For love or money, the chase often falls to the bold

The Ticker

February 14, 1996|By JULIUS WESTHEIMER

ON VALENTINE'S Day, with the Dow Jones average perched at an all-time high of 5,601.23, up 1,647 points (41 percent) since Feb. 14 last year, many people ask themselves, "Should I stay 'in love' with all my stocks?"

Herewith, some opinions:

FALLING IN LOVE: In "Financial Independence Through Common Stocks," Robert Merritt writes, "Best results come from holding good stocks through thick and thin, not worrying too much about ups and downs of the market."

My experience shows that the best-performing long-term portfolios were built of high quality stocks many years ago and basically left alone.

PREVENT HEARTBREAK: But -- if any stock has reached 30 percent of your total, no matter how attached you are (all stocks look good when they're going up) cut it back, pay the capital gains tax (in retirement programs there are no taxes) and move on.

Regarding the above, this heartache: In 1973 I "fell in love" with and loaded up to 60 percent of what I was worth in three popular "one-decision" growth stocks -- Xerox, Texas Instruments and Polaroid. They all plunged about 70 percent in the 1974 crash, never completely recovering.

OH, ARE THEY? But people argue, "Things are different now. A rush of cash pours into mutual funds because the money is there and must be put to work."

Perhaps so, but as successful investor George Soros warns, "Most bull markets weather many tests until considered invulnerable, whereupon they're ripe for a bust."

And legendary investor Bernard Baruch cautioned, "The market is weakest when it looks strongest and strongest when it looks weakest."

In "The Great Crash: 1929," John Kenneth Galbraith writes, "Chances of a speculative orgy recurrence are good. Americans remain susceptible to the conviction that there will be unlimited rewards in which they were meant to share.

"A rising market brings reality of riches. This, in turn, draws more and more people to participate. Some day, no one can tell when, there will be another speculative climax and crash. "

MY CONCLUSION: Follow Robert Merritt's advice above. Keep the faith.

HEARTS & FLOWERS: On another topic, Smart Money, Feb., says, "Six months ago economist Ed Hyman was extremely bullish on bonds, forecasting a steep drop in long Treasury yields down to 6 percent by year-end 1995.

"He was right on target, but this year? He says, 'Bond yields are going down again. I predict a long-bond yield of 5.5 percent before 1996 is over.' "

LOVE THOSE BARGAINS: "The key to successful investing is not only to identify good stocks, but also to buy them only when the price is right." (Money, Feb.)

"Last year, 30-year zero-coupon Treasury bonds soared 60 percent. In 1996 they're the 'investment of choice' for investors who want the most bang for their buck from any interest rate decline." (Bernice Napach, financial writer)

CUPID'S ARROWS: "Twenty-six percent of those eligible for 401 (k) plans do not participate, and 95 percent of those who do participate contribute less than they could." (Worth, March)

"Average annual stock return over 70 years was 10 percent, but in the 1970s just 5.7 percent. And in the 1980s bonds -- those 'little-old lady' investments -- achieved an annual average return of 12.8 percent." (Ned Davis Research)

MAGAZINE RACK: National Business Employment Weekly (Feb. 11-17) has helpful job hints in "How to Get Better Responses to Cold Calls." More on this coming Friday.

Kiplinger's Personal Finance Magazine, March, just out, has helpful stories on mortgage refinancing ("Another chance right now") and 401(k) plans ("Are yours safe from looters?")

Business Week (Feb. 19), on newsstands all week, runs a helpful article, "It's Still Open Season On Closed-End Funds," giving data on, among 45 others, Baltimore-based "low risk" Adams Express.

Forbes, Feb. 12, says, "Experience buying a used car can be more valuable than an MBA."

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