Reasons to Hope for Growth ; Small Investors Willing (and Able) to Think Long Term Can Find Solace in History's Cycles. How to Approach the Post-Boom Era

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Editor's note:

After a whipsaw summer - consider nearly 40 one-day swings of 200 points or more on the Dow - welcome to the bad old September slide.

This back-to-business month is notoriously downbeat for the stock market. For September 2002, add war worries over Iraq and more confidence-rocking ripples from corporate scandals - and stand back. What's next?

Economists keep working to reconcile offsetting indicators - a rise in gross domestic product brings cheers. An unemployment rise brings us back to earth. Wait! Unemployment is down.

And investors can be forgiven for rethinking the idea of tying their financial futures too closely to the performance of firms that - as became clear in the '90s - aren't always what they appear.

What to do? Look for context. Today's lead story looks past Wall Street's wildness to gauge the New Economy's real legacy as investors adjust to a post-boom era. Follow-up stories will look at its long-term implications for workers and consumers.

- By Clayton Collins

Rooting for the New Economy these days is like yelling in an empty stadium: The players have all gone home. The fans have vowed never to watch again. Even the season-ticket holders are cashing in their seats for pennies on the dollar.

So why cheer amid such deafening silence?

Because something is transforming America's economy. And it looks increasingly like one of those periods when new technology permanently bolsters living standards.

Of course, investors have heard all this before - from brokers peddling stock that's now nearly worthless. Oddly, that's a positive sign. Dramatic technological change has often spawned investment booms and busts. But each time, they've heralded the beginning - not the end - of an important leap forward.

That's why, more than ever, it's crucial for investors - particularly those just starting out - to think long term. Those who glimpse the shape and pace of things to come will be far better placed to profit than the dotcom-chasers of yesteryear.

"The crash is not the end of the technology revolution; it's really the beginning of its glory days," says W. Brian Arthur, economist at Santa Fe Institute in Santa Fe, N.M. "After the crash, the technology stops being glamorous. It loses its glitz, its cachet. And we settle into a period of hard work."

And that is precisely the era we're entering, he argues: sober, growth-oriented, and quietly setting the stage for new industries not yet conceived.

Unconvinced? Take a stroll down memory lane.

At the start of the Industrial Revolution, Britons began to get excited about using canals to ship bulk goods like coal. They poured in money with increasing abandon and, in 1793, the canal-building boom crashed.

In 1845, they piled in again, this time with railroads. Companies floated new plans for railway lines, sometimes a dozen or more a week, and eager investors temporarily ignored the growing overcapacity.

Then the bottom fell out, and by 1847, hundreds of companies had closed and railroad stocks had lost 85 percent of their value.

That's eerily similar to the recent telecom crash, where companies installed too many fiber-optic telephone lines for too few customers.

An Internet joke now making the rounds points out that people who bought $1,000 worth of beer a year ago and returned the empty cans for a 10-cent deposit would still have more money left ($214) than those who plunged $1,000 into Nortel stock (now worth about $165) or that of WorldCom ($9.23).

The point, however, is what happens after the crash. Historically, Mr. Arthur points out, canal and railroad companies continued to extend their networks and, slowly, traffic increased.

By 1910, Britain sported nearly 10 times the trackage that had stoked the investment frenzy 65 years earlier.

Now, fast-forward to today and answer three questions:

Do you know anyone using e-mail less frequently than two years ago? …