Stocks will surge, swoon, but finish ahead of bonds, T-bills

The Ticker

October 29, 1997|By Julius Westheimer

WITH the stock market swinging wildly -- Dow Jones average plunging a record 554.26 points Monday, surging a record 337.17 points yesterday and standing this morning 16 percent above its New Year's Day level, are you worried about another sharp drop?

For the long pull, don't be overly concerned. From 1925 through 1996, stocks have given investors a compound annual 10.5 percent rate of return, and that span includes the Wall Street crashes of 1929, 1937, 1973-1974 and 1987. Over that 71-year period, stock results compared favorably with bonds' average yield of 5.2 percent and Treasury bills at 3.7 percent.

And, stocks tripled the 3.1 percent average inflation rate.

GROWTH & INCOME: At this time, consider real estate investment trusts, or REITs. Fortune, Oct. 27, says, "Times have changed. The benchmark REIT index outperformed the Standard & Poor's 500 in four of the last five years.

"The key to buying REITs: Sidestep the hype and get down to basics. For growth, you want REITs whose acquisitions and rising rents push up their stock prices. For above-average income, buy REITs with high but solid yields that, with modest growth, deliver double-digit total return."

WALL ST. WISDOM: In view of the stock market's recent behavior, this advice appears appropriate:

"When I was younger, the mistakes I made always stemmed from buying stock in companies that were secondary. But if you buy an inferior company stock -- and I don't care how low the price is -- you are not going to make money over the long term. If you buy a top-notch company and don't dramatically overpay, you will always make money." (Robert Torray, highly successful mutual fund manager, in Smart Money, November)

LOCAL LINE: "USF&G's acquisition of Titan Holdings more than doubles USF&G's presence in 'two-niche' markets. Buy USF&G on pullbacks below $20." (Dick Davis Digest)

Black & Decker Corp. stock is listed under "Rising Stars," in S&P Outlook, Oct. 22, and Westinghouse Corp., widely held in this area, is recommended as a "hold."

TIMELY TIPS: "Invest in great companies, not in the stock market." (Peter Lynch in "One Up on Wall Street")

"My condensed formula: Invest in good companies when you can make the case that they're out of favor but that management can improve the way investors perceive the firm." (David Dreman, contrarian adviser)

"Have the courage of your knowledge and experience. If you have formed a conclusion from the facts, act on it, even though others may hesitate or differ." (Benjamin Graham in "The Intelligent Investor," 1949)

Pub Date: 10/29/97

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