Y2K — Crisis or Opportunity? (Eric Hutchinson Commentary)

Head for the hills! Stock up on dried food and bottled water while there is still time. The constant hype of the Y2K “problem” has led some people to truly believe that life as we know it will forever be changed as we usher in the new millennium. However, there could be another possibility.

Y2K might represent one of the most exciting investment opportunities in years. For those who can take advantage of it, the profits could be enormous. To understand why this could be true, let’s separate fact from fantasy. It is true that our society is highly dependent on computers. It is also true there are software programs that may need upgrading to be Y2K “compliant.” It is also true that the new millennium is hardly a surprise event, particularly for those who work with computers every day.

Some years ago we examined the Y2K issue in our office and made upgrades and changes to deal with what turned out to be a relatively minor problem. We also questioned our suppliers and found they had analyzed the situation and made changes and upgrades and felt they didn’t have a problem with Y2K. We found that our suppliers had talked to their suppliers and couldn’t find a problem. Perhaps a fresh look at Y2K was in order.

If we as a company had addressed the problem, our suppliers had addressed the problem, and our suppliers’ suppliers had addressed the problem, who then had a problem? We did additional research and are unable to see Y2K as much more than an overblown media event. However, the heavy media exposure seems to have convinced some people that Y2K is very real indeed. If enough of these people act out their fears, it might provide an exciting investment opportunity with Y2K as the catalyst. Here’s why.

In recent years, with advances in technology and the growth of the Internet, financial markets continue to move faster and faster. Communication and trading links are so sophisticated that securities are traded 24 hours a day worldwide. With increased investment activity and the aging “baby boomer” population moving into their pre-retirement years, there has been an incredible expansion of information about investing.

A trip to a large bookstore to peruse the magazine rack or browse book titles in the business and investing category could overwhelm even the most voracious reader. Internet based trading for a few dollars per trade has grown in popularity among “day traders” and other do-it-yourselfers. Competition for trading commissions has prompted some large, seemingly invincible, “full service” brokerage houses to slash commissions to compete with the discount brokers.

The extraordinarily favorable investment markets of the past few years, unparalleled access to low cost investment information, and easier, cheaper access to brokerage services has created a situation where more Americans have financial assets than at any time in history. Unfortunately, many of these investors are new to the game and know relatively little about the investment process, the real risks involved, and what to do when things don’t look so good.

There lies the opportunity. If enough of the day traders, do-it-yourselfers, and orphaned brokerage customers believe in the Y2K myth enough to begin to sell their investment holdings toward the end of 1999 in anticipation of the apocalypse to come, there could be a temporary selling panic that could make Oct. 19, 1987, look like a slow trading day. Stock prices might drop dramatically and stay in a downward trend until the dawn of the new millennium proves the Y2K doomsayers were missing the mark. It could be a violent market swing, although probably of short duration.

Meanwhile, a savvy investor with some available cash could slip into this Y2K bloodbath and scoop up some interesting bargains that could show a tidy profit when the market discovers that life as we know it didn’t come to an end after all. If you’ve been waiting for a time to get into the stock market, a depressed market reacting to the perceived Y2K situation could be your chance. Get ready now and move quickly. If you already have investments in the market, don’t disturb anything that is working for you. Just hang on until the Y2K storm passes. Either way, chances are you’ll be glad you did.

(Eric Hutchinson is a certified financial planner and president of Hutchinson/Ifrah Financial Services, an independent registered investment advisory firm based in Little Rock.)

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