Several reasons:
First of all, we have a long road ahead until recovery -- blue chips as well as tech. My best example is GE. Yeah, they came out with 15% net growth, but with a top line growth of 3%. In english, their profits were up 15% from their previous quarter, but their revenues were only up 3%. GE has by far the best management in the world -- but they only grew by cutting, not by increased revenues. You can only trim the fat so many times before you run out of fat.
We are going to see several more quarters of companies missing numbers worse than expected. Look at Cisco today, I warned all my buddies not to buy it, but they insisted to buy at 20 and then at 18 and then at 15.
I personally wouldn't touch AOL with a million-foot pole. Citigroup, well, not a big fan of financials right now. They just lowered revenue estimates yesterday, so it may be a good spot. But with First Union buying Wachovia, I'd watch out -- last time First Union bought someone they dragged the whole sector down.
Second, and most importantly, most of us aren't in the position to be buying stocks. Your 401k is long-term, that's the benefit of the tax laws. I am of the strong opinion to pay my 2% in fees to let a professional manage my money for the long term. When I have some money on the side, I invest in individual stocks. For instance, I love WDC right now. I bought it at 3.25 3 weeks ago and its now at 5.24 and ready for a rocket ride. They are 2 quarters from breaking even and if they do, it's a $9 stock. But for a long-term portfolio, I leave it to a professional.
I know all the numbers, in fact, I recently just did a matrix on Intel. I realize that Intel grows at an average of 25% a year, and that Cisco has done the same. But it's going to be an ugly, ugly road for a while. Wall St is cutting back by 30%, we are all preparing for a 2 year recovery.
Last, the best benefit of mutual funds is their balance. I would choose one that can go long and short - which is why I like Calamos and Needham. Whichever way the market goes, you're protected.
I know I've babbled on, but this is the bottom line: If you can get 10% in the next year, you are WAY ahead of the game. It's my opinion that individual stocks may get you there, but even blue chips are struggling: Disney, Coke, etc. Even J&J didn't meet the numbers most were expecting. Good professional managers know how to get the returns in even the worst markets. Mutual funds can short, put money in cash, bonds, etc. Your 401k is your future, I don't like to risk it in this market -- not until we see a real upturn, like in 3Q '02.
