Rodney M. Bagley is always on the lookout for his next investment opportunity. The 41-year-old executive vice president of finance and chief financial officer for The Neptune Society, a Burbank, California-based company that specializes in cremations, has been busy adjusting his portfolio and targeting stocks that will rebound with the economy.
In fact, he began restructuring his holdings in the fourth quarter of 2000. Once a day trading daredevil, he stopped that practice, dumping such tech highfliers as JDS Uniphase (Nasdaq: JDSU), Broadcom (Nasdaq: BRCM), and Ariba (Nasdaq: ARBA). Bagley has since replaced those equities with blue chips like International Business Machines (NYSE: IBM), American Express (NYSE: AXP), and General Electric (NYSE: GE).
“I made a move from companies that had great projections to companies that had great performance,” he asserts. “The irrational exuberance that Alan Greenspan talked about wasn’t going to last forever. There was going to come a point where people were going to say that your story is great but, at the end of the day, you’re going to have to produce available free cash flow if you want your stock to be worth anything.”
When the Sept. 11 tragedy brought the financial markets to their lowest point in several years, Bagley didn’t have to touch his portfolio. In fact, from Dec. 1, 2000 to March 1, 2002, the stocks Bagley dumped have each taken a freefall. JDS Uniphase, Broadcom and Ariba, plummeted 91.14%, 66.53% and 92.24%, respectively, but the stocks he replaced them with did much better. IBM gained 8.51%, while Amex and GE lost 30.71% and 21.10%, respectively.
“The event of 9-11 was no different, economically speaking, than the Asian flu [of 1998] or the economic crisis in South America,” he says. “They were temporary events that the market reacted to and then caught its footing and hit an equilibrium. That’s where we are now; we’re right back to where we were prior to 9-11.”
We don’t have to tell you that the last two years have been tough on investors. It was only the third time in history that the Dow Jones industrial average and the Nasdaq composite index experienced two consecutive years of losses. The bear market responsible for those losses started in March 2000, mauling investor’s portfolios for more than a year and a half before the indices ebbed to their lowest points in two years on Sept. 21, 2001.
Most bear markets4a 20% drop from a market high4signal that the economy is off-kilter. The market could, however, be dragged down by an unexpected trend or turn of events like a spate of negative earnings reports or, more recently, the Enron scandal. But investors4especially African Americans, who, according to a recent study, tend to have a low tolerance for market volatility4shouldn’t panic and pull out of the market. Why? You may miss out on the next big rally.
We’re not blowing smoke. Just look at the historic performance of the Dow. According to a report by Ernie Ankrim, director of portfolio research at the investment firm Frank Russell