Posted on: Wednesday, July 17, 2002

EDITORIAL
Investors: Don't let bear market panic you

Perhaps the most troubling aspect of this bear market is that, for many investors, this is their first experience with a market that can't seem to remember which way "up" is.

In earlier decades, comparatively few people were in the market who weren't already rich enough to weather a downturn.

Now, of course, many millions of mainstream investors have been lured into the market by the undeniable attractions of 401(k) and IRA accounts.

The attraction was heightened exponentially by what President Bush yesterday called "a binge" — a market that produced annual double-digit returns in the 1990s. The unprecedented bull market was sparked by a broad range of technological breakthroughs that produced new industries. But in its latter half, it was driven by what Federal Reserve Chairman Alan Greenspan called "irrational exuberance," which led us to invest more heavily into ideas instead of performance.

That produced the bubble that has been bursting in painful spasms that began two years ago, but that have been badly quickened by the Sept. 11 crisis, followed by the deepening accounting scandals and the Bush administration's initially lame reaction to them.

What's important for the nervous investor to appreciate is the difference between fundamentals and psychological factors. The market plainly is badly spooked, true. But fundamentally, as Greenspan told senators yesterday, the economy is improving despite recent events; he predicted robust growth with low inflation.

What that suggests is that this is no time for investors to panic, to dump stocks, to flee the market.

It's a good time for investors to look again at a graph charting the growth of the stock market from 1929 to the present. What it shows is tremendous economic growth, resulting in wealth for investors. There is no reason to suppose that growth won't continue for the foreseeable future.