PALO ALTO, Calif. (CNN/Money) -
I'll never forget my lead sentence in the San Jose Mercury News on Oct. 28, 1997, the day after the Nasdaq composite index plunged a sickening 7.2 percent, shattering tech-stock valuations and investor confidence all at once.
"First, take a deep breath," I wrote, and then I argued the case against panic.
The don't-panic argument was right, to a point. The Nasdaq, which closed the day before at 1,532, rocketed over the next three years to more than 5,000. As a sign of how rotten things have become, the Nasdaq closed up 5.8 percent Monday -- at 1,335.
And so after Monday's tremendous and exhilarating rise in all the major stock indices, the historical lesson seems clear: Don't get too excited.
That's right, enjoy the gains, assuming you stayed in the market, or, better, invested additional funds last week. But don't assume it's Easy Street from here on. In fact, most of the calming advice I gave tech-stock investors on a bad day almost five years ago is just as apt to general-market investors on a good day like today. To wit:
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RECENTLY BY ADAM LASHINSKY
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Stocks are risky. You were up big, but that doesn't mean you'll be up big tomorrow, or next week. A day when everything is sunshine and light is a great day to think again about your total asset mix. How much do you want in stocks? How much in your house? How much in bonds? How much under the mattress? Don't stop thinking about these things because of one good day.
You're still down. I was busy this afternoon patting myself on the back for having continued to make my monthly contributions to my mutual funds -- until I looked at my most recent contribution. Despite Monday's jump, in one of my key, meat-and-potatoes funds, I'm still below the investment I made 17 days ago. I'm not abandoning my total investment strategy, but I also haven't succeeded in it yet.
Nothing has changed. One disturbing thing about Monday's rally -- disturbing, that is, from a bull's perspective -- is that it was on no news. The economy hasn't improved. No companies provided reassuring guidance. There isn't any evidence the global terrorism situation is any closer to being resolved. It was just time for a rally. The talking heads who tell you why the rally occurred are making statements that can neither be proved nor disproved. If the market rallies today, they'll be back out with different statements.
One thing has changed, of course. Stocks are more expensive than they were Monday morning. Do the think the trend line is up? Then buy, buy, buy. Go with the herd and be happy about it. Please just remember the lessons learned from the past two punishing years. Stock picking is hard, the guys on TV aren't always right, and whatever you do, don't put all your eggs in one basket.
Adam Lashinsky is a senior writer for Fortune magazine. Send e-mail to Adam at lashinskysbottomline@yahoo.com.
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