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Stock Market Savvy

An uptick in the economy, combined with the general optimism of spring, is causing many people to consider once again investing in the stock market. Moderation is the watchword, though, despite a bang-up year following two disappointing—some would say disastrous—years, according to the brokerage firm of Edward Jones.

If you’re working toward financial security in 20 or 30 years, you need investments that will perform well over time.

Avoid fads and stick with high-quality companies that have proven track records. These firms aren’t immune from declines, but over time they are likely to provide the price appreciation and dividend growth you need, says the St. Louis-based brokerage.

Stock market stability
Although many people view the stock market as risky, over the long run it has generally performed better than any other investment.

Over the past 75 years, the Standard & Poor’s Index of the 500 largest companies has increased on average 11 percent a year; this compares with the average inflation rate of 3 percent during the same time frame.

Wall Street’s top economists and strategists are expecting a gain of 8 percent in 2004, a presidential-election year and historically a positive time for the market.

The Standard & Poor’s 500 Index rose in 11 of 13 such years since 1952, with the year’s last eight months tending to be stronger—an average gain of 9 percent.

But how does the neophyte investor get started?

Researching stocks
Jot down compelling companies you run across, suggest the Motley Fools, who are dedicated to educating, amusing, and enriching “individuals in search of the truth.” Then, research the companies by reading their annual reports and news reports.

When you’re ready to buy, you’ll be familiar with several companies and will be able to compare them to see which ones are the most promising at current prices, the Fools suggest.

Finding bargains is only one step, says Bill Miller, manager of the Legg Mason Value Trust, which has beaten the S&P 500 Index for 12 years running. He also checks a company’s balance sheet and management.

Is the company in an industry that has bright prospects, or is the stock cheap for a reason? If the company is heaped in debt, for example, it probably isn’t a bargain, no matter how cheap it is.

Buying on price alone can leave you holding a collection of stocks with scant growth prospects.

Bret Stanley, manager of AIM Basic Value and AIM Large Cap Basic Value funds, looks for stocks that are cheap because of a temporary cloud over the company or industry that he believes will lift within six months. When he buys, his target stock may appreciate by 50 percent over the next two to three years.

Billionaire Warren Buffett buys only stocks of companies that he would be willing to own for decades, rather than switching from stock to stock to make a short-term buck.

Knowing when to sell
New investors, too, need to know when to “fold ’em” as well as “hold ’em.” You can buy and hold a stock for decades—as long as the company continues to generate the gains you had hoped for. But be prepared to sell once a stock reaches its true worth.

Jan-Marie Eveillard, co-manager of First Eagle Global Fund, holds a stock until it reaches what he considers its intrinsic value. He keeps it longer if he feels its intrinsic value is rising. He is also quick to sell a disappointing stock.

Two final suggestions: moderation is the key to successful investing, and don’t invest money you can’t afford to lose.


There’s plenty of help available on the Internet if you’re a little uncertain about getting into the market or making investment decisions on your own. — name of a financial planner in your area — offers names of advisors who work for fees rather than sales commissions — offers one-page summaries of 1,700 stocks, for a fee. — quarterly and annual reports, which companies are required to file with the Securities and Exchange Commission — mutual funds; offers some free advice; access analysts’ commentaries and one-page summary sheets for a fee.

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