*New* When New Beginnings Meet Old Realities

Editor's Note: With this column, we introduce Laurel Kenner and Victor Niederhoffer. Kenner joins TheStreet.com from Bloomberg, where she headed U.S. stock market coverage and appeared regularly on the Bloomberg TV channel. She began her journalism career with the Associated Press in Los Angeles, and later won awards for aerospace reporting at Copley Newspapers.

Victor Niederhoffer is a private investor in Weston, Conn. Previously a hedge fund manager, Niederhoffer was rated among the top performers for many years -- and the worst performer in 1997 when he was stung by bad speculations in Thailand and U.S. stocks. His 1997 book, The Education of a Speculator, rose to second place on the Business Week bestseller list, and was described by Barron's as "a must-read, essential for any investor's library."

"Bibles and swords!" was Captain Inish Scull's wily strategy for colonizing native Americans in Larry McMurtry's novel Comanche Moon. The stock market seems to be following the Captain's exhortation as it struggles between the beatific vision of a technological utopia in which earnings grow to the moon -- and the evil forces of high interest rates and Nasdaq hype. So far, the evil forces are in ascendance; millennial celebrations gave way to days of judgment as markets from Hong Kong to Germany to the U.S. Nasdaq suffered 10% declines.

It's appropriate to step back for a larger perspective amid these strong but ephemeral forces, for there's no reason to suppose that the 21st century will not be as advantageous to investors and humanity in general as the 20th. The new era will doubtless see scientific applications just as remarkable as the harnessing of electricity, which made possible the electric generators, motors, transistors, refrigeration and lighting so essential to modern life. Not to mention the 10,000,000%-plus returns that a mythical investor would have achieved by buying stock in General Electric (GE Quote) 100 years ago and holding it until 1999.

The riches conferred on investors by GE and other businesses that use science to better human life -- Procter & Gamble (PG Quote), Minnesota Mining and Manufacturing (MMM Quote) and International Business Machines (IBM Quote), to name but a few -- have led millions to embrace the idea that spectacular gains can be had by buying and holding stocks, either short-term or long-term.

Unfortunately, confidence in the market has strengthened so much that some investors believe that so long as a stock has a good story, it is good regardless of profitability. The strength of their conviction brings to mind a classic book from 1956, When Prophecy Fails, by Leon Festinger, which tells the tale of a group who believed the world was about to end and that spaceships would come to take them away. The spaceships' failure to arrive at the appointed hour didn't shake their belief. One wonders how many people who bought certain Internet IPOs last spring are still waiting for them to revive from drops of 80% or more -- no doubt "averaging down" by buying more and advising their neighbors to do the same.

As the Gestalt psychologists at the beginning of the century realized, people tend to form a general idea -- a gestalt, roughly translated as "whole" -- of how something works without attending to details. What better way to describe how the average person today buys and sells stocks?

Today, the new millennium opens up a Pandora's box of uncertainties; the new gestalt may not be as bullish as the old.

Turns of centuries and decades often create new gestalts in art and culture. When the 20th century began, Tschaikovsky, Grieg and Dvorak gave way to Debussy, Stravinsky and Schoenberg; Picasso replaced Impressionist landscapes on collectors' walls. Fashions in clothing and popular music change with the decades.

Markets, too, tend to switch course as one decade gives way to another. At the end of the 1980s, Japan's Nikkei 225 Index ended at a record, up almost sixfold for the decade. The index then dropped 23% in the first three months of 1990, ended the year down 39% and proceeded to slide to 12,880, a full 67% below its high. In the U.S., an even worse decline from the end of the 1920s through 1932 sent the Dow Jones Industrial Average down 76%.

The problem with the anecdotal method (indeed, the problem with most stock market commentary) is that it explains everything and proves nothing. The question is whether stocks behave differently in years ending in certain numbers. Unfortunately, we cannot address this question for the turn of the century, because only two meaningful data points are available. But we can compare moves of the Dow average in years ending in zero -- we'll call them the naughties -- with all other years.

Over the past 110 years, the 11 yearly percentage changes in the Dow average and a 10-stock predecessor in the naughty years shows seven declines and four rises -- a 64% chance of falling -- with an average change of negative 4%. This compares with an average change in nonzero years of 8%, with a 68% chance of a rise. (Differences as large as this are a one-in-10,000 shot by chance.)

