Back to School Of Hard Stocks

Take your cue from the kids.

They're heading back to school, and that's not a bad idea for grown-ups interested in preserving their portfolios.

Wall Street has ceased to become some benevolent parent motivated entirely by the joys of nurturing baby boomers along the path of life - helping put them in their first crib, funding preschool tuition, coming up with the down payment on their first set of Big Wheels.

The stock market over the past two weeks - down 512 points one Monday, up 380 points a week later - has been telling investors to get on the school bus, do some homework.

Successful investing, for most of us, is not rocket science, but neither is it a windup toy. It's harder than parking your money in an index fund. There's usually more to it than "buy on the dips," which is the mantra investors have learned to chant in recent years whenever the stock market takes a header.

It's kind of like pulling the cat's tail when Mom's not looking. Sometimes you don't get caught. Sometimes Mom makes an unexpected appearance. And sometimes the cat objects in a special, painful way.

Sometimes stock markets go down, and they take a long time to come back up.

This may be one of those times, a bear market. The tricky thing about bear markets is that they are, by definition, unexpected.

In 1987, few experts predicted a bear market in Japan. The Nikkei stock index was at 38000. The Japanese economy looked invincible.

The Nikkei now lives below 15000, and the Japanese recession now seems invincible.

A bear market won't be official until after it's arrived. And people who forecast bear markets are always out of step, and usually out of favor, with the mainstream.

In the US, they've been out there, fearlessly forecasting a bear as the Dow raced past 6000, then 7000, 8000, and 9000.

Get the picture? Lots of fumbling bears.

But this time around feels a bit different. More stock experts have grown increasingly cautious.

For investors, that means it's time to take the portfolio off cruise control and think about some active management.

Guy Halverson's article on Page 11 contains some good counsel. Do your goals match your investments?

Look at the statements from your 401(k) or 403(b) retirement plan. Make sure you understand what they tell you.

If you've invested in a Templeton fund, for example, your investments likely hinge on international companies. If they're in Russia or Asia, make sure you can accept the level of risk those investments import into your portfolio.

Is that what you want?

Do you want to own shares in a fund that invests in small technology or Internet companies?

This is the time to have a plan.

If that plan means you need money this year to buy a house or remodel a kitchen, be careful about keeping that money in stock mutual funds. The roof might cave in. Keep your kitchen dough in a cookie jar - a.k.a. a money market mutual fund.

But if you are a long-term investor, remember the "investor" part of that phrase. Continue to be an investor, albeit a selective one.

You might shift a third to a half of your money into bond funds or the cookie jar, but don't necessarily ignore stock funds.

We keep pounding the table, here in the Work & Money section, on the virtues of dollar cost averaging.

That means putting a regular amount into stocks or stock mutual funds at regular intervals - perhaps $250 on the first day of every month.

So if you bought 2.6 shares of General Electric when it cost about $95 a share last July, you shouldn't be concerned that, a week ago, it had dropped to $76.

If you dollar cost average, you bought 3.2 shares. So when GE goes back up, as it likely will over the long term, you'll own more shares than you would have if the price had not dropped.