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Farr: Nasdaq Selloff 'a Normal Backing and Filling'

Aired April 11, 2000 - 9:30 a.m. ET

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

BILL HEMMER, CNN ANCHOR: Let's continue our talk, though, about investing in the markets. Ups and downs and the very latest we've seen enough to make even some experienced investors a bit uneasy.

Joining us from Washington to talk about it is Michael Farr, an investment adviser who often helps clients cope with volatile market conditions. He's CEO of Farr, Miller and Washington.

Good morning to you, doing a lot of coping today, huh?

MICHAEL FARR, CEO, FARR, MILLER AND WASHINGTON: Good morning Bill.

Well, we're getting ready to cope, I think, today and see where this market goes. Certainly yesterday gave us some new reasons to try and cope with the Nasdaq, it traded off and, I think, rejuvenated some of the fears of last week when we saw the techs crack on last Tuesday.

HEMMER: Let's do a economics -- Econ. 101 here, the ABCs of the stock market. What's happening here behind the scenes?

FARR: Well, at the beginning of the year we saw a lot of the tech stocks go dramatically higher and they became very expensive, you know, tech stocks and the Nasdaq was up something like 70 percent in 1999 and it made its peak March 10, this year, and that represented a gain of something like 110 percent. And if you just stop and think about it, as an investor, after these things have gone up 110 percent in a year, where do you expect them to go next? I mean, like, there's a -- we're kind of in a normal backing and filling. It's kind of scary when we come off of those highs, and we come off of them kind of dramatically.

But if you go to Econ. 101, the economy is sound, inflation is low. We have a vigilant Fed, which is raising rates right now, makes the things a little bit uncomfortable. But, the platform is sound. This is a normal kind of a thing, albeit unpleasant. This is kind of the market where long-term investors earn their stripes, and I think things are going resolve themselves positively over time, but they are not fun in the short term.

HEMMER: Two statistics quickly: nine of the 10 worst point drops in the Nasdaq occurred, so far, in the year 2000. Nine of the 10 biggest point gains also have occurred, so far, in the year 2000. It is extremely volatile, but how are we to gauge this right now, as we look forward to the remaining, oh, let's say 10 months -- eight months in this year?

FARR: Well, you know, the markets have become more volatile and people like upside volatility. You never hear anybody complain about the volatility when things are going up, it's the downside volatility that's painful, and I think that that volatility's here to stay.

But I think you're right in saying: Let's look at the next eight months. Nobody bought stocks, probably, for what they are going to do in April if you are a long-term investor. So if you bought really good companies, with earnings and good management, and you didn't pay too much for them, the next eight months would be the minimum period of time that you would consider looking at those stocks and the fundamentals. So, long term is the way to look at this. Everything still appears to be in shape and fine.

HEMMER: All right, well we will buckle up and hold on fast.

Michael Farr, thanks for talking.

FARR: Thank you.

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