THESE DAYS, taking stock of a portfolio may leave many people wondering why they didn't stuff their money into a mattress. Investing in the new millennium hasn't been for punks.
After two crushing years, 2002 only added insult to equities’ injury. The
economic recovery that so many expected never materialized. Instead,
the manufacturing sector continued to wheeze, consumer spending
began showing cracks and companies’ capital-spending plans were
kept on ice. As if that weren’t enough, 2002 was the year corporate
wrongdoing ran rampant. From WorldCom and Adelphia to ImClone
and Tyco, there was little to give shareholders confidence in
2002. It's no wonder the Standard & Poor's 500, Dow Jones Industrial
Average and Nasdaq ended the year 23.4%, 16.8% and 31.5% lower,
respectively, marking the third straight year of losses.
Are these uncertain times? No doubt. But it's important to realize that from an investing perspective, we've faced uncertainty before. Consider that in 1991 -- before the raging bull market of the 90s took off -- Wall Street got no love at all. Two market crashes, a cripplingg banking crisis and an economy flirting with recession had soured people on investing. And that meant many investors missed out on substantial gains since they weren't invested in the market when it started to really rise.
The moral of the story is that you should almost always ignore what everyone else is thinking when it comes to stocks. More often than not, they're dead wrong. Savvy investors know that the best time to get into a
stock is when everybody else is looking the other way. Certainly,
investors who moved into stocks in early October 2002 demonstrated
that. By year's end, the Dow Jones Industrial Average had gained more
than 14.5%.
If you take a look at the applet below, you'll see that while there are many dangers in the short-term, the trend is upward over the long haul. The key, of course, is to buy the "right" stocks for your situation, which means you should understand why you bought a particular investment besides the fact your broker said it was a good idea.
