The markets wished us a Happy New Year today, as stocks surged on a strong manufacturing report. Furthermore, an encouraging economic survey by The Wall Street Journal indicates economists expect companies to use growing profits to rebuild inventory and make capital improvements this year. We're thankful the market avoided a New Year's hangover.

All three indexes rose over 3% today. The FOOL 50 resolved to eat only healthy stocks in 2003, and was also up nearly 3%.

In today's Motley Fool Take:

Three Red Years

In case you didn't notice, the stock market is up so far this year. Never mind that it's only the first trading day of 2003; after 27 tumultuous months, we weary investors will take what we can get.

Yes, the major indexes finished in the red for the third year in a row, the first time that's happened in over 60 years. Here is the final scorecard for 2002, as well as average annual returns for the past three and five years, with dividends reinvested:

  Index    1-yr    3-yr    5-yr
-----   ------  ------ ------
Dow     -16.76  -10.14   1.07 
Nasdaq  -31.53  -31.02  -3.19 
S&P 500 -22.23  -14.59  -0.62
Source: Morningstar

Of special interest are the five-year returns, which are about breakeven for all the indexes. This points out something we've talked about for a long time at The Motley Fool: If you can stay in the market for at least several years, you decrease your risk of losing money and increase your chance of making money.

Put another way, if you've been invested for the past five years and earned something close to average returns, you're no worse for the wear despite one of the worst bear markets in history.

This is not an attempt to sugarcoat the risks of investing, however. If you first got into the market three years ago in an S&P 500 index fund, for example, you'll have to average 27% returns the next couple of years to hit the breakeven point after five years.

That's unlikely, but if you're able to stay the course for several more years, the odds that you'll actually make money increase dramatically. And that is, after all, the reason we invest in the first place.

Quote of Note

"It doesn't hurt to be optimistic. You can always cry later." -- Lucimar Santos De Lima

America on the Mend?

Holiday teddy bears and candy canes may have influenced the outcome, but the country's manufacturing activity rose sharply in December, nonetheless.

The Institute for Supply Management (ISM) reported today that its Manufacturing Index soared to 54.7 in December, up from 49.2 in November. Only 50.1 was expected.

What does this mean? A number above 50 indicates manufacturing activity in the country is growing. The higher above 50, the more manufacturing is growing. (In general, 55 is considered quite a strong number.) A number below 50 indicates manufacturing is contracting. We'd been below 50 since September.

The monthly Manufacturing Index may be the most important privately released number Wall Street and economists watch (most all other measures of the economy are released by the government). As soon as it was released this morning, investors had hope the economy would be stronger this year and bid stocks higher.

The institute says it doesn't understand why the number jumped, but one of its sub-indexes that measures new orders also jumped in December, to 63.3 from 49.9. This gives some analysts hope that these results were not a seasonal aberration.

Although this stuff can be exciting to watch, just as baseball games in early April can be fun, Fools should keep their minds firmly affixed to the long term when buying stocks (as we do in Stocks 2003). That said, after the last three years, we happily welcome this good start to 2003, whether it lasts or not.

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Two Thumbs Up for Netflix

Shares of Netflix(Nasdaq: NFLX) bounced up 7% today on news that the online DVD rental company's subscriber base has grown 88% over last year's fourth quarter and 15% sequentially.

Netflix now has 857,000 movie-lovin' subscribers, after upping the guidance for its quarter-ending subscription numbers on Dec. 4. At the end of its third quarter, Netflix subscribers numbered 742,000. This time last year, there were a mere 456,000.

Paid subscribers currently make up 93% of Netflix's members, with new trial members making up the remaining percentage. That split is a bit more skewed in favor of trial members this quarter than in Q3. But it's still better than last year's Q4. Additionally, the small rise can be attributed, somewhat, to seasonality.

Netflix didn't report customer churn today, instead reiterating what it said early last month: Churn for the fourth quarter should be down to 6.6% from its previous guidance of 7%. This is a great trend for Netflix -- a dropping customer churn rate and skyrocketing subscribers.

Another measure of Netflix's success, household penetration, was also up in the fourth quarter. In the San Francisco area, Netflix's penetration rose to 3.8%, from Q3's 3.5%. In the rest of the country, Netflix reached 0.73% of U.S. homes, up from 0.63% in the third quarter and 0.39% in last year's Q4.

Remarkable -- Netflix still has so much market yet to conquer! The stock was beaten down to under $5 a share over the last six months, on concerns about subscriber churn and "bigger" competition moving into the company's territory. Neither fear has been validated yet, and, in fact, Netflix continues to buzz along, shipping out DVDs each month to more people, retaining more customers, and adding to its coffers.

