Time to Surrender
...90% of losing pros can't be wrong
by Jeff Fischer (JeffF@fool.com)


Chicago, IL (August 27, 1998) --It was fun while it lasted, but with the S&P 500 12.5% below its high, it appears that the bull market could be over. What does this mean?

It means that it's time to stop "playing" with our money. We should close our positions, redeem what cash we have, and write a check to a financial advisor or mutual fund. After all, who were we kidding?

We don't have the intelligence or resources that are needed on a day-by-day basis to beat the market. We can't devote our lives to watching the market every day, all day, to trade in and out like we need to. An investment advisor or mutual fund could have sold us out of the market this morning at the gap down, and then perhaps it could have bought stocks for us again tomorrow if the market gaps up, perhaps skimming a few dollars per share in the process (without regard to taxes). Seeing the heavy trading today, it's obvious that most of the selling was, as usual, big mutual funds that are looking to "stay ahead of the game."

Cough... cough... hack. Gag!

Though you don't expect to hear this in the Drip Port (except sarcastically), you will hear a message similar to the above from financial advisors and investment businesses around the country. And probably more so now, in light of the market's decline. They'll remind you that anyone can outperform in a strong market (anyone except 90% of professionals, that is), but once things go sour you need to return to the professionals for investment advice. You can't do it on your own, of course. It's too difficult -- especially now, in these "uncertain times."

(Hey, when haven't times been uncertain?)

If you were to believe the overall message that investment advisors ooze from their pores, you'd believe that they know exactly when the stock market is going to fall. They, for instance, weren't surprised by today. At least, that's the image that they'll portray now, after the fact. They're on the inside and you're on the outside. You don't know what they do. You can't know. Their message portrays an "I have knowledge that you don't" image. You need me. Send me your money!

(So, who needs whom, when you consider which way the money is flowing? It would be flowing out of your hands and into theirs, and the direction of passing money usually indicates who is the needy one in any relationship.)

Despite the posturing, investment advisors have no idea what the stock market will do -- regarding today's decline or any other day. It's their job to convince you they do know more, though, to convince you that only they can give you the security and diversity that you need. They can give you the security that will help you "sleep better at night," as some ads say. Yes, sleep better having no idea where your money is or how often it's churning in and out of stocks.

A declining stock market might cause new Fools to second-guess the management of their own money, but one only needs to consider the options to realize the situation. Imagine yourself invested only in mutual funds, 8 out of 10 of which will underperform the S&P 500 over history; or imagine yourself privately invested with a financial advisor who is paid a commission based on the number of trades and/or, perhaps, based on his performance. It's much easier to trade than to perform, and, in the past, trading has been preferred by far too many professionals.

Regular readers know that the Drip Port actually likes to see stocks decline because we'll be a net buyer of stocks over the coming 19 years. Plus, the average American is under forty-years-old, meaning that most of the country has at least 20 years worth of steady investing (income-earning years) remaining. If you're going to invest more in the future than you already have invested in the stock market now, you should hope for lower prices. Today brought them.

The Drip Port fell 2.77% as the Nasdaq dropped 4.62% and the S&P lost 3.79%. These were the largest one-day losses this year. Why did it happen?

The world is shrinking. A weak economy in one major country or area will eventually touch almost every other economy. The United States is strong but is surrounded by weakness in Asia, Mexico, South America, and Russia. Like dominos, one begins to fall and they all fall down -- though to varying degrees. The U.S. is not the last domino (that's the one that falls all the way to the ground); actually, it's probably the first (the one to theoretically fall the least but that causes all the others to fall a greater degree).

Our companies are not immune. Intel (Nasdaq: INTC) and Johnson & Johnson (NYSE: JNJ) achieve half of their sales in international markets. Luckily, J&J's products are usually needed in any economic environment. Intel -- hard to say. While Campbell Soup (NYSE: CPB) sells nearly all of its products in the U.S., so it is unlikely to be hurt much by weak international markets. All of our stocks trade at reasonable valuations, and DRP investing makes them, of course, more attractive, as we're buying a piece of the business on a monthly basis. Even if we're paying a slightly inflated price this month, we have another chance to buy more next month.

As always, invest in companies, don't speculate on ticker symbols or prices. You shouldn't have money in the stock market that can't be there for at least another five years. You should always have a long-term outlook. Spending your time focused on the day-by-day, then, becomes a waste of time and completely unnecessary. Leave that to the Wise. After all, they've significantly proven over history that focusing on the market every day is a great way to lose to it over the long term.

The Fool has a collection of Foolish thoughts to consider during a declining market.

Fool on!

-Jeff Fischer

FoolWatch -- It's what's going on at the Fool today.


8/27 Close

Stock Close Change CPB $52 1/2 - 1/16 INTC $79 3/4 -3 1/4 JNJ $73 15/16 -2 15/16
Day Month Year History Drip (2.77%) (3.93%) 7.94% (8.08%) S&P 500 (3.79%) (6.92%) 7.49% 9.64% Nasdaq (4.62%) (9.93%) 7.39% 5.81% Last Rec'd Total # Security In At Current 08/03/98 4.125 CPB $54.395 $52.500 07/01/98 9.724 INTC $80.239 $79.750 08/07/98 6.543 JNJ $70.138 $74.000 Last Rec'd Total # Security In At Value Change 08/03/98 4.125 CPB $224.38 $216.56 ($7.82) 07/01/98 9.724 INTC $780.21 $775.45 ($4.76) 08/07/98 6.543 JNJ $458.92 $484.18 $25.27 Base: $1800.00 Cash: $286.03** Total: $1762.23

The Drip Portfolio has been divided into 76.682 shares with an average purchase price of $23.474 per share.

The portfolio began with $500 on July 28, 1997, adds $100 on the 1st of every month, and the goal is to have $150,000 in stock by August of the year 2017.

**Transactions in progress:
8/24/98: sent $200 to buy more CPB.