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March, 2003


After over three years of falling stock prices, few investors in the U.S. are unaware that we are experiencing one of this country's worst bear markets. The last time equities had been generally trending downward for this long was in the early years of World War II.

Many say that, finally, 2003 will prove to be an up year for the markets. They may point out that in almost every third year of an American president's term the markets are positive. They also suggest that, despite the many instabilities we face today, conditions are not nearly as bad as in the Great Depression, the last time we saw stock markets fall four years in a row. Thus they figure there's insufficient reason for share prices to keep heading south for yet another year.

But, the fact is, no one really knows. Any number of possible eventualities, from a major new terrorist attack on U.S. soil, to unexpected difficulties in the conflict with Iraq, a natural disaster, war with North Korea, an oil crisis, or something else entirely unforeseen, could jolt investors' confidence yet again and lead to further plummeting prices from which markets might not recover until 2004 or beyond.

With uncertainty prevalent for both holders of bond assets (at risk from rising inflation or interest rates or from selling by foreign investors if our debt load substantially increases and/or the dollar's value declines) and stock securities, some may wish to look into insurance company annuities offering guaranteed minimum annual returns (6% available currently, per my brother, Frank, who manages a branch of the Raymond James brokerage), with the possibility of higher returns if the markets after all do trend upward. If you wish to explore such an option, consult your financial advisor or insurance agent.

But for those who trust their own talents for stock selection even in an unstable financial environment, one major benefit of the bear market is the availability now of some terrific bargains in equities, that provide not only superior long-term appreciation potential but also excellent annual income from dividends.

Those featured below all have above average financial strength and/or profit potential, hefty current yields, excellent prospects for ongoing income advantage, good forecasted three-to-five year price appreciation, and high long-term total return estimates.

& Sons
Value Line

Taken as a group, the above five assets are likely to provide investors with yields competitive with those of bonds and yet long-term price appreciation significantly above those of the major U.S. market averages.

Want more ideas? An alternative asset option, a hybrid of both traditional bonds and common stocks, but with generally higher yields than the former and somewhat less risk than the latter, would be a carefully chosen portfolio of convertible preferreds. An intriguing play on current events is suggested in an article by Richard Lehmann, from the latest issue of "Forbes," 3/31/03, entitled "Wartime Investing," p. 114. I leave the details to the interested reader, but here Mr. Lehmann advises purchase of two defense industry convertible preferreds: Northrop Grumman 7.25% preferred (NOC E), with a recent yield of about 7.5%; and Raytheon preferred (RTN+), with a recent yield of about 8.8%. Per the columnist, "You're getting the common cheaply; both companies' shares are near their 52-week lows." See the article and your financial consultant for details on how convertible preferreds may be a useful part of your overall portfolio.


Larry is not a professional. Don't take him seriously!

Actually, the investment article provided here is for general information only and should not be considered as professional advice, a solicitation to buy or sell any security, or the Word of God. Investors are encouraged to do their own research while considering their personal goals and circumstances, or consult their own professional financial advisors, before making investment decisions. Neither Larry nor LARVALBUG will be liable for any losses sustained by any visitor to this site.

(Disclosure statement: Larry and Val have holdings in some of the suggested assets but do not "make a market" in any of them and do not derive any direct benefit from recommending them, except perhaps for a bit of smug self-satisfaction.)

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