Recap of July 20: Dow Crush!

Brenda Buttner and was joined by: Gary B. Smith, RealMoney.com columnist; Pat Dorsey, director of stock research at Morningstar.com; Tobin Smith, founder and chairman of ChangeWave Research; Scott Bleier, president of HybridInvestors.com; and Mike Norman, publisher of The Economic Contrarian Update.

Trading Pit

Remember that Friday after July 4th? The Dow had a huge 300 point gain.

It sure was nice at the time, but it's been nothing but bears ever since. The Dow has been crushed — in just two weeks it has lost 1,360 points, which equals 15%! A bad two weeks? That feels more like a bad year!

Mike said the individual investor probably won't get out of the market because there is no other choice. He says fixed income investment returns are now so low that the only other investment opportunity individuals have are highly speculative. Things such as stocks that were overvalued and have come down, or real estate.

Tobin advised investors that if they own overpriced tech stocks, sell into the next rally. Your portfolio should not just be comprised of stocks.

Pat said there is plenty of fear in the market, and this is creating stock prices at bargain levels they have not been at in years. But Pat added that he has a long time horizon. And he cautioned that if he had 5 years until retirement, he would not be a buyer now.

Gary B. charted the Wilshire Total Market Index, the broadest index for the U.S. equity market. He said that we're now past the September lows, but we're so oversold that a big bounce is in store. He thinks that that bounce may even take the index to the 10,000 level. However, if this happens, we'll probably turnover and drop even lower!

Scott said the current situation in the market is the inverse image of what happened from 1998 to 2000. He said corporations are coming clean, analysts are downgrading stocks, the government is regulating like crazy, and stocks are tanking. But this has to happen for the bubble to finally come to its end.

Chartman

The hurting in this market is across the board, and that includes your mutual funds.

But Pat Dorsey says they're still the best place for your money, and he used all his resources at Morningstar to find you two of the best mutual funds out there.

The first fund Pat recommended was the Clipper Fund (CFIMX). Pat also owns this value fund himself. He said the fund has superb managers at a reasonable cost and has been beaten the S&P 500 for 15 years. But Pat couldn't sell his nemesis Gary B. on this one. The Chartman said the fund broke its uptrend recently and has no sign of strength.

Pat also likes the Harbor Capital Appreciation Fund (HACAX). He chose this growth fund because it has great managers for an even lower cost than the Clipper Fund. Also, Harbor Capital has beaten 90% of all growth funds for a decade. But once again, Gary B. wasn't sold. He even dubbed this fund the Harbor Capital Depreciation Fund, because it has established a long-term downtrend line since last October.

Stock X-Change

People are getting rid of their mutual funds, and that means they have cash on hand for a better investment. Mike, Toby, and Scott all returned and each picked a stock they think you should buy if you want to beat your money manager.

Scott said if you have some cash from selling your funds, buy Johnson & Johnson (JNJ). He believes the stock's cheap because it has been sold off for no good reason. Mike agreed and likes J&J, but Toby does not.

If you are firing your money manager, Tobin said Washington Mutual (WM) is the first stock you should buy. He said the stock was under a cloud due to some questions about its accounting, but the company was checked out and is clean. Scott likes the stock. Mike said bank stocks scare him.

Mike thinks Royal Dutch Petroleum (RD) is a stock that will help you beat your former money manager. He likes this stock and thinks it's cheap because Royal Dutch took a hit when it was removed from the S&P 500. Tobin said if the U.S. attacks Iraq, gas prices will be volatile, so you could play the stock on the war. Scott thinks the stock will under perform others in its sector.