BULLS & BEARS: This would be wrong time to turn bearish on stocks

August 8, 2005

"The stock market stinks and isn't going to get any better."

That, in a nutshell, is what a bearish soothsayer espoused recently in Barron's. He said the tech-stock bust, 9/11, the Iraq War and frequent terrorism would keep a lid on returns for several years.

He's right about the market stinking. Most stock market investors haven't made a nickel since the new millennium began.

Starting at the beginning of this decade through the end of June, $10,000 put into the Dow Jones industrials, with dividends reinvested, was worth only $9,990.

That does stink; all that risk, worry and gyration and you are down 10 bucks.

Even with interest rates in the basement, that same $10,000 put into threemonth CDs would have earned $1,700.

Risk and reward are supposed to go hand in hand, but haven't so far this decade.

And what if Mr. Bear is right and it isn't going to get better?

A seemingly rational temptation is to throw in the towel and put your money in something else.

The tech implosion, Iraq and Osama have weighed heavy on returns. But had you known about them in advance, would you have sat this whole decade out?

What if in 1936 you knew in advance about Hitler's taking over Europe, China's and Japan's declaring war, Pearl Harbor, Hiroshima and Nagasaki? Would you have sat out until the end of the war in 1945?

The logical answer is yes. But you shouldn't have because, in that decade of turmoil, your 10 grand invested in stocks would have more than doubled to $21,000.

Or what if in 1958 you knew Fidel Castro would take over Cuba, Kennedy would get assassinated, the Vietnam War would start, race riots would engulf major U.S. cities, and Red China would explode its nuclear bomb? Would you have buried your checkbook for a decade?

Too bad if you thought yes, because staying the course would have tripled your $10,000 during those turbulent 10 years.

Let's try 1987. What if you knew we would have the stock market crash, the terrorist bombing of Pan Am 747 over Lockerbie in Scotland, the first Gulf War, and the Oklahoma City terrorist bombing? Would you have sat again?

In those 10 years, you would have more than quadrupled your money as $10,000 blossomed into $46,000.

There are always reasons not to invest, and there will always be surprises and disasters.

If the fear isn't trade deficits, housing bubbles, consumer spending, consumer saving, terror, global warming, oil prices, deflation or inflation, it will be something else.

Besides, when you consider history, today's problems and worries are incredibly wimpy.

In fact, I think we may have hit the bottom of the worry list. The other day, some knowit-all on the radio was all worked up about how horrible fluorinated water is.

So, today, do you stay the course in stocks, or do you join the anti-fluorination worrywarts?

Since in an average decade the Dow Jones industrials have returned three times the initial investment, and so far this decade we've lost $10, I'd say sitting out the next few years would be a fool's bet.

Gilreath is co-owner of Indianapolis-based Sheaff Brock Investment Advisors, a money management firm. Views expressed are his own. He can be reached at 705-5700 or daveg@sheaffbrock.com.
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