Lessons that apply to any market

The Ticker

June 28, 1994|By Julius Westheimer

As we move toward the second half of 1994, and in response to many requests, we print "Investment Lessons I Have Learned Over 50 Years," expanded from a five-part series I produced on WBAL Radio's News Journal several weeks ago.

These lessons apply in any stock market -- too high, too low or fairly valued -- including yesterday's upbeat session when the Dow Jones industrial average rebounded 48.56 points to close at 3,685.50, partly offsetting last week's 140-point loss.

REGARDING STOCKS: (1) Diversify, stick to quality, invest for the long pull.

(2) No matter how great a stock looks -- they all look great when they're going up -- don't put (or keep) more than 30 percent of your money in any stock. Even if it's been a real winner, sell some and pay the capital gains tax. (Never worry about taxes; worry about losses.)

Lesson: In the early 1970s I became impressed with the "one-decision" growth stocks -- stocks you "buy and hold forever." I foolishly put 75 percent of what I was worth in three "glamour darlings" -- Xerox, Polaroid and Texas Instruments. And when Xerox plunged from $160 a share to about $50 and the same fate befell the others, I was most unhappy financially and emotionally. (And the same thing happened a few years ago with USF&G and Maryland National Bank stocks, both falling over 60 percent.)

(3) Go with the leader first; it isn't the leader by accident. If you buy Merck -- the leader in its field -- and it drops (which it did), you're still part owner of one of the world's finest drug companies, and the stock will probably recover. But if you buy ZYX Pharmaceutical and it plunges, you may wind up with nothing.

(4) This leads to "hot tips." A friend whispers, "I've got a great tip. Buy 1,000 shares of ZYX; it's 10 bucks a share, and it's a $50 stock; you'll make a fortune." What happens? A year later, things go badly at ZYX -- the president embezzles money, the product stops selling -- and your friend forgets he told you to buy it, and you hold the bag. The stock drops from $10 to $3 and you lose a bundle.

(5) Go to professionals. Although not perfect, they spend many hours a day in their profession. With a terrible toothache, you couldn't fill (or pull) your own tooth. You'd go to a dentist. Same applies with your money.

(6) Your own emotions are the best "reverse indicator" of what you should do in Wall Street. ("When they're high, they want to buy; when they're low, they let 'em go.")

(7) From Dad: Some lessons from my father, a New York Stock Exchange member many years ago. He left me this list in his safe-deposit box: "One dollar invested on 'Black Friday,' when brokerage offices are empty, is worth $10 any other day . . . Don't speculate or sell short . . . Don't buy a stock without going into the whole thing with some good investment counsel . . . Never try to buy at the bottom or sell at the top . . . Be patient; there is always another day . . . Never hesitate to admit you were wrong."

IN GENERAL: (8) The time to invest money is when you have it. If you wait for stocks to go lower -- and they do -- you probably won't buy them. If stocks move higher, you won't chase them. Either way, you're out of the market, a major long-term error.

(9) Don't believe everything you hear; no one at a cocktail party tells you how much he or she lost in a stock.

(10) Don't try to hit home runs, and maybe strike out. Hit a lot of singles and doubles.

(11) Start early! If, at age 21, you invest $2,000 a year ($170 a month) at 8 percent for only 10 years and then stop -- don't put another nickel in -- your $20,000 will grow to over $450,000 by age 65.

(12) Be patient; most investments take a year or more to show a profit.

(13) You don't make money by taking money to a broker, saying "Make me rich." If it worked that way we'd all be millionaires. Instead, put every nickel you can in retirement funds -- 401(k)s, IRAs, etc. Money grows much faster untaxed in retirement plans than outside of them.

(14) Surprise! You need not live on a fixed income. With the right advisers you can compile a list of stocks that raise their dividends every year -- and you can ignore the ups and downs of Wall Street. Ten years ago Bristol-Myers paid a dividend of 75 cents a share a year, adjusted for splits. Today, $2.92. Had you bought the stock in 1984 you would be receiving 14 percent income (plus tripling your money).

QUICKIES: When buying mutual funds, buy funds with strong 5-10 year records . . . Ask for fund "B" shares, where you pay no front-end load, maybe no load at all . . . The younger you are, the more stocks you want. . . . In CDs and bonds, stagger your maturities . . . Don't overlook the "Dow 5" strategy, whereby a $10,000 investment soared to over $550,000 in 20 years; check with your broker.

Ticker Note: If anyone has any suggestions to add to mine, please write in with them.

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