Three years ago, stocks were it. Everybodywas feeling rich and thinking about earlyretirement. Today, things are a bit different.The stock market is off the agenda for generalcocktail party conversation and retirementseems a long way off. Some folks who did retireare finding they need to return to theworkforce or pull in their belts. If themarket's recent behavior has yousearching for reassurance, keep awayfrom the television. Instead, turn to thefacts for comfort.
NEGATIVE NEWS OVERLOAD
These days, investment informationis beamed across the airwaves on awide variety of cable channels. In thegym, at the shoeshine, and in airportwaiting lounges, news about the Dowis readily available. Newspapers havealways increased circulation by runninglurid headlines about crime, sex,corrupt politicians, athletes on the disabledlist, etc. The financial news networksare no different.
To get your attention, financialnews networks report all the bad news with great"I told you so" enthusiasm. This includes corporatefraud, corruption on Wall Street, disappointingquarterly earnings, fired CEOs, drugs thatdon't get past the FDA, falling gold prices, risingoil prices, falling interest rates—the list is endless.What usually doesn't make the news is thefact that just as the sun rises in the morning andsets in the evening, the stock market goes up anddown—always has, always will.
In the mid-1960s, Emmanuel Cohen, chairmanof the SEC, was asked by the what he expected the market to do (thenin the throes of a 30% decline). "The market hasgone up in the past. It has gone downin the past," Cohen replied. "I expectit will go up and down in the future."Since this will always be the case,investors need to use those cycles totheir advantage.
GLASS HALF FULL
Anybody who spends time nearthe ocean can attest to the fact thatthe ocean demands respect. Sometimesit's like a lake, and sometimes itshows its fury in 30-foot waves, riptides,and undercurrents (that's whythere are lifeguards). We have justexperienced a 3-year, 30-foot wave inthe investment business, which justgoes to emphasize the simple fact thatstocks go down as well as up.
There is a bright side, however.Nothing is better than buying stock in a goodcompany when it's down 50% to 90% in value.Also, when times are rough, investors are forcedto develop realistic expectations of how muchthey can plan to earn on their portfolios. Long-termtrends show that an 8% return on stocks isa good goal. At the present time, that is morethan twice what you will earn on a bond portfolioand 5 times the return on cash in the bank orin a money market fund.
In early March, 84% of investors were convincedthat bonds were the path to success. Atthe same time, only 21% thought stocks were theplace to be invested. Since then, the stock markethas dramatically gone up and bonds havemaintained their position. Just this month,Charles Schwab began running a new TV adtouting their willingness to help investors build abalanced portfolio, with "stocks, bonds, andcash." Why weren't they running that ad in2000? They're selling what worked last year.
Last I looked, cash was returning about1.5%. Bonds were yielding a little bit more.Neither will help you nurse your portfolio backto health. Stocks, on the other hand, are onceagain, quite clearly, the asset class of choice. Youcan pick stocks with dividends that equal whatyou will earn in a money market fund and thatalso offer the promise of significant capitalappreciation to the patient investor once theeconomy turns around.
Stocks will be your friends if you pick andchoose wisely. Carefully selected stocks in a rifle-shot,not a shotgun, approach will serve you best.This is a market for investment professionalswith gray hairs who have lived through similarbear markets and know how to act now in yourbehalf. Choose a first-rate investment advisor tobe the lifeguard of your retirement. Work withthem with realistic goals and let them steer yourportfolio through the crosscurrents and extreme"surface noise" to the better days ahead.
Joan E. Lappin is president
of NYC-based Gramercy Capital, which has been ranked number
1 in Nelson's Directory of Registered Investment
Advisors.To obtain information about
Gramercy's stock selections' positive performance in 2002,
please call 212-935-6909 or e-mail firstname.lastname@example.org.