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. Last Updated: 07/27/2016

Lessons for Surviving Stock-Market Collapse

NEW YORK -- In a summer already full of worries -- hurricanes, alien invasions, bad earned run averages -- the stock market has suddenly intruded as a major concern, and many investors are trying to decide how they should react.


Financial analysts admit they do not know how far the market may drop -- the Dow Jones industrial average lost only 10 points last Friday and some broader indexes even rose slightly -- but they offer some rules for getting by with the least damage.


The most frequently heard advice falls into simple categories: sell your stock and go hide; sell your stock and look for new stocks that will survive in a bear market; or close your eyes and stand pat. Here's what several experienced analysts think:


?Sell and hide: This is not a popular choice with analysts. Putting one's money into low-risk, low-yield money market funds strikes many as a waste of good capital. They say that in a strong, low-inflation economy, it is hard to imagine the market will not revive eventually and take stock prices even higher.


Analysts who have watched the postwar baby-boom generation pour hundreds of billions of dollars into stock mutual funds are particularly reluctant to leave the market now.


"My mother is 90 years old, and I still have her in equities," said Alfred Kugel, senior investment strategist at Stein, Roe & Farnham Inc. investment management in Chicago.


For the next 15 to 20 years, Kugel said, that huge generation will have no better place to put its retirement savings than in the stock market, ensuring that every brief downturn is quickly followed by more buying.


But for investors who lack the stomach for watching a market plunge, this may still be the best alternative, some analysts said. Better to sell now when prices still are healthy than at the bottom of the trough when the terror is too much to bear.


?Sell and look for bargains: This calls for faith in one's broker or much leisure time for personal market trend watching and company research. Market-timing enthusiasts such as Stan Weinstein, editor and publisher of the Professional Tape Reader & Global Trend Alert newsletter in Hollywood, Florida, prefer this approach.


Weinstein has concluded that the major indexes have reached their peaks and a bear market is on the way. He is advising his readers to start selling their balanced stock portfolios whenever the market rallies a bit and sinking the proceeds into a few bear-resistant investments, particularly real estate investment trusts, or REITs, and oil and gas stocks.


That might be fine for Weinstein, who absorbs market rhythms with each breath, but the average investor cannot be expected to have unerring instincts for market reverses, others said.


Investors "shouldn't be changing strategies dramatically at this point," said Elizabeth Miller, portfolio strategist at Trevor Stewart Burton & Jacobsen Inc.


Dunnan said refined stock picking has less risk "if you are retired and spend a lot of your time thinking about the market.'' But bargain hunting can lead to trouble unless "you are prepared to sell when you reach a certain level,'' she said. "You have to be very disciplined.''


?Stay put: This is the analysts' preference for most investors. "If you are a long-term investor, looking forward five to 10 years, then what happens now in the market is irrelevant," Regner said.


Kugel said that after the 1987 stock market crash analysts predicted years of poor returns. "Instead, in 13 months we were back up to a new high," he said. Investors who held onto stock in companies successful before the crash did well afterward.