So then they put out
the articles
for all those grabbed by
the testicles
.. Nasdaq-Shave
' Tech wreck fails to dull Nasdaq long-term glitter
Thursday October 3, 2:32 pm ET
By Nick Olivari
NEW YORK, Oct 3 (Reuters) - Here's a sobering thought:
investing in the battered Nasdaq may not be such a bad idea
after all.
The person who invested $1,000 to track the Nasdaq
Composite index (NasdaqSC:^IXIC - News) at its inception in
1971 was 25 percent better off as of September, than someone
who placed the same amount on the Standard & Poor's 500
index (^GSPC - News).
Considering
the 77
percent
shellacking
Nasdaq
stocks have
taken since
the index's
peak in
March 2000,
professional
money
managers
say it's not
surprising.
"It's a well
known fact
that companies with high earnings growth outperform
companies with more stable earnings growth over an extended
period of time, though the volatility is higher," said money
manager Eugene Profit of Profit Investment Management LLC,
in Silver Spring, Maryland, which oversees $70 million.
Growth stocks are typically those with higher-than-average
earnings over several periods, with the likelihood that rate of
growth will continue. Trading at higher price-earnings multiples
than other stocks, and paying less dividends, they also carry
greater risk.
For the public, Nasdaq Stock Market is seen as comprised
mostly of technology companies. A more accurate description
is "small, fast growing" companies, said NorthStar Group
money manager Linda Ray.
The stock exchange itself says technology accounts for just 30
percent of company listings by industry on the Nasdaq.
That's why money managers say the Nasdaq Composite index
should be expected to outperform the more sedate S&P 500
index in the long term.
The broad-based S&P 500 gets a boost from such large-cap
Nasdaq growth names as software makers Microsoft Corp.
(NasdaqNM:MSFT - News) and Oracle Corp. (NasdaqNM:ORCL
- News), but it also contains many companies that exhibit
steady earnings growth and are perceived as having less risks,
such as automaker General Motors Corp. (NYSE:GM - News)
and diversified conglomerate General Electric Co. (NYSE:GE -
News)
BREAKDOWN
Excluding dividends, as little Nasdaq data is available, bears
out the gambit that the best bet in the last 30 years was growth
on the Nasdaq.
According to BigTrends.com, a Kentucky-based research firm,
a $1,000 investment in the Nasdaq Composite index in May
1971 would have provided an investor with $10,769.28 through
to Sept. 27.
That compares to just $8,042.95 for an investor who had
designated the $1,000 to track the S&P 500 index. The two
comparisons are based on stock price, and exclude any
dividends the components of the indexes might have paid.
The Nasdaq's better performance comes after the composite's
deep slide from its peak two years, compared with just a 48
percent decline for the S&P 500 index.
The difference may not seem like a lot after the losses of
recent years, but it's a better base for the time the market
rallies on a sustained basis and growth comes back into vogue.
Of course, an investor fortunate enough to have seen the tech
wreck coming and cashed out at the Nasdaq's peak would
clearly have been better off with growth.
The return on the $1,000 tracking the Nasdaq Composite was
$45,340.10 on March 10, 2000, when the index closed at a
record 5,048.62.
That compares with a return of $14,848.49 at the S&P 500's
all-time closing peak of 1,527.45 two weeks later.
'WAY TO GO'
So what does history indicate for the future?
The first rule is that investors should stick to their original plan,
according to Northstar's Ray.
"Investing for the long term is the way to go," said Ray. "But
most people don't make it as they are not psychologically
capable of making it through a bear market with their original
intent intact."
Past trends also indicate that investing in growth stocks as
opposed to value is probably the best bet as long as the time
horizon is significant.
"It's fair to say over a similar time frame (of 31 years), the
higher earnings growth companies will do better," said Profit.
"Now is a good time to be looking at those Nasdaq 100 (index)
type companies if you can stand the volatility." '
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