Ways To Play The Market This Year

by Alan Lavine and Gail Liberman

Looking to make a quick market killing in 2002?

If so, be prepared to be the victim. Study after study shows it's best to invest in stocks over the long term. By investing monthly, you needn't fret about bad news. When price are lower, you're buying more shares. Over the long haul, the average cost of your investments should be lower than the current market prices.

However, if you're bent on making a fast buck by catching those upward trends, at least stick with a proven system. Don't just buy when a stock or particular type of stock funds goes up, then try and sell at the right time.

There are many different ways to play this trend game. My advice is to subscribe to a market timing newsletter. That will tell you when to get in and out.

Market timing systems vary dramatically. The one thing they have in common is they look at how a fund or stock performs over a specific period. If the fund is up, they figure it will go up more. Or if it's down, it's likely to drop further.

One newsletter I like for short-term traders is Maverick Advisor with Doug Fabian (www. Fabian.com). Fabian uses a 30-day moving average to move in and out of stock funds. In a nutshell, the idea is that if a fund's price is above it's most recent 30-day average price, it's a buy signal. If the fund's price is below the most recent 30-day average share price, it's time to sell.

Short term, Fabian's system has the ability to outperform the stock market averages. Long term, the system has done almost as well as the return on the Wilshire 5000, an index of all stocks traded on all exchanges. But the long-term returns have been less risky than the overall stock market. The reason: Fabian often gets investors out of the market when it starts heading south.

There is no free lunch with trading stocks or mutual funds. Unless you are trading in a tax-deferred retirement savings account, you pay taxes on your trades. You also could pay commissions. Unfortunately, if you are in a tax-deferred account, you can't write off your losses.

Another quick-fix strategy you might take is to bottom fish for funds that have done poorly over the past few years. These are typically growth stock funds that did well prior to 2000. Growth stock funds typically go in and out of favor. Now they are out of favor and value stocks are doing well. But growth stocks have had capital losses. So over the next couple of years, those losses should offset capital gains. That means you shouldn't get hit with a lousy taxable capital gains distribution at year end.

If you decide to use this strategy, check into well-managed fund families like Fidelity, T. Rowe Price, Janus, Strong, Vanguard, RS and American Century. These fund groups have a lot of growth stock funds with good long-term track records.

Alan Lavine and Gail Liberman are husband-wife personal finance columnists, journalists and authors. They are the authors of "The Complete Idiot's Guide to Making Money with Mutual Funds," published by Alpha Books. Their columns appear in newspapers throughout New England and the Southeast, as well as online. Their commentary on mutual funds and personal finance is carried by 200 radio stations nationwide every Sunday over Business News Network's Charles DeRose Financial Advisor Show.

More articles by Al and Gail can be found here.