When I was in college Prince used to sing “we are going to party like it´s 1999“. That´s what the markets are singing now. The problem is that 1999 was almost a decade ago. But the value of stocks now is the value of stocks in 1999. If you had kept a 1999 newspaper it would do now. The world however has grown around 40% since then. World GDP that is. So what are the markets saying? That we are going to shrink to the levels of 1999? I don´t think so.

I think we will have a bad recession, negative growth, a rise in unemployment. But I don´t think we are going back to 1999. That´s why I started buying stocks last week. And I am down 21% on around 20% of my portfolio, the rest is still in cash. What did I buy? Not C and BAC, I sold banks and those account for most of my loss now. I was shocked to see that Citigroup and Bank of America shares collapsed after the bailout. Banks may turn around but buying them is for government watchers. They are the epicenter of this hurricane and so subject to the whim of some ex GS employees that traditional business logic does not apply to them. Why did Lehman go under and Bear Stearns was helped? I think what Paulson is doing has no logic and I was wrong in thinking that I could understand him or the markets as they relate to government intervention. Instead last week I bought utilities, huge pharmaceutical companies like Merck or Lilly, and Dell, Microsoft, Apple, Nokia and some other very large tech stocks. And if this week they go down another 10%, I will buy more. My rule now is that for every 10% stocks go down I put another 10% of my portfolio in top stocks. And my objective is to keep those stocks for my 4 children. Looking back a month ago when I started buying some stocks of course I wish that I had resisted my instinct for hunting for bargains and waited. I would be 21% better off today. Still I am sure that we are now or in the next months in the buying opportunity of their generation. And then we can party, buying in 2008 at prices of 1999.

I just found an article in the New York Times that makes the same point I make but it´s much more elaborate and better.

Follow Martin Varsavsky on Twitter: twitter.com/martinvars

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