It’s tax day – that day each year when millions of Americans file their Form 4868s requesting an automatic extension to August 15th.

But taxes are the least of your worries this morning. Taxes were expected. Taxes are something you’ve dealt with over and over again. Taxes were gradually taken out of your paycheck all year in tiny impoverishing increments.

The end of the world, on the other hand, is not something that comes along every day. For many investors, newly sucked into the market in the last few astonishing years, the end of the world is not something they ever even contemplated until Friday.

Not only was the NASDAQ down 25% for the week, and nearly 10% Friday alone, some dot-coms were down more like 40% on Friday. (I am thinking here, for example, of a stock with the symbol CLAC that touched 60 not long ago, was 32 Thursday night, and 20 a few hours later. No news on the stock, just air being let out of the balloon.)

So is this the end of the world?

Not literally, no.

I would say that, on balance, last week was a good thing. It had to come sooner or later, and I only wish it had come sooner (when the bubble was less inflated) and I’m very glad it didn’t come later (because the bigger the binge, the more head-splitting the hangover).

Nor is it over.

For some stocks, this may prove to be a great buying opportunity. But let’s not kid ourselves. Sooner or later, markets go to both extremes, not just to levels of euphoria. The Dow at 10,000 or NASDAQ at 3300 offer better values than they did a week ago. But they are hardly cheap! Corporate giants selling at 40 times earnings, down from 55 times earnings, are far from the Depths of Despair, miles from the Slough of Despond.

This is not to say the market won’t snap back today, or soon. Some issues will likely bounce, others may have seen lows. I bought shares of a large, money-losing New Economy stock late Friday afternoon with that hope. It had fallen 85% from its high and I expect it to be one of the survivors (though who knows?). But I’d be amazed if most of the New Economy money-losers ever bounced back to their April Fool’s levels. And I’d be surprised if many of them didn’t just keep zig-zagging a lot lower still.

So what to do?

First off, as has been said many times in this space, day-trading is crazy and borrowing to invest on margin is a very bad idea. If you must have the thrill of leverage, consider LEAPs (long-term options). For example, on Microsoft, at these levels. (Full disclosure: I own some Microsoft LEAPs.). You should be prepared to lose 100% of your investment; but at least you won’t have interest to pay and margin calls to fear.

Next, if you are someone who has been regularly investing $200 a month (or whatever) in two or three low-expense no-load mutual funds for the past 10 years and plan to continue doing so for the next 30 – keep doing it! You’re my kind of investor, and you’ll do just fine.

But if you might actually need some of the money you have in the market in the next few years, take that portion of the money out. The market is not a safe place to park money you might need in the foreseeable future.

(Where to put it? If it needs to be really safe, do the obvious – pay off your credit cards, pay off your car loan, pay down your mortgage, put it in the bank or in high-quality intermediate-term tax-free bonds.)

If you own stocks you’ve bought without knowing anything about them – stocks you bought because this was all so much fun, and so easy – sell them. Yes, they might go back up, but they might at least as easily go back down, and the only thing keeping a lot of them up even this high is the reluctance of people like you to sell at these new, much-lower prices.

Given the lower costs of trading and the virtually instant global dissemination of financial news . . . given the great earning power of Baby Boomers salting it away for retirement and the excitement of the New Economy . . . this could be the shortest, sharpest Bear Market in history. Five days.

But two things don’t change: human nature and “value.” New Economy stocks are particularly hard to value, and that difficulty shouldn’t and doesn’t make them worthless. But when 3Com is valued at less than Palm – even though it owns most of Palm – or when Safeguard Scientific is valued at less than its holding in Internet Capital – it is as if $10 bills were being valued at more than $20 bills. Any fool can see that that’s nuts.

Those two situations (since somewhat righted) are unusual because the absurdity can be proven mathematically. But I would argue that the valuations in many other stocks in the environment we had up until last week, and still have to a certain extent, were every bit as unreal.

Given human nature, stocks will rise way above their sensible value (whatever hindsight shows that to have been), and just as surely will at some point – I hope not for many years from now – fall way below their rational values.

Value is like truth and truth is like justice. They are not always easy to discern, and we sort of zig and zag around them as we strive for them. But we do strive for them. And thus value becomes the baseline against which to make sensible investment decisions. (Momentum is for lynch mobs.)

Not to cheapen it by borrowing it for a financial column, but I think Dr. King’s famous quote from 35 years ago in Montgomery, Alabama, is apt:

“I know what you’re asking today, ‘How long will it take?’ I come to say to you this afternoon, however difficult the moment, however frustrating the hour, it will not be long, because truth pressed to earth will rise again. How long? Not long, because no lie can live forever. How long? Not long, because you still reap what you sow. How long? Not long, because the arc of the moral universe is long, but it bends toward justice.”

Well, I would suggest that the arc of the financial markets is long, but that it bends towards value.

 

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