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To: Chispas who wrote (89499)	9/11/2002 9:54:38 PM
From: Chispas	Read Replies (1) \| Respond to of 116822

Mr. Makin "makes sense".... _____________________________________________________________________________ Expert criticizes stock peddlers Warns investors not to expect quick fix By DAVE EBNER Wednesday, September 11, 2002 – Page B10 A prominent U.S. economist attacks the brokerage industry and its relentless peddling of stocks in a new paper and suggests that investors' ailing portfolios probably won't spring back to life any time soon. "Markets tend to go down faster than they go up," said John Makin, an economist at the Washington-based American Enterprise Institute. In a paper titled After Irrational Exuberance, Mr. Makin argues, "There is no reason to suppose that investing most of one's funds in the stock market will speed up the process of recouping losses suffered over the past few years." Indeed, the lessons of history suggest that Mr. Makin's outlook -- although depressing -- could well be correct. In the wake of burst market bubbles, stocks generally struggle for years, if not decades. After the 1929 peak in the United States, stocks lost close to 90 per cent of their value and didn't reach the old high until a quarter of a century later in 1954. And the Japanese market is still mired 76 per cent lower than its bubble peak of more than 12 years ago. The pattern seems to be playing itself out once more. The U.S. market is down about 40 per cent since stocks bubbled to a record high in March, 2000. If stocks were to rise 8 per cent annually -- a modest yet typical historical growth rate -- the market won't regain its 2000 pinnacle until mid-2009. "Through all or most of the disastrous period for stocks since March, 2000, the retail equity business has exhorted and cajoled American investors to 'hold on,' " Mr. Makin writes. "The basic pitch has remained the same: 'Stocks are your best bet for the long run.' That notion has cost American households that did hold on about $8-trillion [U.S.] over the past 2½ years." Mr. Makin says Bay and Wall streets have an "institutional bias" toward stocks compared with other financial products, such as government bonds. Simply buying and selling assets other than stocks is difficult, he says. "The infrastructure for selling and trading corporate bonds or government bonds [just to mention two examples] is not nearly as well developed as is the equity infrastructure," he writes. He later adds: "The investment industry has adapted itself to an equity culture. For most of the industry, selling stocks to the public is more profitable than selling other financial assets." In sum, Mr. Makin advises investors to resist talk of stocks and nothing but stocks. Successful investors should divide their money among a variety of assets, preferably ones that aren't closely correlated in terms of performance. These would include stocks, bonds, cash and real estate. And although stocks certainly are a top performer in the very long run -- 15 years or more -- most investors' lives are a bit more complicated than the simple "buy and hold" thesis allows for. "Stock prices may fall at inconvenient times such as the years close to, or in, one's retirement or just before college tuition bills come due," Mr. Makin writes. "Asset allocation should always be foremost in investors' minds." _____________________________________________________________________________