Stock market heats up

The stock market, pummeled and left for dead by many investors early this decade, is staging a comeback.

About $93 billion poured into mutual funds specializing in stocks in the first three months of this year, nearly twice the $47.5 billion in the same period last year, according to the Investment Company Institute.

As stocks heat up, financial advisers warn against repeating the costly mistakes of the late 1990s.

"Don't chase returns," said Tim Graveline, regional sales manager for Wells Fargo Investments in Fargo.

Too often, investors throw money at a hot stock or stock mutual fund just before the investment turns cold, he said.

That's what happened in the late 1990s, when many investors fell in love with stocks and abandoned prudent, diversified investing, he said.

It worked at first.

The widely watched Dow Jones Industrial Average, a composite of 30 important stocks on the New York Stock Exchange, hit a record 11,723 on Jan. 14, 2000.

But the Dow plummeted over the next few years, bottoming out at 7,286 on May 19, 2002.

As the market fell, many investors sold stock for less than they paid for it.

That's not uncommon, said Paul Larson, editor of the stock market investment letter for Morningstar, the Chicago-based mutual fund and stock advisory service.

Instead of buying low and selling high, too many investors do the reverse, he said.

"When the stock market goes up, stocks become more expensive," making it more difficult to profit from them, Larson said.

That's not to say it's a mistake to buy stocks after the market rises.

But if you do, make sure stocks remain part of a balanced portfolio, said Bert Cameron, a representative with Edward Jones in West Fargo.

"You don't want to have just stocks. You want income-producing securities, too."

Investors also can balance their portfolios by owning stock mutual funds, which hold stocks of many companies, he said.

Remember, too, that the market has many segments, which don't always move in tandem. That creates opportunities for investors willing to search them out, financial advisers say.

International stocks and stock funds, in particular, hold promise, said Jeremy Elbert, branch manager for RBC Dain Rauscher in Fargo.

He urged investors to fight the impulse to adjust their portfolio more than once every three months.

Making changes based on the market's performance for a single day or week typically leads to bad results, he said.

Readers can reach Forum reporter Jonathan Knutson at (701) 241-5530