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The path to epic profits

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    The path to epic profits

    Thursday, September 6, 2001
    The path to epic profits


    To prosper in bearish times, you must act with "holy indifference."
    By Michael Sivy

    On the evening before a crucial battle, Prince Arjuna's charioteer drove him out to the front lines to assess the opposing army. The prospect of the coming fight, which would pit cousin against cousin, was so horrible that the prince came close to a nervous breakdown. The eloquent charioteer reminded Arjuna of the reasons for fighting and so brought him back to his senses. The attendant also urged the prince to maintain a correct frame of mind, which he described as "holy indifference."

    Anyone surveying today's stock market probably feels just as queasy as Prince Arjuna did more than 3,000 years ago. The damage to share prices has been extensive -- and bad news just keeps on coming. But investors can't afford to renounce stocks and wait for better times, or frantically reshuffle their portfolios hoping to make up lost ground. There is a correct frame of mind for this market -- and it includes a little detachment.

    Arjuna's visit to the battlefront and his charioteer's advice make up the heart of the Bhagavad Gita, part of the ancient Indian epic called The Mahabharata. Arjuna's charioteer was actually the god Krishna in disguise, who delivered a divine sermon on the principles for right action -- and equally important, right inaction.

    Several of Krishna's arguments would serve well to guide an investor today. Remember that nothing in the world is permanent. Recognize that change is outside of your personal control. Follow eternal principles without obsessing about the immediate outcome. To those sentiments, I'll add a few maxims of my own.

    Successful investors often underperform the market
    Everyone wants to outpace the market averages all the time. But such an aggressive approach leaves you fully exposed to downturns. In reality, the single most important factor in long-term stock market success is avoiding big losses. I was out of technology stocks by April 2000, so I escaped most of the drop in the Nasdaq. That more than makes up for any periods of underperformance I've suffered in the past few years by keeping money in defensive stocks and bonds.

    The big money is made when share prices are falling
    It's easier to make a large profit buying low than it is by selling high. If you catch a stock at 60 percent of its fair value and it later rebounds to 120 percent, you've doubled your money. But if you buy that same stock in a rising market at 140 percent of fair value, to get a double it has to go to 280 percent. That kind of premium is rarely attained -- and exposes shareholders to the risk of a crash. So the lower stocks fall in a bear market, the more you can safely boost yourlong-term returns.

    You can never know when to sell
    Trying to anticipate short-term price fluctuations is a waste of time. Nonetheless, you can be confident that an overvalued market will break at some point and that underpriced stocks will eventually rise to fair valuations. The bottom line: It is possible to figure out the price at which to sell -- but you won't know how long it will take to reach that target.

    Interest rates are the market's prime mover
    Is there any reason to believe that the bear market will end anytime soon? Absolutely. As long as the banking system remains solid, lower interest rates will invariably revive economic growth and corporate profits -- and send share prices climbing again.

    Make more by doing less
    It's a mistake to regard bear markets as dead time. The investment decisions you make largely determine your potential profits and risks over the next business cycle. As a rule, the fewer moves you make, the better your results will be. So take advantage of this bear market to establish long-term stock positions and adjust your portfolio mix. Once you've done that, the best thing to do is nothing.

    Each stock follows its own path
    The biggest conceptual error investors make is to treat the stock market as though it were a single entity. In fact, each sector follows its own cycle -- and individual stocks move independently. Some seem to get the bear market over with early -- and they're always worth consideration. Here's a quick look at five stocks that made their lows late last year and are up at least 27 percent since then.

    Air Products & Chemicals produces gases for industrial and medical use. Profits will fall slightly this year, but long-term growth is projected at about 11 percent annually. At $42, the stock trades at 16 times next year's earnings.

    Baxter International operates in three businesses -- biopharmaceuticals, intravenous systems and kidney dialysis materials. Profits should climb 14 percent this year and maintain that rate. At $52, the stock trades at 26 times estimates for 2002.

    Electronic Data Systems offers a broad range of services, including consulting and management of computer systems and information processing. Earnings are expected to be up at least 14 percent this year and to continue to grow at that rate. At $62, the stock trades at a P/E of 21.

    Gannett publishes USA Today and nearly 100 local dailies, making it a virtual index for advertising spending. Earnings will be off slightly this year but could rise more than 12 percent annually over the next few years. At $66, the stock trades at a 17 P/E.

    Union Pacific, which acquired Southern Pacific in 1996, is the largest U.S. railroad. After a long post-merger slump, earnings could gain more than 20 percent next year, and long-term growth is projected at 11 percent annually. At $55, the stock trades at a P/E of only 12.

    Finally, don't underestimate the importance of faith. In a bear market, shareholders tend to switch out of depressed stocks just before they rebound and take profits too quickly. But if you pick stocks thoughtfully and hold them patiently, your gains should be considerable. As Krishna told Arjuna, "He that laboreth right shall finally attain."

    If only every time thses financial consultant are wrong in there opinion ,they should be shot dead for losing billions of there clients money,then atleast we wont have ANY MORE MORON LIKE THIS writing crap & getting paid too.
    Some of the dummest rich men are finacial consultant who are unbelievably "no training " required job with over paid fat sallary from Meriil lynch to Bear & Stearns

    So if they can write about Mahabharat ,they can write about immaculate conception too.



    When was i for real?
    I am myself a dream
    I always see you
    watching me tenderly