Strategically Place the Portfolio Soldiers

September 16, 2008
Joan E. Lappin, CFA

Physician's Money Digest, February15 2003, Volume 10, Issue 3

We are well aware of the economic andgeopolitical problems that the world isnow facing. Because of them, it is bestto approach 2003 with the belief that the marketmay do nothing much to help our investmentefforts for the foreseeable future. I see many parallelsto the 1970s. Tobacco ads had justbeen banned from TV. The big citydailies were fighting their unions toreplace hot lead with cost-efficient,computer-based typesetting. Stocks haduniversally collapsed, oil was over $35per barrel, and folks were standing ingas lines to refuel their cars on odd andeven days of the week.

The Dow began the 1970s at 800and ended 1979 at 838, marking a meager38-point gain for the entire decade.Even so, there were many investmentopportunities for those who soughtthem out. Broadcasters found newadvertisers and the stocks recovered.Once the labor unions were bought out,the newspaper companies coinedmoney as their costs dropped dramaticallyand the stocks soared. No matterhow rough the environment, it's alwayspossible to comb through the rubble offallen stocks to find winners.

CONCENTRATE HOLDINGS

Assume that a rising tide will not lift all boats asit did in the late 1990s.That means you must usea rifle, not a shotgun approach. Do your research,and then aim precisely to reap the rewards of verycareful and well-considered analysis. There is nobetter time to flaunt excellent analytical skills thanwhen the chips and stock prices are down.Opportunities abound now for those who have theability to see the bigger picture and the skills toread the financial statements with care.If you can't, get help.

Nobody picks only winners. That'swhy you still need a portfolio of stocksto balance the risks. A good concept isto own a more limited number ofstocks so that you can monitor themcarefully. Some investors have hundredsof stocks in their portfolios,owning 8 shares of this and 22 of that.If a stock triples and you own 8 shares,what can that do for your net worth?Nothing, unless it's Berkshire Hathawayat $69,000 per share.

Both the Dow and the S&P 500began 2003 with the most explosivefirst trading day since 1988. Maybe the"January effect" has just moved back toJanuary where it belongs. Some favorabletidbit of stale economic news fromNovember was the trigger.

Surely, you will recall the stockmarket rout that marked October 1987. WallStreet firms collapsed over that debacle, and afew very desperate folks on margin even steppedout of windows. Most investors continued topanic for the next 2 months until the actual marketbottom on December 4 and 5, 1987. TheDow rose 11% in '88, which set the stage for a26% Dow rise in 1989.The S&P rose 12% in '88and 27% in '89. The upturn finally came whendespair was most universal.

TREAD WITH CARE

The crystal ball is murky. Terrorism and itsadvanced biological and nuclear offshoots arepressing issues on the global agenda. We don'tknow what steps Congress, President Bush, andhis new economic advisors will agree on to stimulatethe economy. The tax proposals now on thetable will do little to stimulate the economy in theshort term, and now is when the economy needssome fiscal stimulus.

In such a difficult and confusing time, gloomand doom is understandable. But keep in mind,sometimes it's most profitable to speculate onthe possibility others aren't banking on. Themarket would be in for a heck of a ride if any of3 events were to take place: Saddam Husseinresigns and moves to the palatial digs currentlybelieved to be under construction in Libya,negating the need for a US-led invasion of Iraq;North Korea and the United States reach diplomaticaccord; or a stimulating economic packageis passed into law in the first quarter.

In this rosy scenario, stocks will be restored asthe investment of choice. Large institutional investorshave already begun the march from bondsinto stocks. They know they will never recover theirstock market losses owning bonds. Don't lock yourselfinto exclusively holding bonds; an upturn instocks will leave you at the starting gate.

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

reserve a place for Gramercy's latest investment

seminar or to obtain information

about their stock selections' positive performance

in 2002, please call 212-935-6909 or e-mail jlappin@gramercycapital.com.