With the stock market now down about 15 percent from its high-water mark last year, the bears are taking huge bites out of investor profits that once came so easily.
And if you're still holding the same tech stocks that you owned a year ago, you're in far deeper trouble. The Nasdaq index is down a whopping 65 percent from its 52-week high.
While the Chicken Littles of Wall Street are running for cover, many investors are wondering if they should retreat to the sidelines, stay put or add to their holdings.
While it's abundantly clear that there has been some panic selling, Alan Skrianka, chief market strategist for Edward Jones, warns investors that this is no time to jump ship.
He says investors need to balance their favorable long-term outlook with risk tolerance and short-term uncertainties.
"Periods like this work to separate the winners from the losers in the stock market," he says. "Winners keep a cool head and look for high-quality opportunities while maintaining diversification. Losers panic and sell it all -- typically right at the bottom."
Sacramento money manager Dan Seidman concurs with Skrianka and cautions investors to be patient.
"A lot of people confused investing with last year's irrational buying when any dot-bomb you bought went up -- for a while," Seidman says.
"Investing is buying a company that has earnings, perhaps a dividend and a business that has some sort of sustainable lead or technology that makes them the best of their class. If you stick with those kinds of stocks for the long term, you'll do well."
And if you don't, he says, the lesson is painfully evident. "You may make some money in the short term, but that's not how you should invest for long-term results such as retirement," he adds.
While Skrianka's firm is advising investors to slightly pare back their high-tech holdings (from 24 percent to 22 percent), he says this is no time to bail out of the market altogether.
"We've heard so much hysteria in recent sessions, but I think you have to remember where we've been. We've just completed a tremendous speculative bubble on the Nasdaq, and now it's completely sold off," Skrianka says. "I think that the era of irrational exuberance is now behind us, and it's a wonderful time for buying."
The Dow is down 15 percent from last year's all-time high, and that reflects what's happening with the economy, while the Nasdaq is down more than 60 percent from last year's all-time high, and it has nothing to do with the economy, he says.
"Five years from today, many investors will look back and ask why they didn't have the courage to step into the market," he says.
Skrianka's optimism is based on a number of factors. In the short-term, he expects to see Federal Reserve Board Chairman Alan Greenspan announce this week that he's cutting interest rates by at least 50 basis points.
And a little further out, he expect to see President Bush's tax cut proposal to be cleared by Labor Day.
So where would he be putting his investment dollars today?
Top-quality issues lead his list.
"We would be buying the likes of Johnson & Johnson, Emerson, Fannie Mae, Dell and Texas Instruments. We like brand-name stocks that you hold in good times and bad. These are stocks that there's no reason to sell just because the overall market is dropping 10 to 15 percent," he says.
There's no doubt that when the Dow Jones industrial average tests the 10,000 barrier, investor hysteria takes center stage.
When the Dow first broke through 10,000 in 1999 on its way to an all-time high of 11,723, investors couldn't spend their money fast enough on stocks. Fear and greed ruled the market. Economic fundamentals -- corporate earnings, interest and inflation -- were thrown out the window.
Now that the Dow has retreated to 10,000 again, those same emotions have returned in a wake of panic selling. The smart money says that those who learn to stay the course in markets like this will be the big winners.(c) 2001 The Sacramento Bee
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