How Should Investors React to Dow’s Decline? : Wall Street: Analysts are split on the specifics of what to do next. Most agree, however, that a long-term outlook is important.
With the Dow Jones industrial index down more than 75 points on Monday, how should an investor react? Here is what some stock market analysts and investment letter editors think the smart investor should do now:
Yale Hirsch, editor of Smart Money, an investment newsletter published in Old Tappan, N.J.:
“My advice has been that the year-end makes a great exit (time) for the stock market. That is because, over the years since 1953, there have been about 10 bear markets. They tend to begin in earnest around the beginning of the year. In a midterm political year, with elections two years away, administrations tend to let things relax a bit. But then they try to clean things up in the third or fourth years. They try to orchestrate the economy.
“I think the market is going down toward the 2,200 to 2,300 level (on the Dow). I think there is a great buying opportunity; there is always a good buying opportunity in the midterm political years.”
A. C. Moore, director of research for Argus Research Corp. in New York:
“We have recommended a defensive investment policy since midsummer. We still think it is too early to expand exposure in equities. If an investor has a 60% to 40% equity-to-cash mix, it is where he should stay. It is too early to expand.”
Norman G. Fosback, editor of Market Logic and other investment newsletters published in Ft. Lauderdale, Fla.:
“The market has long been overdue for a correction. We did not have one all last year, save for a single day, Oct. 13, and that was a program (trading related) drop and did not count. I consider this a normal and healthy retracement within a primary bull market. I see the market leveling up 25% from where it currently stands by year-end. Thus, the current correction provides another buying opportunity for those who missed the bull market boat.”
Stan Weinstein, editor of the Professional Tape Reader, published in Hollywood, Fla.:
“People have been fixated on the Dow Jones industrials, and the Dow has been masking the tremendous weakness that has been taking place in the overall market.
“One by one, groups have been taken out and shot, even when the Dow has made an all-time high. Now the Dow itself, which was the one positive sector, has violated a very important technical support level that reaffirms to me what I have been saying for weeks: I would be a seller.
“I would not be a buyer here. I would sell into an oversold rally, especially in the negative sectors. They are aerospace, autos, banks, broadcasting and entertainment, food, telecommunications, telephones and tobacco.”
Robert J. Nurock, editor of the Astute Investor, published in Paoli, Pa.:
“The market is at a critical juncture, and I think if it were to accelerate on the downside over the next few days, it would be very negative. At the close Monday, the market broke its 39-week moving average, which is a mechanical sell signal for some analysts. A sell-off followed by a strong rebound would put the market in a better position to try to build a base from which further rallies could be expected.
“I would not necessarily be a seller tomorrow, but I would consider reducing my exposure in stocks as the market rallies over the next few weeks.”
Michael Metz, stock market analyst with Oppenheimer & Co., New York:
“I think a lot depends on where an investor’s assets are. Frankly, over the next few years I would rather be in stocks and bonds than real estate. If one is not in the stock market, this is a good place to begin. The risks are moderate compared with the potential rewards for those who invest in equities. I would look upon the market decline as an opportunity for investors with a longer-term horizon.”
Norman E. Mains, director of research, Bateman Eichler, Hill Richards Inc., Los Angeles:
“At this point, you sit tight and see what happens over the next few days. The stock market withstood some negative information last week and held up fairly well, although Monday’s decline may have been a delayed reaction to this bad news. You don’t now run out and sell, but if you have money to invest, you hold off.”
John A. Tauer, managing director of research and mutual fund manager for Piper, Jaffray & Hopwood, Minneapolis:
“My advice is a long-term philosophy. Certainly you get a better deal today than you did yesterday. (But) I think that too often people look at stock investments as not being owners of a company. They consider such investments as owning pieces of paper. We encourage people to buy the type of companies they would like to own as long-term investments. Our investment philosophy lends itself to a three- to four-year investment strategy.
“While we are not thrilled about what is going on (in the market), it does not change our strategy. People who want to be in equities have a difficulty timing the market. With that in mind, we don’t think we should change our strategy.”
John H. Barthel, director of investment strategy for the newsletter Markettrend Investment Strategy, published in New York:
“I think it is still too early to do any bargain hunting, but my expectations are that the market will follow a classic sequence of developing a trading bottom. This usually involves a climactic low, where the market reaches an extremely oversold condition, followed by a sharp rally that lasts about a week to 10 days, followed by a retesting of the climactic bottom.
“My expectations are that by March there will be a strong rally.
“The way I would be involved in positioning myself? I would be using this current weakness to begin to accumulate some of the leadership stocks for 1990. These are focused in energies, in the industrial sector and in the smaller growth stocks.”
