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CNN Live Today

Interview With Terry Savage

Aired July 22, 2002 - 10:16   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
DARYN KAGAN, CNN ANCHOR: Taking a look at Wall Street woe, it didn't take long for that one to turn around. It seems like the Dow was just up 35 points a couple of minutes ago. Now, the slide continues, down 42 points; the Nasdaq also going down, down 14 points.

Wondering where this is going to go and where the bottom is? To help us find the bottom line of this economic equation, we are going to turn to financial analyst, Terry Savage, a frequent guest of ours here on CNN, a personal finance columnist for the "Chicago Sun-Times." And she's also a trading floor veteran of the Chicago Board Options Exchange. She has the battle wounds to give her the creditability.

TERRY SAVAGE, "CHICAGO SUN-TIMES": I do.

KAGAN: Terry, good morning -- good to see you.

SAVAGE: Good morning, Daryn.

KAGAN: Now, economic people like you will be interested in all of the numbers. The rest of us investors are just kind of wondering what the heck are we supposed to do.

SAVAGE: The bottom line.

KAGAN: Yes, I know. And investors, I know what you are going to tell us, history says get in, stay in.

SAVAGE: You know, the opening today was the old savage truth that the market always fools the greatest number of people. So we were all geared up for some big decline, as happened after the 1987 terrible Friday, and the market actually opened up a little bit. So that's not good news. What the market really needed was some kind of climatic sell-off, which we are not getting. The day is young. You know...

KAGAN: And, Terry, just to jump in here a second. I mean, it did start out positive, but this decline is going even as we are talking when we first introduced you, it's down 40...

SAVAGE: Yes.

KAGAN: ... now down 54, and it below that mark of 8000 that a lot of people were looking for. SAVAGE: Well, those are big, round numbers. Everyone was sitting here on the way up when we broke through 10000 on the way up a few years back...

KAGAN: Yes.

SAVAGE: ... and saying round numbers are just round numbers.

KAGAN: OK.

SAVAGE: The same thing on the way down, although they are scarier. And you know, the bigger they come, the harder they fall. So a big overbought market picks up momentum on the downside. But you know that every time I sit here, I say take the long-term perspective.

KAGAN: Exactly.

SAVAGE: So I decided to bring you a picture that is worth 1,000 words on that subject.

KAGAN: And let's put that up.

SAVAGE: And this is a graphic from Ippets and Associates (ph). They are the market historians. And what that is is the long-term return of the stock market going back from 1925 through year-end 2001. And you see the 1929 market crash on the left. And somewhere in the middle above 7374 is what was that frightening bear market where the Dow went from over 1000 to under 600, and yet it looks like a little downward blip, and you look at the very end, what we have seen now.

Yes, $1.5 trillion in last two weeks lost, more than 5 or 6 trillion now in the last two years. But still, in the overall long- term uptrend of the stock market, which represents the growth of America, these bear markets are little blips, very difficult to live through. I know it seems as if your money is disappearing.

KAGAN: It is.

SAVAGE: But the fact is if you can keep that long-term perspective. Now, some people don't belong in the market. And you know, I have said that for years...

KAGAN: Right.

SAVAGE: ... in talking about chicken money, keep some on the side. But for people who are still contributing to their retirement plans or 401(k), 403(b), that kind of chart tells you that you want to keep investing more conservatively than you ever did before, but not give up, unless you are giving up on America, which is always a bad bet.

KAGAN: Well, and no one really wants to do that. And you have talked about considering your time horizon in the past. But also, when you talk about getting in the stock markets, it doesn't mean you have to buy telecommunication stock. It doesn't mean you have to buy high-tech. There are some more conservative things to buy out there as well.

SAVAGE: Exactly. See, everybody for a while thought diversification was four different tech mutual funds or growth funds. But there are whole categories of funds. They are down, too, make no mistake about it. They are called equity income funds or balanced funds. You'll find them in your 401(k) plan. They were the very conservative choices that people razzed you for taking three or four years ago, why aren't you in tech?

Now in hindsight, of course, we see that those were the more conservative places to be, and maybe going forward, because they have dividend-paying stocks or bonds. They won't do as badly as the growth stocks, and might actually do a little better on the way out as people come back more conservatively.

Now, bear markets don't make bottoms, Daryn. They -- people said to me, OK, is it -- well, if it sells up today, will that be the rock bottom? And that doesn't happen. Bear markets take a while to bottom out.

But we have another graphic if you can put it up. It gives you some hope...

KAGAN: Right, which gives you the bear market -- there we go.

SAVAGE: OK. We have...

KAGAN: That looks like varicose veins...

SAVAGE: Those are...

KAGAN: ... on my legs, Terry.

SAVAGE: Believe me, you'll get...

KAGAN: That doesn't tell me anything about my portfolio.

SAVAGE: These are bear markets of the past, '73, '74, and the unfinished blue line in the middle is where we are now compared to '69, '70 and 1987. And you see the top yellow line was '87, we went down and, boy, did we take right off. That's what people thought bear markets were.

Other bear markets have taken a longer time to play out, but should give you some comfort, because that blue unfinished line is where we are now compared to how many months of bear markets, the most recent bear markets have been.

And so, while we may not bounce right back up the way we did in '87, we hopefully have seen most of the worst. Now, there could be more sell-offs as people get out of their mutual funds and funds have to liquidate. There could be more sell-offs if the economy turns down now, as WorldCom suppliers have to lay off those folks, and as the economy is affected by the stock market instead of vice versa.

But giving yourself that perspective, don't you feel a little better that we have probably lived through most of the worst, even though it could take maybe years to get back to where we were?

KAGAN: Well, I want to back to your point that you do like to preach, and that is make your plan and stick to it, and don't let these slight gyrations, as you point out of what history makes them, shake you from your plan.

SAVAGE: These are big gyrations, but over the long run...

KAGAN: Yes.

SAVAGE: ...as you saw that long green line, if you'll stick to your plan, I do believe you will come out ahead.

KAGAN: Terry Savage once again bringing calm to our storm -- appreciate it, Terry.

SAVAGE: It's good to see you.

KAGAN: Thank you, Terry.

And you know, just to kind of back you up here, in the time we have been talking, the Dow coming back up just a little bit. It's down now only 32 points.

SAVAGE: I didn't do that.

KAGAN: No, you didn't. But we'll give you a little credit there. Just there's a little picture right there -- Terry Savage in Chicago.

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