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Jewish World Review March 29, 2001 / 5 Nissan, 5761

David Flaum

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Consumer Reports


Another view: $ale days on Wall Street

http://www.jewishworldreview.com -- BEFORE he was to meet with employees in a Memphis firm last week to discuss the firm's 401(k) plan, financial adviser Martin Kelman was reading the newspaper.

He saw ads for 50 to 60 percent off on clothing, 40 to 50 percent discounts on furniture and other bargains.

Kelman, chairman of Kelman-Lazarov Inc., a financial planning and investment advisory firm, clipped the ads to emphasize a point.

If you needed them, would a deep discount make you more likely to buy trousers, a jacket or furniture? he asked.

The stock market is offering the same discount, Kelman told the workers.

With stock prices hammered down in the last year, investors are feeling the pain as their retirement accounts and other investments based on the market bottom out.

"These kinds of times always come," Kelman said.

As he and other advisers are likely to remind their clients, the quality of many firms hasn't changed, but the prices are like seasonal bargains in department stores, furniture stores or car dealerships. Not only should you look for the deals, but you should avoid selling in a panic.

"Markets have always gone up and down," said Alfred Waddell, president of Waddell & Associates, a Memphis investment management firm. "If you're truly a long-term investor, the best thing to do is ride them out."

Your head goes in one direction, your stomach goes in another, Waddell said.

Which is to say, your brain tells you this is the time to buy because every time the markets have gone down, they've rebounded to higher heights than before. To stay in, you must battle your "natural fright instinct," the feeling that makes you want to preserve what you have and run from the market, he said.

"When we're in a downturn, all of us need to get in touch with ourselves and see how we're reacting," Kelman said. This a good time to assess your tolerance of risk, how you feel about your investments, your job and your financial prospects when you go to sleep, he said.

If you don't worry, especially about market action, keep investing. But, if you're nervous, you may want to move some of your capital into bonds or mutual funds that invest in bonds.

"If you can, hang on," he said. "This is not the time to be selling out."

But it may be a time to look at how you have your investment assets allocated, said Philip Wunderlich, director of equity research at Wunderlich Securities. "People need to get balance in their asset allocation. One hundred percent in stocks is not a good idea."

Your balance will depend on your age, income, wealth and feelings about risk, Wunderlich said.

In stocks, seek a balance among large, medium and small companies and between stocks in high growth and value issues, Wunderlich said. Growth stocks are shares in companies with earnings increases or that are expected to grow by more than average. Value stocks are shares selling at substantially less than the worth of the company as carried on its financial reports.

There may be some types of stocks you should be looking to sell.

For example, if you own so-called growth stocks or technology issues, you might be on the lookout for a "relief rally" to sell part of your holdings, Wunderlich said.

"Most likely, you're not going to get your money back any time soon," he said.

"The point of maximum pain is the point at which you should be investing money."

If they must, presidents usually prefer a recession or economic downturn to happen in the first year of their administrations, he said. That way, by re-election time, the economy should have turned around and voters will have forgotten the pain they suffered three years earlier.

Anything you invest in a diversified portfolio today probably will be worth more in two years than it is now, he said.

There is a better chance the value of your investments will rise 20 percent than fall 20 percent at this point, Waddell said.

"If you have cash, you should put it to work," he said. "Successful investors plow their money into the market, buy high quality stuff and let the money work for them. And they don't get scared out at times like this."

Kelman believes in dollar cost averaging: Invest regularly, say every week or every month, so that you buy more shares when the price is low and fewer when the price is high. The practice lowers your average cost per share and increases your profit potential.

"What you want the market to do is not go up (now)" if you don't need the money you have invested for at least five years, he said. "Psychologically, it may make you feel better if it goes up, but if you are adding money each month, wouldn't you rather be buying shares at lower prices?"

David Flaum writes for The Commercial Appeal. Comment by clicking here.

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