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Top 952. May 7, 2000 7:18 PM

» Rande - I guess definitions of bear markets are like belly buttons -- ev

I guess definitions of bear markets are like belly buttons -- everybody has one (no stock market in Adam and Eve's day). So far, 2000 is more like 1994 than 1974. Could go either way, but it's all a matter of conjecture at this point. The unkown future always is.

-- posted by Rande

http://www.Morningstar.com

Top 953. May 7, 2000 8:28 PM

» JenL_2 - A Survival Guide

Some things "bear" repeating. This from 5/1 NewsWeek:

A Survival Guide

<img src="http://www.geocities.com/jeninvestor/rol..." width=220 height=220>

Baffled by the stock market's wild mood swings? Join the club. Some tips for surfing the tech wave and staying cool in volatile times.

By Linda Stern

I'm a journalist, not a wizard, so my guess is probably no better than yours or your broker's as to whether this week will bring out the bulls or the bears or another price-pummeling battle between the two. The stock market's wrenching downs and ups have heightened its perplexing nature lately. They have also reinforced misguided and potentially harmful notions about investing in stocks. Like the belief that every dip is a buying opportunity, or that mutual funds are diversified. Or that Net stocks with prices more than 100 times their earnings are cheap. Or that a merely strong performance is somehow a bad thing, such as Intel's surprising market analysts with annual earnings growth of almost 40 percent last week. Investors responded by immediately selling the stock down 7 percent.

Clearly, there are some weird goings-on in this market, and it appears to be an equal-opportunity crusher. Here's a brief guide to the risks and steps to take to protect yourself.

Know thy portfolio: You're not as diversified as you think you are. Many fund investors figured that out for the first time when their supposedly broad-based portfolios tanked and then rebounded with the Nasdaq over the last couple of weeks. The Standard & Poor's 500 Index is approaching a 40 percent technology weighting (as are the index funds which track it). Almost one of every two dollars in a mid-cap growth fund is in a tech stock, and lots of funds go way beyond that, says Morningstar, Inc. Even the biggest, most widely held and supposedly diversified funds are heavy into tech, too: Fidelity's Magellan and Contrafund each have almost 25 percent in tech stocks; the firm's Blue Chip Growth Fund is 35 percent in those New Economy stocks, too. American Century Ultra and Putnam Voyager are each 39 percent tech-heavy.

Put it all together, and you can have a personal portfolio that is dangerously high in overpriced technology stocks. It may even be overweighted in individual companies, since there are specific stocks that every portfolio manager owns (Cisco Systems, anyone?). To determine just how tech-heavy you are, you really have to open the semiannual reports and read what your fund manager is buying. Or you can go to....

....type all of your stock and fund names into the firm's free "portfolio X-ray" analyzer, and see how your portfolio's sector weightings compare to those of the S&P 500.

Don't give up on tech altogether, cautions Merrill Lynch chief U.S. strategist Cheryl Rowan. It's the only place she expects to see earnings grow by 35 percent a year or better going forward. But if you're too tech-heavy, consolidate funds that have similar holdings and buy a new one for ballast. Some decent funds that are keeping tech to a minimum are American Century Equity Income, Clipper and Artisan Small Cap Value.

Profits matter: Internet-stock touts sold the notion that these shares were too different to be assessed by normal price- earnings measures and could be assessed by the traffic on the site: eyeballs, clicks and the like. Perhaps that worked for venture capitalists but not for stock investors, who lost their shirts when everyone woke up and realized that earnings matter after all. It's commonly accepted that the firms that will hold their own in this market are those that make money and are expected to make more. But that's never easy to measure with new firms, high-tech or not.

Analysts are depending more heavily than ever on price-to-earnings growth (PEG), a way of comparing stocks of companies that might be selling at radically different price-earnings ratios in part because they are growing at different rates. It is derived by dividing the long-term expected profit-growth rate into the current PE ratio, which is itself derived by dividing one year's per-share earnings by the company's share price. Pretty technical, but done right, it will tell you how much growth potential you're buying with every dollar of share price; a PEG of one or less is considered a reasonably priced stock. If a company is really doubling its earnings every year, for example, it might actually be worth 100 times current earnings.

But there are risks. PEG ratios are only as good as the long-term earnings-growth estimates upon which they are based. A pie-in-the-sky outlook could make a lousy stock look cheap. Avoid that risk by backing up PEG plays with other data, suggests Ted Murphy, a quantitative analyst who runs...

http://www.marketplayer.com

one of the more thorough stock-screening sites on the Web. Look at how much cash a company is creating relative to the money that's been invested in it; traditional value analysis would put that figure at 25 or more. If you're mining for new ideas, seek shares of firms that already have shown solid earnings growth in the past and have enough market capitalization, say $5 billion or more, to ride out rough times.

