The Daily Workshop Report
by Robert Sheard (TMF Sheard)

LEXINGTON, KY. (Mar. 24, 1997)

Can you say "correction"? We've been hearing for so long how the market hasn't had a 10% correction in ages. (Some of the more grizzled veterans would even suggest that many of us were still in diapers the last time the market really got ugly, but we'll leave the hyperbole to those who are better suited to it, the worldly Wise.)

Measured strictly by the Dow, of course, we aren't approaching anything like a correction, but if you turn away from those 30 stocks, the rest of the market tells a much grimmer tale. The Nasdaq Composite, for example, set its most recent closing high just over two months ago, on January 22, at 1388.04. (The next day, it briefly eclipsed 1400 but didn't remain there.)

With today's continued pummeling for the Nasdaq, the index is now under water some 145 points from the record level. That's a correction of 10.5% in the past two months. In that same period, the Dow is actually up slightly. (On January 22 it closed at 6849.65 and closed today at 6905.25.)

I don't know if there's anything profound to be drawn from this divergence, although there is no shortage of opinions purporting to explain the phenomenon. But it is interesting to point out that investors not exclusively in large-cap Blue Chips have indeed experienced a correction of some significance recently.

Now whether this means the end of the beginning or the beginning of the end, I haven't a clue. And frankly, I'm far more concerned with whether or not the Kentucky Wildcats can stop the penetration of the Minnesota guards this Saturday in the Final Four. And that's not to say I take the market oddity lightly; I don't. But I'm willing to admit I can't interpret it or predict it any better than you or the next Fool can. That gives me freedom to worry about more "pressing" topics.

Moreover, I'm not going to let the current market change my investment strategies, which consist of staying as fully invested as possible in all markets. The bulk of any year's market gains come bunched in relatively short periods. For example, in one terrific 5-year stretch in the 1980s, stocks on average gained 26.3% a year. If you just stuck to your guns, you achieved a 221% gain in five years. But the majority of those gains came in just 40 out of the 1,276 trading days during those five years.

If you were sitting on the sidelines trying to avoid the next correction and missed those 40 key days, you'd have been better off in a certificate of deposit for the five years. Your average return would only have been 4.3% (source: Peter Lynch, Learn to Earn). I can't find a more compelling argument regarding the futility of trying to time the market.

Whether we're starting a lengthy correction or just dipping to resume a leg of the recent bull market doesn't much matter to the long-term investor. She's not going to change her approach anyway. Put your strategies in place and then go enjoy the rest of your life. Stay Foolish!

Thanks again to MF Shrimp and MF Tools for sitting in for me last week in order to let me get in a little R&R. It's nice to know there are such willing and capable Fools to pitch in. Now if I could just convince them to help me pay my taxes!

Monthly Growth Screens
     (Jan. 3 to present)
   5.73%  S&P 500 Index  
   4.77%  Relative Strength  
   3.45%  Low Price/Sales  
  -1.27%  YPEG Potential  
  -7.66%  Investing for Growth  
 -15.25%  EPS Plus RS  
 -21.67%  Formula 90  
 -22.70%  Unemotional Growth  

Annual Value Screens
     (Jan. 1 to present)
   7.84%  Dogs of the Dow  
   7.09%  Dow Jones Ind Avg  
   6.37%  Beating the S&P  
   2.90%  Dow Combo  
   2.31%  Unemotional Value  
   2.31%  Beating the Dow  
  -2.22%  Foolish Four