It's also noteworthy that of the five years during which the Dow dropped more than 30%, two were in naughty years:

Worst Annual Drops in the Dow:

1931: down 53%
1907: down 38%
1930: down 34%
1920: down 33%
1937: down 33%

Like investors today, our ancestors in the year 1900 looked forward to achieving unprecedented personal and material well being. In ebullient, optimistic language more likely to elicit a groan today than a hurrah, The New York Times on Jan. 1, 1900, had this to say:

The mines that give up their treasures, the looms and mills that impress utility and value upon crude products, the rushing trains and steamships that enable communities to share and contribute to the world's exchangeable surplus of commodities, the industrious banker, sitting on his aggregated deposits and paying them out upon careful scrutinized vouchers, even the loud resounding broker upon the floor of the Exchange fixing investment values by his vociferous wagers -- all these help to lay the enduring foundation of the Nation's wealth upon which depends its capacity to produce and enjoy the fine things of life, in arts and letters, and science and learning, and the highest social enjoyments.

Today, we are just as optimistic about the prospects of the Internet and biotechnology. Yet if the rewards at the beginning of the 21st century look similar to those at the start of the 20th, so do the risks. In 1899, a rise in the Bank of England's discount rate to more than 6% aroused much concern among U.S. stockholders, just as the recent move of the 30-year U.S. bond yield above that level does for today's investors.

Back then, an all-out panic occurred in December 1899, taking the Dow average down 23% from the end of November through Dec. 18. Investors, according to a contemporary account in the Wall Street Journal, sold "regardless of price." When it was all over, The Commercial & Financial Chronicle, the Barron's of the day, wrote soberly that at least investors were better off because that awful decline was behind.

Fast forward to the present: The 15% decline in Nasdaq 100 futures in the first three sessions of 2000 and the 8% decline in the first three days of this week have left the market in stronger hands. While indices in the U.K., Belgium, Greece, Australia and New Zealand are still down 7% or more, Germany and Hong Kong have bounced back. We will pass over the performance of the other Asian Tigers -- Singapore, South Korea, Taiwan, Malaysia, Indonesia, Philippines and particularly Thailand -- as our crystal ball and memories of this region are both highly suspect and colored (as in blood-red.)

In this new environment, it seems prudent to step back and consider some of the epic declines that have occurred as new decades began. But any trepidation thus gained must be balanced against the prospect of another 10,000,000% return for the average stock bought and held for 100 years. And with biotechnology, our children may very well live that long.

Speculator's Scorecard

The things ordinary people know the most about are often statistical in nature. The average person knows the poll numbers in four elections. The average fan of the national pastime knows the averages of 50 batters to the nearest 10 points. When you go to a game, glance at the number of fans keeping a scorecard of each play. When you go to the races, look at the statistics on workouts and past performance that the average punter studies before making a bet. It makes the speculator feel small to contemplate how much better versed these average fans are in their field of interest and how low the returns of the average bettor are even after such study.

Our initial contribution towards narrowing this difference can be found below: It being winter, we'll start by adopting the format used in reporting basketball figures, rather than the much more refined data assessment employed by the average baseball fan. This will be a regular fixture.

Speculator's Scorecard # of Days Up (YTD) # of Days Down (YTD) # of Days in Latest Trend (up or down) % Change (YTD) Dow 9 8 -4.0 Up, 2 S&P 500 8 9 -4.4 Down, 1 Nasdaq 10 7 0.0 Down, 1 DAX 9 10 0.3 Up, 2 Nikkei 10 7 1.5 Up, 2 dollar/yen 8 8 -3.7 Up, 1 dollar/euro 8 9 -0.5 Up, 1 Gold 7 9 -1.1 Down, 3 Oil 11 5 12.3 Down, 3

Economic number to watch on Friday:

8:30 a.m. EST -- Employment Cost Index, GDP
10:00 a.m. EST -- Consumer Sentiment (University of Michigan)

For a full schedule of economic reports, click here .

Earnings reports to watch for:

Lockheed Martin (LMT Quote)

For a full schedule of earnings reports, click here.