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This chapter is from the book

Bubble Mania: Falling to Earth Again

The fund companies weren’t dumb—they knew what they were doing during the dot.com bubble. It was a time when everyone and their brother was talking about the stock market. Fund companies were looking to grab their share of the pie, so they spent money on advertising and marketing to investors who were looking for big returns. But there was plenty of blame to go around: Investors plugged their ears and sang “Lalalala” when it came time to talk about balanced funds; they wanted to hear about funds with the biggest and quickest payoff. Because the customer is always right, the fund companies played along and gave it to them.

Listening to chants from financial analysts that “this time is different,” most of the shareholders of the hottest funds came on board in 1998–1999, just in time for the bear market’s emergence from hibernation in 2000. The high-profile funds lost altitude quickly. Unfortunately, the fund companies weren’t handing out parachutes to shareholders.

As the stock market decline worsened, mutual fund call center phones rang off the hook. Shareholders were holding the line, and they wanted some answers about their deteriorating savings. The mandate came down from mutual fund management: Tell the shareholders that ups and downs are natural for the stock market, and that it’s more important not to panic and to adopt a “long-term perspective.” That had to be a reassuring thing to hear for someone just a few years from retirement.

Back then, being a phone rep for a fund company must have been like working in the complaint department at White Star Shipping in 1912, the year in which the Titanic sunk. The fact is, investors got caught up in the hype of the stock market boom of the 1990s, and fund companies did little to protect investors from what was coming. In fact, many saw an opportunity to capitalize, and they did just that.

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