You should of course, do little or no investing directly in stocks. It’s a very tough game to win, and you are competing with people who have advantages you don’t. You may have heard me quote Michael Steinhardt, a famously successful investor, who, when asked the most important thing individual investors could learn from him, replied: ‘That I’m their competition.’

Nor, it becomes abundantly apparent from a glimpse at their internal e-mails, does it help to pay a broker at some full-service firm to guide you in choosing stocks. I feel as if I have suffered not at all paying $13 a trade at my deep-discount broker, versus $100 or $300 for the same trade at my full-service broker, much as I love him. (If I didn’t love him, I wouldn’t pay 10 or 20 times more than I need to.)

So for most of your stock-market money, a steady program of periodic investments in one or two or three no-load, low-expense index funds remains the way to go.

The S&P 500 may yet have even substantially further to fall. But clearly, you should be more enthusiastic – not less – about investing in it here, at 798, than a couple of years ago at nearly twice the price. The NASDAQ, too, down more than 75% from the peak, may have a long way further to fall, or just a short way. But it’s getting more attractive all the time. Same for the Dow.

The Dow at 7700 is still above the 6500 that Alan Greenspan considered irrationally exuberant in December, 1996. The S&P, now 798, was 744 at the time. The NASDAQ, at 1229, has actually now dipped slightly below its level at the time.

There is nothing magic about December 5, 1996, except that it helps keep the world in perspective. Yes, it’s terrible that prices have collapsed in the way that they have. But if much of the market was richly overvalued in 1996, what business did it have doubling or quadrupling in the first place?

So you should recognize what a lot of people forgot – that stock-market investing is risky! But also recognize what they’re now forgetting – that the lower it goes, the less risky it gets. It was crazy risky before. Now it’s just risky. It’s absolutely still not a time to invest ‘on margin’ (i.e., with borrowed money). For most people, it basically never is. But it may at least be time to stop selling and start cautiously buying (or simply to continue with new enthusiasm the monthly investments you’ve been making all along).

And even though I think the indexes could fall a lot further – they are certainly not yet irrationally cheap in the way they were irrationally dear two years ago – some individual stocks look more and more tempting.

I do think index funds remain the best route for most people for most of their stock-market money. But as I’ve argued before, especially for those of us who enjoy playing the game, it makes sense to put a small portion of your stock-market funds, if you have a large enough portfolio to think in these terms (let’s say 20% of your $125,000 or 10% of your $2 million), into individual stocks. You’ll have some big losers and, one hopes, some big winners. But if you no more than break even between the two, you can come out ahead. You get to use your losers to reduce your ordinary income by up to $3,000 a year, while seeing your long-term winners taxed advantageously – or using them to fund your charitable giving even more advantageously.

With that lengthy preamble, and with all the usual caveats (I’m frequently an idiot when it comes to this stuff – no, really!) I bought some Citicorp Tuesday (symbol: C) at $25.90, some El Paso Energy Partners (EPN) at $23.60, some Johnson & Johnson (JNJ) at $43.20, some Merck (MRK) at $39.77.

Given my penchant for self-destruction and farce, I also picked up a few more shares of CSPLF (a speculative little energy company) at $2.65 and of BOREF (‘the stock that must surely go to zero’) at $2.75. (It must surely go to zero, but since I began writing about it in November, 1999, and periodically thereafter, it’s remained in largely the same $3-$4 range – which doesn’t make it the worst speculation of recent years. Give it time, I guess.)

This is not a well-balanced portfolio. Just some things I thought I’d add to my mix.

And where am I getting the cash to make these purchases? Part of it comes from the subliminal ad revenue I derive from this site. (You only think your cravings are spontaneous.) The rest comes from the sale of a couple of small rental properties I bought when no one wanted them. Many years later, the tide has turned. Real estate is in, stocks are out. Buy straw hats in the winter, Bernard Baruch advised. Summer will surely come.


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