FINANCIAL FOCUS: THE DOW AT 8000

This "Financial Focus" column is prepared by Edward Jones Investments, headquartered in St. Louis. Jones includes branches throughout the nation, including Cape Girardeau and Jackson.

On July 16, the Dow Jones Industrial Average closed above the monumental 8,000-point mark for the first time. Analysts attribute the increase to new highs in the technology sector and lower bond yields. It has been only five months since the market crossed the 7,000 mark on Feb. 13, 1997. These milestones are becoming so commonplace that some investors may begin to assume the stock market can continue reaching new highs with regularity.

A word of caution: Don't fall into this trap.

Investors have enjoyed the longest bull market in history without a 10 percent or more correction. In fact, we are now entering the seventh year of the current bull market.

Does this mean we're on the verge of a bear market? Just because the market reaches a certain "magic" number does not indicate that it's poised to fall. In addition, today's healthy economy, combined with a well-managed Federal Reserve and strong earnings and dividend reports, would seem to minimize the risk of a bear market.

However, bear markets historically have been spurred by unexpected events. Here are three examples:

-- In 1962, the stock market fell 30 percent after President Kennedy attacked steel companies for raising prices.

-- In 1973-74, the averages dropped 50 percent when inflation rose from 3 percent to 11 percent in just two years.

-- In 1990, the market slid 20 percent when Saddam Hussein invaded Kuwait.

The lesson here is that stock market corrections are unpredictable, and therefore, predictions of the stock market are irrelevant to investment decisions.

Rather than listening to "predictions," investors should stick with the same basic philosophies regardless of stock market fluctuations.

-- Diversify. Diversification is a smart strategy in all market conditions. When the stock market declines, some industries are harder hit than others. Diversifying your stock investments among a variety of companies and industries will minimize the impact on hard-hit areas and allow you to benefit from others that remain relatively strong.

-- Buy quality. Look for companies with long histories of dividends, steady growth and sound management. In the long run, successful companies -- and the value of their common stock -- mirror the growth of their earnings and dividends. During a market decline, high-quality companies generally do not suffer as much as the overall market, and they typically rebound more quickly.

-- Recognize a buying opportunity. Everybody loves a bargain, and a market correction can be your opportunity to buy quality stocks at bargain prices.

-- Don't fear the bear. Keep your perspective. Over the past 43 years, the average bear market has lasted only eight months, a very short time frame in the 20 or 30 years that most people spend investing. In fact, over the past 69 years, growth stocks have provided an average annual return of 12.5 percent, better than all other types of investments.

The moral of the story is to refrain from becoming overly concerned with the stock market's day-to-day performance. Instead, be aware of the risk of decline and prepare to deal with it when it comes. Keep a level head through short-term ups and downs, and you'll be rewarded in the long run.

The Southeast Missourian does not recommend that readers buy or sell stocks featured in this column, which is provided for informational purposes only.