plenty of people managed to do so. 'Day trading' became a popular activity - otherwise rational people quit their jobs to sit in front of computer terminals all day, trading stocks for a living.

A few brave souls warned about the craziness. Alan Greenspan, the head of the US Federal Reserve and king of the obscure 'bon mot', talked about 'irrational exuberance', words that came to characterise the latter part of the decade.

It couldn't last, and it didn't. By 2001, people had pretty much come to their senses, and stock prices had fallen to more sensible levels. Then came the 11 September attacks on the World Trade Center in New York, and stock prices plunged, convincing many that stocks were something to be avoided at all costs. And hi-ho, hi-ho, it was off to real estate we go...

I dunno, I used to think a P/E ratio of 12 to 15 was about right, so now Genuine Parts at 20 sounds expensive. But Google at 85 ... I think if I was them, I'd sell some more shares ...

They *are* selling more shares:
http://www.cnn.com/2005/BUSINESS/08/18/google.ap/

But a P/E of 85 is nuts. I'm in the Warren Buffett school of investing: buy good stuff as cheaply as possible. And I like dividends. Any stock that doesn't pay a dividend needs to have some compelling 'story' to make me look twice.

Have you read 'The Future for Investors' by Jeremy Siegel? A very interesting book. His research shows that historically 'dull' things like Phillip Morris and Coca-Cola, and not the Microsofts and Yahoos of the world, have been the better investments. You wouldn't have thought so, given all of the noise surrounding technology companies.

Yes, I was referring to Google's recent stock offering which a lot of people raised eyebrows at, since Google already had a Gates-sized stack of money. The NY Times' answer was that companies buy their own stock when its cheap, and sell when its expensive, pretty simple. Its like printing money.

I haven't read the book you mention, but I, too, am a conservative investor. However, some friends seem to prefer the "lottery" aspect of investing ...