Read it, read it again, then reread it a third time:
Nasdaq's collapse no cause to flee
By Deborah Adamson, CBS MarketWatch
Last Update: 8:57 PM ET Apr 3, 2000 NewsWatch
LOS ANGELES (CBS.MW) ? Investors in technology stocks should resist their urge to panic and do what seems counter-intuitive in the face of Nasdaq's meltdown Monday, investment experts say.
"Nasdaq is not going away."
Richard Earnest, Value Momentum Fund
"Stay put," said Robert Hochstadt, a principal at GHP Investment Advisors and one of the nation's top 250 advisors according to Worth magazine. "Don't over-react."
Indeed, those who sold off stocks in the 1987 decline were the biggest losers, since the market roared back in a year or so.
Laura Tarbox, a certified financial planner at Tarbox Equity who's also on the Worth magazine list, said a client of hers bought at the top of the market before the 1987 crash. It took his portfolio only two years to rebound, since he didn't sell.
In addition, macro-economic factors haven't changed, Tarbox said. "I look at what's going on in the world and economy. Have they really changed? They haven't. It's all really positive."
Learn from the Nasdaq crush
Investors who took care to diversify shouldn't be in bad shape; after all, the other half of Monday's market news offsetting the 349-point drop in the Nasdaq is that the Dow surged by 300 points.
Hochstadt offers advice that may sound like personal finance cliches but which has held true over time: Make sure you're diversified into large, mid- and small-cap stocks, as well as foreign, value, growth and fixed income securities. And dollar cost average -- investing a set amount at regular intervals -- because it's impossible to time the market.
Tarbox follows this rule: Take five to eight months to move a chunk of money into the market. Don't be impatient.
Remember that money that you put into stocks should be money you won't need for at least five years, Hochstadt said. Don't buy anything on margin, he said, especially volatile tech stocks.
Did you blow it? Learn from the Nasdaq's crash.
Stability ahead
Steve Todd, editor of the Todd Market Forecast newsletter, wrote in an email to clients Monday that Nasdaq is "oversold," meaning it has gone down so much that it's poised for an upturn. Indeed, he believes this "extreme behavior" in the Nasdaq is almost over for the short-term. Todd expects the market to stabilize Tuesday.
In the meantime, take this time to watch which tech stocks are holding up in the slide, said Richard Earnest, manager of the Value Momentum Fund. Those are the strongest stocks and you'll want to consider holding them, providing the fundamentals also are sound. The rest? When the Nasdaq rallies again, you might want to consider selling some of them.
Should investors buy Net stocks with the Nasdaq beaten down? Earnest said he would hold off awhile. He thinks better opportunity lies in buying established companies that are trading cheaply.
Tarbox thinks it's not a bad idea to pick up a few bargains -- techs that would have been too expensive to buy months ago.
Market divergence
Nasdaq's crash Monday -- and in previous sessions -- wasn't a big surprise. Earnest said the Nasdaq had been flying on its own fuel apart from the Dow and the S&P 500 for a long time. Indeed, the Nasdaq seemed to be in its own world, rising far faster than other major indices.
"The spread and valuation gap shouldn't have gotten as wide as it did," Earnest said. "The separation got worse and worse."
But the market has a tendency to correct these imbalances.
In the 1970s, Earnest said, the so-called "Nifty 50" group of highflying stocks were thought to be almost invincible. At a time of rising oil prices and interest rates, investors thought only those companies could withstand an economic downturn. So they bid up the shares higher than the rest of the market. The imbalance, like the Nasdaq's Monday, was corrected.
Earnest believes that the recent spate of Nasdaq dips began with a few fund managers who wanted to trim positions and take profits among their tech stocks. They saw cheap sectors elsewhere.
When institutional investors sell, they make a big splash. A ripple effect occurs, scaring smaller investors.
For example, Earnest said, folks who kicked themselves for not buying a Net stock at $100 and finally got in at $200, panic when the stock stumbles to $140. They sell, accelerating the plunge in the Nasdaq. An individual investor has that much clout? Over the years, as these investors and traders increased their participation in the stock market, they're power over market swings grow bigger.
Nasdaq rebound?
One bullish factor in favor of a Nasdaq snapback is the amount of money that has shifted into aggressive growth funds. That money has to be used; fund managers have to put it back into aggressive -- read tech -- stocks.
The money flowing into these funds more than offsets secondary offerings of stock or ending of lock-up periods, Earnest believes.
"They will buy pretty aggressive stocks," he said. "Nasdaq is not going away." |
