In resilient America, stocks still a good bet

November 11, 2001|By JAY HANCOCK

FOR MORE than a decade, the financial media have been ordering you to buy stocks.

Why? Stocks are good for you. Why? Wall Street said so. We wouldn't print it if it wasn't true.

If you pressed the talking heads for details, they would discuss stocks' impressive track record and brandish price graphs resembling the west face of the Matterhorn.

Stocks have always gone up over the long run, as dependable as the seasons, the experts said. Trust us.

Graciously, you obeyed. You bought shares in General Electric and Microsoft and, God help you, Webvan and The more you bought, the more the media cheered you on, the more stocks went up.

We were all brilliant.

Journalists bear more than a little blame for dot-com craziness and the subsequent stock flop that developed after March 2000. We believed absurd, Jetsonesque myths about computers shopping for you while you slept, and too often we quoted a callow analyst named Henry Blodgett who helped fuel the bonfire.

Of course stocks were not forever buoyant. The main Dow Jones average is down 17 percent from its high; the Nasdaq index has fallen 60 percent, and Standard & Poor's 500 index has dropped 25 percent.

We're all older and wiser now, so please allow this humble member of the financial press to give you some up-to-date advice: Buy stocks.

Not necessarily tomorrow. Not all at once. Not with all your money. But U.S. stocks are still a good bet.

While the scribbling and chattering classes got carried away about the stock market last year and omitted some asterisks and "however"s from their commentary, the case for holding shares over the long term is still strong. It would be a shame if it got lost in the recent concern over stock declines and economic weakness.

The point gets obscured in the daily static of CNBC analysis and stock market box scores, but U.S. corporations are among the most marvelous, flexible, creative, powerful, productive groups in the history of organizational behavior.

Why wouldn't you want to own a piece of them? They're on sale, every day, at your local broker.

Napoleon's divisions had nothing on the modern U.S. company, which can attack, retreat, wheel and redeploy with amazing speed - all in the cause of making money, not conquering Central Europe.

American laws and aggressive managers make it so. By being able to hire, fire, borrow, invest, merge and build usually when and where they like, U.S. companies hold advantages over highly regulated European and Asian competitors.

In many countries, the events of the past few weeks would be cause for years of paralysis, but corporate America is already adjusting for the next march forward.

The national productivity surge of the last five years owes much to technology and employees, but the trend is largely the product of corporations that reinvented themselves and redeployed workers into positions where their output would rise.

Productivity gains help workers; their incomes can rise without causing inflation. But productivity improvements also bolster corporate profits; look at the U.S. record since 1990. And there doesn't seem to be any reason why productivity won't continue to grow.

Owning stocks is a way to share in the growth of the nation. There will be an estimated 394 million Americans in 2050. Why not get in on the profits to be made in feeding, sheltering, cleaning, entertaining, informing and transporting them? You can't do that with bonds, which are loans made at a usually fixed interest rate.

Stocks are a hedge against inflation, which seems to be a permanent presence in the modern world. When inflation advances, corporations raise prices to accommodate higher costs. What can bondholders do? Sit and watch their principal get eroded.

Listen. All the usual caveats apply.

Diversify into different companies in buying stocks. Consider index mutual funds. Pay attention to earnings. Don't pay too much for a given stream of profits. Don't overpay brokers and money managers.

Don't put money in stocks you'll need in the next few years. Buy gradually. Assume stocks will fall sometimes, sometimes sharply. As you get older, shift money into bonds and other income-producing investments.

Pay very close attention near the end of this decade, when I'm convinced that retiring baby boomers will inflict a long-term dent on the economy and stock markets.

And above all, buy stocks only because you have carefully considered your options, studied the company or mutual fund and decided it represents a prudent bet on a solid piece of the American economy. Not because a journalist or stockbroker told you to.

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