Patriotic Purchases Can't Replace Wisdom of Diversity.

INVESTING has always been an emotional business, but never quite like this.

Since the terrorist assaults of Sept. 11, the financial markets have seen an outpouring of feeling directed straight at the elemental acts of buying and selling.

"Show your love and support for America - buy stocks," urged messages all over the Internet. "If you sell, you help the terrorists win". In a widely published Associated Press photo, a hand-lettered sign on the New York Stock Exchange trading floor proclaimed, "Bury the Bears."

All this had almost zero effect when the markets opened for business. Through the first long week of trading after the attack, nothing close to a populist rally occurred.

To market-watchers with long memories, this came as no surprise. Wishing in investing seldom makes it so. Ask central bankers, with all the resources at their command, how futile it can be to try to tell a stock market, a bond market or a currency market what to do.

The Federal Reserve, ostensibly the most powerful financial institution in the world, took a position on the front lines of last week's bucket brigade with an ad hoc interest-rate reduction. It didn't make much difference.

Useful lessen

Aside from a heaping portion of humility, what do we get out of this experience? To my eyes, it has been instructive for any individual investor who has ever struggled with the pull of greed, fear, pride, sentimentality and all the other emotions to which human beings are susceptible.

Veterans regularly remind us that investors cannot afford to let emotions override their judgment. As Richard Russell, who has been publishing the advisory newsletter Dow Theory Letters since 1958, wrote, "Brains and discipline and a plan will bring you success in the stock market. Emotions will kill you."

No argument with that. The trouble comes when I try to solve the problem by some vague resolve to be, as Jerry Seinfeld might put it, the master of my domain. The best of intentions may not be enough.

"To panic is bad," I tell myself. "Therefore I will not panic." Great, until a time like Friday, Sept. 21 comes along, when the world is waiting for the market to open to see how much farther the Dow Jones Industrial Average, already down 12.8 percent in the past four trading days, is going to fall (another 1.7 percent, as it turned out).

"If you can keep your head in this situation," a voice in your head tells you, "you probably don't grasp the situation."

OK, then, if a solemn vow isn't going to be sufficient, I'll apply myself to the task. I'll model my actions after some investing legend like John Neff, who ran the Vanguard Windsor Fund from 1964 until he retired in 1995. "Judgment and fortitude were our prerequisites;' he said in his book "John Neff on Investing" published in 1999. "Judgment singles out opportunities, fortitude enables you to live with them while the rest of the world scrambles in another direction."

Aiming too high

Ah, but what if I lack the skill or am not prepared to devote all day and every day to the job? Then the idea that I'm going to follow his example is awfully grandiose.

So what choices are left? If I'm going to invest for growth and a reasonable measure of inflation protection, I really have no practical course but to set up a program of regular investment in a diversified portfolio of mutual funds, making sure that bonds and/or money-market securities are represented along with stocks.

I can arrange to have this account fed directly by deductions from my paycheck or checking account, so that it takes no effort at all to keep the program going - whichever way the financial winds blow.

Even this humble venture ought to be undertaken with the understanding that I risk raining the whole plan if I deviate from it when events either a) cause me to doubt, or b) tempt me to overreach.

Sounds dull, doesn't it? That's just the point. To go about this with the discipline I'm aiming for, I'll have to plan to get my adrenaline rash somewhere else.

Chet Currier is a columnist with Bloomberg News.

Patience an Antidote to Market Swings

In case you haven't looked for a while at the mutual fund performance tables, viewer discretion is advised.

The stock-fund results are ugly, in keeping with an ugly time. A saving grace is that they, are only about money.

After what we have seen these past two weeks, a bunch of numbers with minus signs in front of them can be kept in perspective. When you talk about investing, there's always tomorrow.

Which recent stats to start with? Take your pick. At this writing, the 1,580 growth stock funds tracked by Bloomberg have averaged a 19 percent decline over the last three months. In the past year they are down 38 percent.

From this perspective, the phenomenon that is commonly called the Internet bubble has come and gone, gone, gone. The Bloomberg U.S. Internet Stock Index, which soared 160 percent in 1999, has since plummeted 84 percent. When we net out its rise and fall since the end of 1998, it shows a 55 percent loss.

This bear market certainly has taught us about the wisdom of saying diversified. At the height of the recent bull market, the awe some superiority of stocks over other assets prompted some analysts to question whether long-term investors in stocks really needed diversification into bonds or money markets.

Now, the average of all stock funds tracked by Bloomberg lost 28.9 percent in the past year. The average bond fund, by contrast, posted a positive return of 7.9 percent.

Looking at today's fund tables, it's striking how much damage is showing up in the five year numbers for growth funds, which just a couple of years ago were cruising along at annual rates of 20 percent or more. Now, the five-year annualized return has been hammered down to 5.4 percent.

The market cycle lives. This is heavy news to confront for those who dared to think a couple of years ago that we might have progressed on to some higher level of economic evolution.

But the return to the old grind also offers some reassurance. We know bear markets lead eventually to new hull markets. We've seen all that before.

Chet Currier