WALL STREET MANIA: The Revenge of the Bears

By Lawrence Taylor Nordee

Some commentators call it "Tech Wreck", others call it "A Correction", and yet others call it a "Bear Market." Whichever term you agree with, the last two weeks have been nothing short of mania on Wall Street. Alas, Investors may be coming to their senses with the realization that the "Financial Markets" are not always going to go up. The axiom, whatever goes up, must come down is appropriate. The Nasdaq has dropped about 32% since the beginning of the year.

Investors had patched themselves into Technology heavy NASDAQ so called "NEW ECONOMY" market and relegating the DOW to the role of the stepchild in allocating their investments. Something funny happened on the way to the 100% return on investments "ROI" that had become the headlines of the last couple of years. There was reality check.

The volatility "upward and downward movements" of the markets have let some air out of the unrealistic balloons of non Wall Streeters. The sharp movements in both directions has purged some of the dot COMs that had no business issuing IPOs. That became inevitable when many people lost the shirts off their backs.

In previous articles, I had discussed issues of volatility, diversification, long term investment strategies and risk assessment to name a few. It is therefore, necessary to revisit these topics in light of what has transpired in the last two weeks. The following rules should guide you in making decisions on your investment dollars:

  1. Diversify, Diversify, Diversify.
    Prudence suggests and most professional advisors in my occupation would recommend that the investor put his/her money in different sectors in the economy. The reality is that what is hot today, will be cold tomorrow and what is cold today will be hot tomorrow. If one is properly diversified in the Technology, Healthcare, Financial and industrial sectors of the economy, it will not matter what the old economy is doing or what happens to the new economy. However, if all your money is in one sector and in a few companies in that sector, when it bottoms out, all will be lost. Diversification cushions the blows that will come with down markets and sectors.

  2. Assess Your Risk Tolerance.
    Just because uncle James is doing well with his investments in one sector should not lead an investor to that particular sector. Your uncle may have a different set of circumstances that allows him to tolerate the risk associated with the given sector. A trusted professional advisor would be the appropriate person to guide you in your decisions. Be honest with the advisor when discussing your risks and be realistic.

  3. Expect Volatility
    Expect the markets to go up and down. Don't jump out of it the first time your portfolio goes below your principal investment. Become acutely aware that there are going to be days like Friday April 14, 2000 when the DOW would lose 600 points and the NASDAQ will lose 350 points. If your risks were properly assessed and your portfolio properly diversified you should sit and relax and not have cardiac arrest on days like that. Various days will come

  4. Invest for the long term.
    Your investment dollars should be allocated for the long term. It is unrealistic to consistently expect a 30% increase in your investment every 90 days. When investing look for intervals of 5, 10, 15 or 20 years. Don't invest today expecting to cash out 12 months later. You do yourself no favors and certainly, if working with a professional advisor, you do not justify the relationship built.

All these having been said, ride the Bulls when they are riding high and be prepared for a soft landing when the Bears come home to roost. Don't be a worry wart about your investments if you have been honest in assessing your risks, diversified your portfolio and prepared yourself for the periodic volatility that comes with investing. The realistic expectation of long term investments is approximately 15%. Anything over that is gravy. Enjoy the investment ride.

Nordee, is a Registered Representative with the firm, Signator Investors and John Hancock Financial Services, Inc. and a memeber of the Editorial Board of the BBJ and USAfrica the Newspaper.