BI > NOVEMBER 2002

When Bears Temporarily 'Adjust' Bulls

Exploiting Bear Markets

"Of course we're tired of this bear market. Who isn't?" "How do we continue to encourage strategic long-term investing when our story never sways?" It was a question that popped up at last month's Editorial Advisory and Securities Review Committee meeting. Jim Agee wasn't able to attend, but if he'd been there, committee members would have heard his encouragement. Sure the song remains the same, but the risk of becoming repetitive or "boring" is far outweighed by the rewards of encouraging NAIC investors to maintain a strategic long-term perspective.

We lost Jim Agee during the early days of September. But he'll never be gone. His decades of contributions and service leave an indelible mark on our community. Countless individual investors will achieve more because of him.

Our Southeast Michigan Chapter recently invited me to share some remarks about how NAIC investors exploit bear markets. I made the speech during their kickoff event -- an exemplary open house format in which all investors are invited to learn about educational opportunities for the upcoming "school season." Thanks to some local publicity, a number of future members were in attendance, too. After concluding my remarks, a number of these nonmembers approached me to share their interest and respect for what they'd witnessed.

Jim Agee was literally the building block and foundation of the chapter. As I searched for remarks to share about bear markets and some way to integrate Jim's wisdom into the discussion, Jim's contribution to our 50th anniversary issue of Better Investing appeared before me. His outlook on tempering emotions, understanding NAIC stock selection and keeping one's eye on the future are timeless.

Dealing With a Chomping Bear Market

In the article Jim shared his thoughts on a lifetime of strategic long-term investing with BI readers. Jim provided a road map with his response to the question, "What about all of the bear and bull markets along the way? How did you get through those?"

"Keep the faith. Although many people think of 1929 as the market's all-time worst year, 1932 was even worse for the market. The Dow hit 40 that year and it's now over 10,000. In one sense, we haven't had any bear markets since then. We've only had adjustments to bull markets. A lot of the regulatory safeguards have been put into place that weren't in place then. In 1962, when I started with Merrill Lynch, the market dropped by a third due to the Cuban missile crisis. That shakes your confidence. But if you know that some time in the future the market is likely to be better than it is today, it takes the difficulty out of it. And when you look back, that's confirmed by the numbers. They're all higher now.

"Investors are so frenetic these days about numbers. Earnings come in a penny below expectations and the stock price drops $5. That doesn't make any sense. Clubs and individual investors need to be looking at the future. The past is only prologue. When the markets are down, the stocks are down. You've got to take a long-term approach to investing and accumulating wealth. Do not focus on the current bad times for the market."

Jim concluded his remarks with advice for newcomers, those who might be distressed and confused by their experience so far. "Learn the Stock Selection Guide and what it means. Check out the industry leaders and how well they're doing. Take a look at how long present management has been in place. Be aware of where your company stands competitively at any given time -- at least every quarter. Keep yourself in position where you're confident in what you own and you know what you own."

Ben Graham on Stock Prices

Jim had once encouraged me to explore Benjamin Graham's advice on dealing with the challenges (and opportunities) of fluctuating stock prices. Graham said: "An investor with a portfolio of sound stocks should expect their prices to fluctuate and should neither be concerned by sizable declines nor become excited by sizable advances. Stock prices are a convenience. Either take advantage of them or ignore them. Never buy a stock because it has gone up or sell because the price has gone down."

Hmmm. Sound stocks. Taking advantage and sleeping at night. Someone once said that bear markets might be thought of as those times when stocks return to their rightful owners. Thanks, Big Jim.

Mark Robertson is director of online resources and senior contributing editor for BetterInvesting. He serves as a member of BetterInvesting Magazine's Editorial Advisory & Securities Review Committee. Mark can be reached at Robertson_Mark@comcast.net.