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The Stock Market Survived the
S&L Crisis --
It'll Survive This One Too
by
Gregory J. Rummo
AUGUST 2, 2002
When do you buy expensive cuts of meat like filet mignon?
Do you run to the meat counter when the store announces they're selling untrimmed tenderloins for $19.99/lb. or do you wait for a bargain, when the price hits a more reasonable level like $4.99/lb.?
The answer to that question is of course obvious, yet when confronted with a similar decision involving the purchase of stocks on Wall Street, Americans tend to act irrationally.
With the recent downdraft in the equities markets, many people have panicked.
The Wall Street Journal recently reported that during the month of June, mutual fund investors withdrew a record 18.05 billion from stock funds, the third-largest total for monthly stock redemptions ever.
At the very time when most folks should have been buying, they were selling. It's the old story of fear and greed on Wall Street; investors don't think, they just react like a heard of stampeding bulls or bears.
I know what you are thinking. I buy meat every week to feed my family. You can't compare groceries to investing for retirement.
Yes you can.
It is the wise person who has a regular
plan to save a portion of his income in a well balanced portfolio including
stocks. It's called dollar cost averaging and unless you are at the point of
cashing in and retiring now, the ups and downs on Wall Street should only be
fodder for hyperventilating TV reporters, the copy editors who write the
headlines and Democrats seeking re-election, not fuel for your ulcer.
The recent swings in the Dow Jones Industrials Average, the S&P 500 and the
NASDAQ may represent a golden opportunity to pick up undervalued shares of
quality companies at bargain prices.
The authors of "Irrational Exuberance," who made the claim several years ago that the Dow would rise to 36,000 are still insisting it will eventually get there. Fueling the optimism for the rekindling of this theory is the huge disconnect between the stock market and the economy. Uncertainty is almost always the cause for such disconnects but the magnitude of uncertainty this time is unfounded.
There have always been bad apples in the business world. You'd think that unscrupulous CEOs were an invention of the Bush administration. And there have always been "accounting irregularities" and restatements of earnings. It's principally the timing of a few egregious examples—WorldCom’s bankruptcy coming on the heels of Enron's—that has been particularly nasty in roiling the markets.
But remember the problems with the savings and loan institutions that occurred about twenty years ago? Can you name one bank that was involved in the S&L scandal of the 1980's?
I thought so.
Patient investors will get through this crisis of confidence too and ultimately be rewarded.
The economy is sound despite the way fear-mongering Democrats are caterwauling. The gross domestic product has been in positive territory. Technically, we were never in a recession, defined as two or more consecutive quarters of decline in real GDP. Productivity continues to increase and companies are not only reporting profits but are upbeat in their forecasts.
Unless you are portending the imminent demise of western civilization, my advice is to ignore the pundits and continue investing in solid American companies.
And pass the steak sauce.
Gregory J. Rummo is a syndicated
columnist and author of “The View from
the Grass Roots,” published in July, 2002 by American-Book. You may order an
autographed copy from his website www.GregRummo.com by clicking on the
banner below. You may e-mail the author at GregoryJRummo@aol.com
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