Protracted declines: You think every sell-off is a buying opportunity. Yeah, that's what everyone thought back in '29, too. Here's what The New York Times said back then, two days before the Big Sell-Off: "The repeated demonstrations which the market has given of its ability to 'come back' with renewed strength after a sharp reaction has engendered a spirit of indifference to all the old-time warnings." So, for posterity's sake, here are some old-time warnings. Even with the immediacy of today's market reactions, there could come a sell-off that isn't retraced within days or even months, or even years. The money that you need within the next five years should not be in the market. The money that you won't need for 10 should. If you want to really take advantage of the drops without becoming a market-obsessed (and money-losing) day trader, use the quaint technique of dollar-cost averaging. Pick a really diversified fund, such as a total market index fund, and invest a like amount every month, regardless of market activity. You'll buy more shares when the prices are low, fewer when they are high, and develop an immunity to the daily drama. Bull or bear, it will all be good news to you.

.....Jen

-- posted by JenL_2

Top 954. May 7, 2000 9:33 PM

» JackSwanson - Folks...we're dead.

We've got the worst of everything, rising bond yields, inflation, high PE's and an absence of buyers...oh, then this Cicso thing. Jack, he's preparing for the worst.

-- posted by JackSwanson

Top 955. May 7, 2000 9:34 PM

» matttheduck - jack....

for crying out loud, will you get your prozac prescription refilled?

-- posted by matttheduck

Top 956. May 8, 2000 12:05 AM

» rich_hine - I don't understand interest rates

Rande:

Vanguard Prime Money Market has a yield of 5.8 percent.

Why would anyone take the risk of short, intermediate or long-term bonds with only a slightly better yield?

Indeed, the bond holding in my 401-K plan, Strong Government Securities Fund (STVSX), has a yield of 5.6 percent, and a risk of declining prices.
The 12-month total return is 0.2%.

Vanguard Prime Money Market (VMMXX) has a three-year total return of 5.32 percent, better than Strong (STVSX), which has 5.1 percent.

The five-year return is 5.38 percent for Vanguard (VMMXX) versus 5.8 percent for Strong (STVSX).

I bought STVSX several years ago because I heard that intermediate-term bonds (about five years) were the best bet, and the fund was then on Schwab's select list.

Now, I am looking for a bond investment, and no-risk cash looks good.

Stock funds are too large a share of my portfolio, but I don't want to sell them. Therefore, I am putting new money into cash until I find a bond investment that's appealing.

What am I missing?

- Richard

-- posted by rich_hine

Top 957. May 8, 2000 5:34 AM

» Rande - Rich,

Rich,

I don't think you're missing too much. What you might miss is a bump in bond prices should the market turn around and interest rates fall again, but probably not a big risk if you're talking short/intermediate term bonds (which is where you should be for the long haul anyway when it comes to the fixed income allocation). Personally, my current portfolio finds itself with about 20% cash (GICs and money funds) overall right now. This is not "stock market money," but part of the overall 25% fixed-income allocation. I was following a barbell strategy with regard to the fixed income portion (half in GICs and money funds and half in long-term zeros) up until about a month ago, but decided to go back to a laddered approach in the short-to-intermediate area. Will be moving the cash slowly into short/intermediate term bond funds over the next few weeks and months.

-- posted by Rande

Top 958. May 8, 2000 6:16 AM

» Rande - Some good stuff in this morning's WSJ:

Some good stuff in this morning's WSJ:

"Change Agent: How Alan Greenspan Finally Came to Terms With the Stock Market," by Jacob M. Schlesinger (p. A-1, right column). Fascinating!

"Traders Seek Key to Break Out of Spring Slump," by E.S. Browning (p. C-1) is an interesting analysis of 2000 vs. 1999 and.....(yup) 1994.

Finally, good insert on Global Investing, "Oh, the Places We Go!"

-- posted by Rande

Top 959. May 8, 2000 9:22 AM

» rx1dak - LU and T

I am long term but it still pains me to see the lack of support for these companies. Does anyone have insight for the 3-5 year time horizon. Is it time to load up on T or avoid it like the plague.

dave

-- posted by rx1dak

Top 960. May 8, 2000 9:51 AM

» Rande - T is off nearly 40% from its 52-week high (and the IPO has been

T is off nearly 40% from its 52-week high (and the IPO has been less than AWE-inspiring so far) and LU is off over 30%. Can see why anyone who has a big position here might think we are in a bear market after all. Great area with lots of future potential, but I would be content to own them in proportion to their weighting relative to the W5000 or as part of a diversified weighting to telecom/wireless sector, but that's about it.

-- posted by Rande