Naysayers waiting for the company to fail may be doing so for a while. This is one sequel worth watching.

Wall Street's Resolutions

You're feeling fat, but your portfolio's thinner. You want to give up smoking, but your stocks got their butts kicked for the third year in a row. Last year wasn't pretty, with significant double-digit percentage losses in the major market indexes, but that's all in the past now.

With so many people resolving to turn things around in 2003, we wonder what resolutions the market's leading protagonists in 2002 have made for the New Year. We can only imagine they're something like this:

Discussion Board of the Day: Living Below Your Means

Have you squared away your own 2003 resolutions? Could one of them be to get your financial affairs in order to spend less than you take in? All this and more -- in the Living Below Your Means discussion board. Only on

It Pays to Ask

"Can you do better than that?" Sometimes that's all it takes to shave off a few bucks from the price of a DVD player or get a handful of additional basis points added to a CD rate.

Though it's sometimes hard to get over the discomfort of asking for what you want, doing so can pay off in spades. The tactic is commonplace at some retail establishments (think car dealerships and flea markets). But it also works with companies that are struggling with retention (any store in your local shopping mall). Studies cite a good success rate for customers who try to negotiate lower interest rates with credit card companies. (More than half get what they ask for.)

This time of year, "Markdown Mania" can be particularly fruitful for bargain shoppers. Price adjustments are becoming more common with everyone from fashion to furniture retailers. If an item you bought is marked down in a particular period of time, a retailer will often refund the price difference. A recent story in The Washington Post says just 5% to 10% of shoppers take advantage of price adjustments.

To make asking a little easier, follow these tips:

  • Know the store's policy. Most stores will honor a price adjustment two to four weeks from the date of purchase. Others, such as Kmart, will refund the difference within 90 days of purchase. Remember to bring your receipt. And mark your calendar: Most stores allow just one price adjustment per item.

  • Ask if the store will match a competitor's lower price. Sometimes all it takes is a Sunday flyer from the store to get a sweetened deal. Some retailers -- such as Circuit City(NYSE: CC) -- will even award an additional 10% off to customers who spot a better deal elsewhere.

  • Have the competitive offer in hand when you make the phone call. One Fool was offered a $25 renewal bonus from his discount broker, but saw a $50 bonus for new accounts from a competitor. When he mentioned that to the customer service representative, the employee offered him 21 additional basis points over the life of the CD. That turned out to be a $75 bonus.

  • If the price means a lot, be prepared to walk. If you are greeted with stony silence after asking for a discount, either take the offer or prepare to shop around.

  • Consider whether it's worth it to shop around. Comparison shopping and standing in return lines take time.

Quick Takes

Good news for biotech drug maker Biogen(Nasdaq: BGEN) and its beleaguered partner Elan(NYSE: ELN). Reports are that their multiple sclerosis (MS) drug Antegren shows positive results in phase 3 trials for both MS and Crohn's disease. Biogen, whose Avonex is the leading current MS treatment, hopes that Antegren will reach the market and rebuff Serono(NYSE: SRA) and Pfizer's(NYSE: PFE) more recently approved competing drug Rebif. Elan was Matt Richey's Worst Investment of 2002.

Investment bank J.P. Morgan Chase(NYSE: JPM) settled litigation with insurers, who will pay 60%, or $600 million, of the $1 billion in surety bonds they wrote related to a J.P. Morgan Chase entity's forward energy contracts with Enron. The insurers initially balked at paying, asserting that the deals were disguised loans -- not what the insurers said they contracted to insure.

Shares of retailer Restoration Hardware(Nasdaq: RSTO) collapsed about 30% after the company reported lower-than-expected Q4 sales. Hopes for a turnaround had buoyed the stock to an intraday high of $13.97 in March, but enthusiasm faded and brought it back under $3.00 by summer's end. It still expects to earn $0.25 to $0.30 a share in Q4, against a year-ago loss.

And Finally...

Today on Valuation helped Tom Jacobs buy and sell these stocks in 2002.... Jeff Fischer sees nothing tasty about McDonald's stock.... In Hot Topics, our picks for the best discussions of last year.... We explain Flow Ratio, in Fool's School.... And the Post of the Day: One Fool says we're all motivated by profit, and that's a good thing.

Bob Bobala, Robert Brokamp, Jeff Fischer, Tom Jacobs, LouAnn Lofton, Bill Mann, Selena Maranjian, Rex Moore, Rick Munarriz, Matt Richey, Jackie Ross, Reggie Santiago, Dayana Yochim