COLUMNS & FEATURES–Closer Look Reveals Key Factors in Wall Street Ride

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Some of the Internet and high-tech stocks that crashed earlier this month subsequently bounced back, and some didn’t. You “know” that markets always rise again, eventually. So you’re trusting that your stocks the ones still in the dumps will recover the price you originally paid.

But many of them won’t. The stock market bubble burst March 10. You’re not likely to see another such bubble in your lifetime.

Historically, markets as a whole have always recovered their lost ground. But what’s true of broad markets isn’t true of any individual stock. Some stocks rise again, others don’t. And the rise may take years.

Not even well-established companies with earnings always repay their shareholders. Think of some of the glamour stocks of earlier eras: Pan Am, Zenith, Wang Labs. They wound up in bankruptcy court.

Small companies fail, or disappoint, at a much higher rate than big ones do. Others succeed brilliantly but the winners can rarely be identified in advance.

What should you do now? First, don’t look back. Yesterday is already ancient history. What your stock is worth today bears no relation to what it was sold for on March 10. All that matters is its prospect, going forward.

A company with no earnings, or low earnings relative to its stock price, has a poor chance of rising to its previous peak. I’m not saying it won’t rise at all. But is it your best opportunity, compared with other stocks you might own?

Many investors have no idea if the company they own has earnings, who competes with it and what the industry outlook is. Enthusiasts have been buying on tips from their friends, the Web, CNBC without doing any real research.

Every day you hold a stock is like a new decision to buy. So if you didn’t do your research before, do it now.

Historically speaking, a stock that sells for more than 60 times earnings has a poor chance of doing better than the market as a whole. A stock with no earnings is a crapshoot.

If you’ve made money on these stocks, think of selling and using the proceeds for something else. Or sell half. If you’ve lost money, what’s your best chance of recouping in the shares you currently own or in other shares?

A record $122 billion poured into U.S. equity funds in the first quarter of the year, according to AMG Data Services. Investors were feverishly buying what turned out to be a market top.

Their enthusiasm waned toward the end of March, but then they bought again. A fresh $8.4 billion surged into funds in the seven-day period ended April 12, including the tech funds and Net funds that had been hammered so hard.

Investors were hunting for bargains, but who knows what a bargain is today? On average, stock funds are still well ahead of their level last year.

Without doubt, many stocks are attractively valued, including beaten-down blue chips and financial stocks. Diversified investors own stocks like these as a matter of course. But when you buy your own stocks, you rarely diversify across the entire economy.

The S & P; 500-stock index is roughly one-third in tech, with the rest in various Old Economy industries. Odds are, you’re stuffed with tech and haven’t bought boring businesses such as aluminum or health care.

You may think it was right to load up on tech, because it did so well.

But an outcome isn’t a strategy.

Tech may still be the industry of the future, but that doesn’t mean that its stocks are always attractively priced or that you have picked the most attractive stocks. Diversify, diversify.

When inexperienced investors lose serious money, they look for someone to blame (anyone but the person they see in the mirror).

Since early April, angry phone calls and e-mails have been pouring into the Securities and Exchange Commission, says Susan Wyderko, its director of investor education.

Who do they hate? Stock analysts on television, because “they secretly knew the stock wasn’t any good.” Any public pessimist, because “they’re making the market go down.” All the Wall Street big boys, who are “hosing the little guys, so they can buy stocks cheap.” They want the SEC to get their money back.

I agree that market touts take advantage of credulous investors. On the other hand, you’re responsible for yourself.

Syndicated columnist Jane Bryant Quinn can be reached in care of the Washington Post Writers Group, 1150 15th St., Washington D.C. 20071-9200.

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