Cents and sensibility: Don't run from thebear (market)

January 15, 2008 11:00 pm

By Kelley Atherton

Triplicate staff writer

The stock market is still shaky this year and the possibility of a recession has dominated newspaper headlines, but what does this mean for investors? Is it time to run and hide or remain firm and wait out the storm?

All three stock indexes were down more than 2 points Tuesday at the closing bell: the Dow Jones Industrial Average -277.04, Nasdaq -60.71 and Standards and Poor 500 -35.30.

As stock prices fall the economy enters a bear market. A Edwards Jones report likens this name to how a bear attacks by "rearing up on its hind legs and swiping its paw downward."

To continue with the bear theme, the best advice for investors is not to run away, arms flailing, but to wait until the bear loses its curiosity and wanders away. Don't sell quality stocks to soften the blow, wait it out.

Predicting when to get in or out of the market is also risky: missing 100 days of high returns since 1928 would reduce the annual return of an investment from 9.9 percent to 2.2 percent, according to Ned Davis Research.

Bear markets typically don't last very long. According to Edward Jones, it's about 14 months and typically precedes a bull market. In 2002, the country was on pins and needles waiting for a depression to hit, but it didn't. The worst was never realized.

The self-correcting market

Smart investors keep their stocks for the long term and buy quality stocks at low prices during a bear market. The lower the initial price is, the higher the returns will be in the long run. It may be rough for a while, but the market always rebounds.

Recessions tend to be short, the thing to remember is not to own investments today that won't continue to perform during a recession; hold onto stocks that will historically bounce back.

Edwards Jones refers to the three ‘R's of the economy," remarkable, resilient and relentless. For example, lower economic growth rates usually lead to lower inflation and interest rates. The weakened dollar reverses as foreign buyers spend more dollars on U.S. goods.

"Rules of the Road"

Here are some basics to investing from Edward Jones:

• Create a plan - This defines long-term goals and establishes a strategy to achieve them. This also includes individual tolerance for risk and the length of time for investments.

• Take action - Follow through with the plan, the right time is always now.

• Stay invested - Don't only invest when the market's good, but during a bear market, too. Daily price fluctuations are inevitable.

• Look for quality - Look for company stocks with solid track records, strong management teams, competitive products and well-defined business plans.

• Diversify your holdings - Diversifying your stocks dollars among a wide-range of high-quality stocks, bonds and mutual funds and government securities will be soften the blow of a bear market.

• Review your plan - Do this at least once a year and adjust your plan along with life changes such as a new job, house or children.

If you're still feeling down, think about this quote from the famous U.S. Economist Alan Greenspan: "The Fact that our economical models at The Fed, the best in the world, have been wrong for 14 straight quarters does not mean they will not be right in the 15th quarter."

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