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There's No Time Like the Present. Let the Good Times Roll!

Recently, I was invited to attend and sign books at a money show sponsored by the Miami Herald. It was well attended and the folks I spoke to seemed to want and appreciate the good information that was imparted by the speakers there. But there was a common thread among them. Nearly all had taken a shellacking from the explosion of the dot.com bubble and the "tech wrecks" that accompanied that inevitable calamity. And they seemed to be looking for someone that could tell them that it was only a bad dream, that everything would be okay, and that they'd wake up on another morning with their gains intact.

	Take Stock: A Roadmap to Profiting from Your First Walk Down Wall Street by Ellis Traub Order your copy

Now it might have been appropriate - though insensitive - to call their attention to the fact that most were lamenting the loss of money that they hadn't deserved in the first place. But all too many had been caught up in the rush to buy stocks on their way up and had paid far too much for their holdings to be able to recover their money in the same stocks - at least for some time to come. I suspect that many who are reading this may fall into that category.

What should they do? What should you do?

I think that the first step should probably be to invoke the "Serenity Prayer": "God, grant me the courage to change the things I can change, the serenity to accept those I cannot change, and the wisdom to know the difference."

Indeed, it's crucial that you recognize that you simply can't alter what's already happened. All you have control over is the present and the future. Therefore, it doesn't take a whole lot of wisdom to shrug off any denial you might be going through and accept the fact that your portfolio is not worth a penny more than what its stocks would sell for at this moment. (And, if you sell anything, it's worth even a little less considering commissions.) Only when you can look at this incontrovertible condition with some serenity are you going to be able to take the next step effectively.

	"your portfolio is not worth a penny more than what its stocks would sell for at this moment"

And, while you're digesting that fact and learning to accept it, also face the fact that it will do you no good to wait for the stocks for which you paid too high a price to go back up to that too-high price.

The fact is that you have a portfolio of stocks, some probably good and others perhaps not so good. There's no better time than the present to look at those holdings and decide which is going to do well for you and which is not. Only this time, you can't make out so well just throwing darts at the financial page as you could have just a few years ago.

Who is Ellis Traub? Ellis Traub is founder and Chairman of the Board of Inve$tWare Corporation. After creating a computer program called "Take Stock" that embraced the BetterInvesting methodology, Traub was invited to develop BetterInvesting's official software, the Investor's Toolkit. The National Association of Investors Corporation (formerly NAIC, now BetterInvesting) is a non-profit organization whose goal is to empower both investment club members and individual investors to invest successfully in common stocks. In 1972, before BetterInvesting, Ellis started learning about investing in the stock market the hard way, when he followed the advice and strategy of a stockbroker "friend." When the market dropped, he lost all of his savings and more, since he had also borrowed on margin. This lesson kept him out of the market for the next 15 years. In 1988, he fortuitously ran across a newspaper article that mentioned a seminar dealing with how to evaluate common stocks, which was to be offered that Saturday by BetterInvesting. That Saturday, his life radically changed. Ellis joined BetterInvesting in 1988 and has been a Life Member since 1991. He is past chairman of NAIC's Software Developers' Advisory Council, past member of the NAIC National Computer Group Board of Directors, and currently serves as an active member of the Executive Committee of the Southeast Florida Chapter, having been a director of that chapter since 1989. A popular speaker at national events as well as at many BetterInvesting chapter functions across the country, he has written many articles appearing in Better Investing's magazine and in "Bits," the Computer Group's newsletter. Ellis flew for Eastern Air Lines for 31 years (during which time he was also involved in several other businesses), and retired as a Lockheed 1011 Captain in 1987. Before that he was a US Marine Corps night fighter pilot with service in Korea. He is an alumnus of Harvard and Cornell Universities and lives with his wife, Dianne, in Davie, Florida. His son, David, who assumed the responsibilities of president of Inve$tWare in November of 1998, wrote the most recent versions 3 and 4 of the Investor's Toolkit.

It's now critical that you be very selective about what you decide to keep. It's also crucial that you approach this task with a clear understanding about just what a share of stock really represents - ownership of a part of a company, a "piece of the action." It's not something so alluring that you can buy it and count on selling it to someone else for more, as so many that got hurt seemed to believe. The notion that "I may be a fool to buy it at this price, but there'll be a greater fool to take it off my hands for more" no longer holds water. That "Greater Fool Theory" - the hot air that pumped up the dot.com bubble - has run out of fools (or so I hope) and you can no longer expect to sell stock for a higher price than you pay unless it has increased in its actual value - not just someone's inflated perception of it.

	"approach this task with a clear understanding about just what a share of stock really represents"

Most traders - actually most of those that took the recent "bubble bath" - don't have any idea just how stock increases in value and, for that reason, shouldn't even have been in the stock market to begin with. Those who rely upon the ignorance of others to make money are most often the ones who pay dearly for their ignorance. Think about it. Traders and short-term "investors" - speculators - have to depend upon someone selling the stock they buy at a price that's below its fair value and/or they have to count on someone else buying it above its fair value to make a profit. Since nothing happens in the short term to affect the actual value of a stock, someone must be ignorant of a stock's true value at one or both ends of that transaction for money to be made. And, just what odds would you give the person that doesn't understand this not to be the victim on at least one end of the deal?

Compare that with the investor who buys shares in a good quality company - one that consistently increases its earnings year after year. She pays a reasonable multiple of its earnings for the stock and holds onto it so long as it continues to increase its earnings. At any time in the future, that shareholder can sell her stock to some other investor at about the same reasonable multiple of earnings. If those earnings have doubled, she will then enjoy a 100% increase in her investment. In such a scenario, there are no losers! Everyone's happy. That's how the real value of a stock increases, doing so over a long enough term to be able to see the earnings grow.

	"those who rely upon the ignorance of others to make money are most often the ones who pay dearly for their ignorance"

So, in evaluating your holdings, get rid of companies that don't have a good, solid track record of increasing earnings and use the money you get from them to buy others that do. Make sure that the revenue and earnings growth are not only strong but steady, since it's far easier to forecast what will happen in the future when the past has been predictably stable.

Check also to make sure that the company's profit margins stay relatively steady as well. Declining profit margins indicate that a management's getting lax and allowing costs to escalate - a condition that usually guarantees a decline in earnings in the future. A downtrend in profit margins should be a deal-breaker.

If the companies that have the kind of track record you want are overvalued, you may still want to jump out of them into others that are equally good at generating increasing earnings but whose price is low enough to warrant the investment. The stock of an excellent company selling at too high a price is still not a good investment.

Finally, and most important, don't settle for cash. Even though you might be unhappy about your recent history, your future is bright. And you can't win if you don't play. So your techs and dot.coms bombed. Bear in mind that a bomb usually causes a crater. The higher the altitude from which it falls, the deeper the crater is apt to be; and this particular bomb fell from a good ways up.

	"don't settle for cash ... you can't win if you don't play"

Those who decide to bail out of the market while they're still in the hole will invariably suffer the most. Those that keep their cool and scramble up and out can live on - and well. The market will recover, survive the dip, and continue to grow into the future as it always has. Be sure that you take advantage of this great opportunity to carefully pick the stocks that represent the companies with the strongest and most solid growth in their histories, and have the best chance of continuing it into the future. You'll be glad you did.

To invoke another well-known and appropriate homily, "Today is the first day of the rest of your life." You can find lots of bargains to capitalize on "in the crater." So stop wringing your hands and make the most of it!