BUSINESSWEEK ONLINE : APRIL 17, 2000 ISSUE
COVER STORY Time to Keep a Cool Head Take no action: That's the best thing to do to protect your stock and mutual-fund portfolio in today's market. ''The most dangerous thing an investor can do is overreact in this kind of market,'' says Rick Adkins, a certified financial planner with Arkansas Financial Group. Instead of panic selling when share prices are plunging, wait a few days until you can make a rational decision to sell, not an emotional one. Reasons not to sell are often forgotten at times of market turmoil. For one, many institutional investors are ''looking to tap the irrational behavior of the individual investor,'' says Adkins. That means savvy money managers may be waiting to gobble up the shares you sold at bargain prices. That seems to be what happened earlier this week, when Janus Capital Corp. and others began buying stocks voraciously around midday Tuesday. BEARISH BET. Often, bottom fishers such as Janus drive the market back up as quickly as it has fallen. In the last decade or so, the stock market has usually rebounded within days of a big sell-off. You can't count on a fast snap-back every time, of course. But if you start dumping shares, odds are you'll buy them back later at a higher price. ''If you thought that the stock you bought was good value yesterday, it's likely to be a good value today unless something fundamental has changed in the company's prospects,'' says Harold Evensky, a partner with Evensky, Brown & Katz, a financial planning firm. What's more, selling into a market downdraft is an implicit bet that you expect your stocks to keep falling. ''That makes you a market-timer,'' says John Markese, president of the American Association of Individual Investors. ''And no one really knows what the market is going to do.'' Emotional selling can batter your personal portfolio, too. If you're suckered into selling a stock at a gain, you'll pay capital-gains taxes with money that would otherwise be earning you more in the future. Imagine, for instance, that you bought a stock for $100, which doubled to $200 and then fell to $120. ''You've got a huge loss,'' says Evensky, ''but you're still up 20% from a tax standpoint.'' Finally, says Markese, ''don't break your long-term investment plan based on short-term market gyrations, because that's the wrong time to do it.'' It's tempting to unload shares in a tumultuous market, but many consider it a chance to reassess your risk tolerance and adjust your allocations. ''It's always easier to be risk-tolerant when markets are going up, and unfortunately, people haven't assessed the likely downside of their portfolio,'' says Markese. One way to find out how much exposure you have to a high-risk sector, such as technology, is to go to morningstar.com and use their portfolio X-ray. Investors who aim to be broadly diversified through their fund holdings are often surprised at how much technology they own. An investor who sought asset diversity by holding equal stakes in five funds--Vanguard Growth & Income, Vanguard Index 500, White Oak Growth, Third Avenue Value, and T. Rowe Price International Discovery--would discover that 40% of the funds' combined portfolio is in technology stocks. That's higher than the market as a whole. Only about 33% of the Wilshire 5000 index is in tech. If you find your exposure to high-risk stocks too great, rebalance your portfolio. Again, don't sell in a panic, but wait a week. Then ''bite the bullet and sell,'' says Evensky, and reallocate those assets elsewhere. But whatever you do, do it consciously. By Toddi Gutner in New York _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					RELATED ITEMS Is the Party Over? COVER IMAGE: Wall Street: Is the Party Over? CHART: Tech Comes Back to Earth CHART: Internet Stocks Take a Dive TABLE: The Move to Quality Margin Calls: Not a Lot of Wiggle Room Time to Keep a Cool Head TABLE: Why You Shouldn't Sell in a Panic The Dot-Coms Are Falling to Earth TABLE: The Internet Shakeout Why Gates Is Rolling the Dice TABLE: Bill's Vision ONLINE ORIGINAL: "Ultimately, the Market Gets Priced on Fundamentals" ONLINE ORIGINAL: BW's Bill Wolman on the Stampede to Quality (Video) ONLINE ORIGINAL: Oppenheimer Funds' Marci Rossell on the Market in the New Economy (Video) INTERACT E-Mail to Business Week Online

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