Riding out a jittery market: don't drop that stock! Here's how investor patience pays off

Black Enterprise, April, 1994 by Debra Wishik Englander

Don't drop that stock! Here's how investor patience pays off.

If you're one of the nation's 51.4 million stock owners, chances are you're wringing your hands right now. For months, Wall Street pundits have been abuzz about a possible market correction or downturn - even a full-blown crash. Their logic: The market has steadily risen for four consecutive years, its second longest run since 1928.

Some financial gurus predict the market will reach 4,000 before spiraling downward. Others are more cautious,. recommending that stock owners flee the Market now and settle for 2.5% money funds. No one can forecast with certainty how stocks will perform for the rest of the year. So, what's an individual investor to do?

"Don't sell out!" advises Gene Walden, author of The 100 Best Stocks to Own in America (Dearborn Financial Publishing, 1991, $22.95). After all, he says, "professional fund managers can't even time the stock market, so you shouldn't expect to."

Stay put, you say? Even in a market where stock prices make Coney Island's Cyclone roller coaster seem a tame ride? That's right. Unless your stocks are hemorrhaging beyond repair, holding fast to your equities is the way to go. According to lbbotson Associates, a Chicago-based investment consulting firm, the average compound return for the S&P 500-stock index has held at 10% from 1926 to 1993.

More good news for those who can stomach market gyrations: lbbotson reports that stocks held for at least 20 years outperformed inflation, cash and bonds a stunning 98% of the time.

The biggest risk is not being in the market," remarks Charles Carlson, editor of Dow Theory Forecasts. In fact, rather than shun stocks, recognize that a beleaguered market usually signals great buying opportunities. Carlson advises that you pick your stocks carefully, with the intention of holding on to them for the long term - at least five years or more. Rather than obsess over day-to-day market conditions, he says, monitor the long-term health of your specific picks.

At just what point should you surrender a stock? If a company has acquired other businesses, and its debt load has steadily increased, that may be your cue to wave the white flag, notes Carlson. Other bailout signs are steadily decreasing earnings and profits that are well below industry averages.

Finally, if you're just too nervous being a stock market player, you might consider selling a few of your holdings and putting the money into one or two stock mutual funds (see "Mutual Funds: Still Going Strong," this issue). That way, you can let the fund's portfolio manager do the hand-wringing for you.