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The Bear Essentials
What You Need to Know Now
 by Ernie Ankrim
Director of Portfolio Research
Frank Russell Company
April 20, 2001
Many investors would undoubtedly sum up the first quarter with one word: Ouch.
From January 1 through March 31, the US equity markets as represented by Russell 1000® Index dropped 12.6%. Over the year ended March 31, the index was down 22.7%. In Canada, the pattern has been similar. For the 1st quarter, the TSE 300; returned 14.5% and for the last 12 months ending March 31, 2001. That means that many investors saw nearly one fourth of their wealth vanish over the past year.
The tale of the tape is even worse for people who had been enticed into focusing heavily on technology. The Russell 1000® technology sector was down 29.6% in the first quarter of 2001, and a full 61.2% over the year ended March 31, 2001. Unfortunately, for tech-heavy investors, the road back is even steeper than it looks. To make up that 61% loss, their portfolios don't simply have to gain back 61%. Due to a quirk of statistics, they actually have to gain 158% just to get back to even.
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- To help make this point clearer, here's a simple example. Say you invest $10 in one share of Company X. The share price drops 50% to $5. In order to recoup the original investment, the stock would have to regain 100%, or $5, to get back to $10.
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Without minimizing the fact that this has been a very rough period for most investors, it's important to acknowledge that what's done is done. Among the key questions to ask yourself now are:
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- What can I learn from this experience, and what can I do to make sure I invest as wisely as possible going forward?
- Did the market correction give me a better sense of just how much risk I can tolerate? If so, have I repositioned my portfolio accordingly?
- Based on my reactions to both the market's tremendous upswing in 1999, and its downturn in the past year, do I have the discipline to stay on course during extreme market conditions? Or would I benefit from having the discipline that a personal financial advisor can instill in my portfolio?
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Over the next few weeks, we'll examine the lessons that can be learned from the market's correction, and consider a number of ways in which they can help us invest more wisely going forward. Lessons like:
1. Fiscal fitness: How to give your portfolio a thorough check-up and make sure it stays in good health. How you can stay focused on the long term and avoid falling victim to "the next big thing."
2. Call in the Professionals: How a professional can provide the discipline you need to keep your portfolio in shape.
3. Discipline: How learning from your mistakes and sticking with a long-term plan can help you avoid the temptation to chase performance in the future.
Stay tuned for these "Bear Essentials" throughout this quarter on russell.com/ca.
Copyright © Russell Investments Canada Limited 2001. All rights reserved. See Important Legal Information. Date of first use: 04/20/01.
Past performance is not a guarantee of future performance.
This is a publication of Russell Investments Canada Limited. It should not be construed as investment, legal, or tax advice. The contents are intended for general information purposes only, and you are urged to consult your own investment, legal, or tax advisor concerning your own situation and any specific investment questions you may have. For further information about these contents, please contact Russell Investments Canada Limited.
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