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December
18, 2002, 10:00 a.m. |
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ecember is normally a positive month for stock market gains. In the last
14 years, only once has the month of December failed to achieve a gain.
With the S&P 500 and the Nasdaq having achieved double-digit gains
since the stock-market low was reached in early October, it may be a good
time to reassess one's asset mix and portfolio positions.
No one really knows if this recent stock-market rally is a bear-market rally or the early stage of a cyclical rebound in the economy and stock market. It may not really matter to the true investor attempting to achieve reasonably attractive returns over the years versus the rate of inflation. We do know that valuations on many equity securities are much more reasonably priced today than they were in the 1997 to 2000 period. While many stocks are not cheap, many do represent value. These are the securities that should find their way into one's equity portfolios in 2003.
There still remains a lot of hype and misinformation in the market place. Wall Street is slow to create standards for financial analysts — whereby they would all report standard information on such things as: valuations based on a core earnings concept, balance-sheet data explaining trends and leverage versus its own history and its peers, management total compensation, pension fund assumptions, options philosophy versus profit achievement, board compensation and audit-committee independence, historic and future revenue projections (unit growth) on companies and their industries, management turnover, auditor and consultant information, tax issues, significant pending law suits, and more. As a settlement is finalized between Wall Street and New York Attorney General Eliot Spitzer, et. al., let us hope that investment professionals refocus all efforts on creating value for the shareholders — not just their own bottom lines.
And when it comes to Wall Street and investing, the government's role should be 1) to set the overall tone of financial integrity by promoting high standards in law firms, accounting firms, corporations, financial institutions, and the government itself, combined with an open and thoughtful, long-term economic-growth philosophy, 2) the official sanctioning of a targeted inflation range by the Federal Reserve to promote long-term capital spending and real returns on retirement plans, and 3) consistent SEC treatment of rule violators. These three issues, if properly defined and implemented to benefit the public taxpayer, will ensure a more secure investment and retirement environment.
We are an aging society and an increasing burden is being placed on our children. That is not where America should be. (Just ask United Airlines, which over-extended its cost structure only to end up in bankruptcy.) Our government cannot afford to sit by and only listen to lobbyists who play to special interests.
Let's look forward to a more sensible and accountable government and citizenry. That is my wish for the new year. Have a happy holiday season!
— Patricia A. Small is a partner with KCM Investment Advisors, and is the former Treasurer, University of California.