September 29, 2002

Can You Prepare For A Complete Market Rout?
by Marcel Chartier

For the past two years I haven't really seen any green on my screen, hell, all I've seen is red. Right now my mostly large cap stock portfolio is about 25% down and the professionaly managed funds I own are down almost 20%. The irony, I'm not doing badly compared to the markets.

Over the past 52 weeks the Dow Jones average is down 30%, the TSX ( Toronto Stock Exchange) is done 26%, the Nasdaq is down 26%, the NYSE is down 33%.

I won't even mention that the Nasdaq is actually down over 40% from its highs ...

I mention all this for one reason - to answer the perpetual question : What do I do now?

The Answer : Not much. Its too late.

Not many people really like that answer, neither do I ... but its true, because anything you do at this point is like a drop in the bucket compared to the tidal wave that just hit us.

The thing you shouldn't do is bail out without a thorough review of what you have. The major reason why some people are down more than the market is because of one major error - poor portfolio construction and management. Even I have fallen prey to that one, not in a big way, but when your portfolio is down, boy do you realize quickly what you are overweight in - in my case financials, specifically reinsurance: September 11, 2001 has had its impact there.

I believe in learning from my mistakes, I won't be fooled again..... I am going to balance my portfolio with a small number of complementary, not overlapping companies. And, I am going to add to the companies I now hold that are undervalued. Only one holding might be a sell, and this is because one of my mutual funds heavily holds this bank.

I didn't do badly in my planning. I avoided the dot.coms and overall I was under weighted in tech. What I have learned is that you can prepare for a downturn, but no one can prepare for a complete market rout.