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Remain calm, and stick with quality


"I'M FRIGHTENED; should I sell everything?"

I hear that question often.

With the Dow Jones industrial average this morning off 476 points, or 6.7 percent, from its peak, many people worry -- despite the rally of the last three sessions -- about losing bull market profits.

My advice: Don't panic. Proceed in an orderly fashion and disregard curbstone advice.

Specifically, investors should diversify with quality stocks and continue to invest for the long pull. Don't be pushed off course by headlines and news bulletins, including news of rising interest rates.

The Federal Reserve has raised interest rates many times to head off inflation and quality portfolios have not been damaged.

To avoid damage in a down market, buy and hold stocks of companies with long records of rising earnings and dividends. This week's (April 7) Barron's says, "Go for dividends! When the market's lousy, quarterly payouts are often an investor's only return." Always keep a cash reserve as a "sleeping pill" and a buying opportunity.

"Opportunity? You call this plunging market an opportunity?" people ask. Sure. Never let sharply falling markets discourage you from investing. Although Wall Street is the only "store" where customers stay away in droves when the "Sale!" sign is out, you can snap up good values at reduced prices.

You say you'll wait for further markdowns before you buy? Get this: A new study shows the folly of "timing" purchases:

If you invested $10,000 in the S&P; 500 for the 10 years (2,529 market days) ended Dec. 31, 1995, your money almost tripled to $29,152, a 191 percent return. But if you missed the market's 10 best days in that period, your $10,000 would be worth only $18,954, an 89 percent return -- $10,198 less than the full period provided. If you missed the 20 best days, your gain dwindled to $4,657.

At your workplace, continue to put every dollar you can into tax-deferred retirement plans such as 401(k)s and 403(b)s. This money not only sidesteps income taxes -- your contributions don't show on your year-end Form W-2 -- but retirement portfolios grow almost twice as fast as taxable accounts.

Things not to do include taking extra risk for extra reward, buying mutual funds with only one-year strong performance and trying to "go it alone" when there are many qualified professionals capable of helping you.

More advice: "In a bear market especially, your emotions are the best 'reverse indicator' of what you should do." (Stock Trader's Almanac.)

"Major bottoms occur when analysts cut earnings estimates and companies report below-expectations earnings." (Edward Babbitt Jr.)

"If a battered stock refuses to sink lower, no matter how many negative articles appear, take a close look." (James Fraser, the Contrary Investor.)

Pub Date: 4/09/97

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