Ways to keep up when the market heads down

The Ticker

March 03, 1994|By Julius Westheimer

After losing more than 50 points within the first 15 minutes of trading, the Dow Jones industrial average climbed steadily yesterday and ended up nearly 23 points at 3831.74. Broader market indexes were mixed, while bond prices closed slightly higher after a bumpy day.

SHOCK ABSORBERS: As promised Tuesday, here are strategies to help you avoid potholes in a "down" stock market, while taking advantage of opportunities in "up" markets: Stick to quality investments, diversify, invest money when you have it, buy stocks for the long pull, seek professional help, don't invest in anything you can't draw with a crayon (Peter Lynch's advice), avoid curbstone tips, put part of your money in the "Dow 5" (see below), buy stocks in utilities that are low-cost producers, invest in companies that raise dividends often, don't let taxes dictate investment judgment, be patient (most investments don't grow right away) and meet your broker at least annually to review performance.

DOW 5: Responding to many requests, here's an update on the "Dow 5" strategy whereby, in the last 20 years, a $10,000 investment grew to $611,000 (no misprint), with an average annual return of 21 percent and a performance record which outpaced the Dow industrials sixfold. Strategy: Select the five lowest-priced stocks from the 10 highest-yielding Dow Jones industrials --and buy them. Once each year, on the anniversary of your original purchase (a good stock broker will remind you), sell any stocks that have slipped out of the "Dow 5," replacing them with the newcomers. If the same "Dow 5" remain, you just hold them. You never add any money to this procedure. As of today the "Dow 5" are American Express, Eastman Kodak, Woolworth, Sears and Merck.

LOOKING BACK: If you had invested $10,000 in the following categories one year ago last week, here is what your investments would be worth today. In foreign stocks $14,200; in gold $11,500; in Treasury bonds $11,200; in U.S. stocks (S.& P. 500-stock index) $11,000, in a money market fund $10,200. (Data from Business Week, March 7, which also runs a fascinating cover story on billionaire banker Edmond Safra.)

LOOKING AHEAD: "My best advice to investors in 1994 is to buy on weakness. I really am quite optimistic that it's not going to be bad, and that this year will probably be a lot better than most people think. This party could go on for a long time. If the Fed doesn't tighten again, the Dow could go to 4,600. If it does, we'll have our 10-15 percent correction, and then we'll make 4,600." (Elaine Garzarelli, in Louis Rukeyser's "Wall Street." Ms. Garzarelli correctly "called" the 1987 crash.) . . . "Very few investments have not benefited from low interest rates -- bonds enjoyed one of the greatest bull markets in history and the stock market enjoyed a massive influx of new funds, also due to low interest rates. However, all these benefits will be quickly reversed as interest rates go back up." (Martin Weiss' Safe Money Report.)

HOPEFULLY HELPFUL: "Beware of foreign bonds. The yields on bonds issued abroad look attractive, but they are subject to extra risk. In addition to the risk from interest rate shifts and the issuer's credit standing, they are subject to exchange rate risk. Even if the bonds go up in value in the foreign currency, they may go down in dollar terms if exchange rates shift against the dollar. Exchange rate changes are hard to predict, so if you don't understand bonds, leave investing to the professionals who manage mutual funds." ("The Guide to Investing in Bonds" by David L. Scott, $8.95.)

MONEY-SAVERS: From Living Cheap News, which a reader sent me, here are ways to save a few dollars: Use postcards instead of letters, saving 34 percent on postage; buy cards at the post office . . . Don't carry a balance on credit cards; pay them in full each month . . . If you smoke, stop; if you're up to a pack a day at $20 a carton, that's $730 a year . . . Buy your clothing at thrift, resale and consignment stores . . . When shopping, don't be afraid to ask if an item will be put on sale in the near future; the worst thing that can happen is the salesclerk will say no, but the answer may be yes . . . Spread the word; if you're looking for an item, or have something to sell, let people know . . . Don't respond to sweepstakes offers, especially those mailed "bulk rate." In some cases, allegedly toll-free numbers could result in hefty phone charges.

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