In Focus

A Cheerleader's Portfolio Pep Talk

I usually like to keep my cheerleading history hush-hush (I confess: 7th grade through UCLA), but I think it plays a part in why people always call me when the market's crashing. On one particularly bad day in the stock market, I answered my phone to find Matt (a.k.a. Chicken Little) on the line.

"What are you doing?" I asked.

"Crying," he replied.

"Matt, are you watching the market take a dive again?"

A sheepish "yes" followed.

At that point, I began my umpteenth pep talk reminding him that he's a long-term investor and that he bought good, solid companies.

"Stop listening to the media!" I lectured. "Walk away if it bugs you. Check back in when the market settles a little, and then see how you're doing."

Don't mistake my sense of calm with a lack of caring. The lesson here is to learn "when to hold 'em and when to fold 'em," as Kenny Rogers would say. I'll add one more here: when to buy 'em!

There are many possible explanations for the market's recent volatility, ranging from interest rates, to earnings, to the upcoming elections. I want to discuss how to deal with the volatility while keeping your sanity intact. To be completely honest, I sort of like market drops (twisted, huh?). It's huge market gains that scare me, especially when they're prolonged over a period of time. The manic growth we've witnessed in the last few years should not be expected to continue at the same rate. This past decade has seen an average annual increase in the S&P 500 of 17%. Remember, over the past 70 years that average has been 11%, which is still awesome! I have the utmost confidence that the market will continue to rise, but at times it gets ahead of itself, then corrects, and even overcorrects. Stock guru, Peter Lynch, likens freezing temperatures in Minnesota to stock market downturns. Both are inevitable; however, they don't mean we're at the start of an ice age!

Stock price and company performance do not always move in synch. We're glad they don't because this is what creates buying opportunities. The Chick's approach is to look at downturns as stocks on sale. You know how Chicks love to shop! Of course, you need to have some cash in the ol' savings account - don't buy on credit! This is another key to avoiding stress over market drops. Make sure when you're investing, you're using your own money. No trading on margin! Is that too technical a term for you? Basically, it means borrowing money from the "house" (your brokerage firm) to invest. You pay it back when your stock goes up. If, however, your stocks crash, no matter how temporarily, look out! You owe the big man big money.

Here's another rule to live by when you're out shopping. Don't buy something just because it seems like a bargain. Remember that sweater in your closet? The one that's not really your color, you've never worn, but you got the unbelievable deal on? It's bad enough to do it with clothes; it's worse with stocks. Buy companies that you've researched and would have wanted to own anyway. This will help you from making any rash decisions in a turbulent market. The same goes for selling. The market and its analysts can be very short-sighted, often leaving a person wondering just who is driving whom. We hope you, as a Chick, are in this market for the long term. Remember, you did research before buying stock in a company. You should do some research before deciding to sell as well.

I meant what I said to my friend, Chicken Little. Turn off the TV and stop reading the papers! Or, if you can't resist (like me), try keeping your sense of humor. The overblown words the financial media uses to describe a significant market decline are hysterical! The two I love most are "decimation" and "obliteration." Give me a break! You'd think we were in the middle of a nuclear holocaust. Always make sure you're looking at the big picture. Often the media is trying to shock you when saying the market has suffered the "biggest point drop ever." This is so misleading. Only pay attention if they are discussing percentage point drops. After all, a 300 point drop today is far less meaningful than it was 10 years ago.

More than anything else, a large market decline serves as a terrific reminder as to why we do our homework and take each of our stocks through the Chicks Dozen before buying. If you find yourself lying awake at night, try to figure out why. Are you not diversified? Do you need the money in less than five years? Did you buy a hi-flier on a hot tip? Learn from these mistakes! I don't need my stocks to keep me up at night, I've got two toddlers to do that, thank you. And remember, you haven't lost a thing until you sell!!

Who'd of thought I'd go from doing the Chinese splits to cheering on stock splits? I guess a cheerleader always has to root for something! One question... do I really need my pompons?