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- Alan Lavine and Gail Liberman

Stocks have historically grown at an 11 percent annual rate. But what a way to earn 11 percent!

There are periods-- like today-- when investors have lost more than 20 to 30 percent in the stock market since 1999. In 1973 and 1974 they lost half their money.

We are now just breaking even on stock losses due to the Sept. 11 terrorist attack on the World Trade Center. But if history is any indication of what things will be like in the future, stocks should do better the longer you own them.

Stocks often take a licking during a political crisis or a catastrophe. But history shows they bounce back.

For example: Five years after World War II was declared, stocks grew at an annual rate of 17.9 percent, according to Mutual Fund Letter, Largo, Fla. After President John F. Kennedy was assassinated, stocks grew at an 11.6 percent annual rate. Five years following the Iraq War, stocks grew at an annual rate of 18.2 percent.

So what can we expect in the future? Many investors owning technology stocks or mutual funds sure want to know.

Portfolio managers are optimistic. Chip Morris, manager of the T. Rowe Price Technology Fund, says technology will rebound. Over the past two years, technology funds have lost a whopping 87 percent. In 1999, they gained 136 percent on average. So over the past three years, you would have made more money in good old- fashioned U. S. Treasury bills that mature every three months.

Morris says, however, that many large technology companies are undervalued based on future earnings. The stocks are beaten-down and selling at bargain prices. But he says the industry needs to come up with something innovative to drive earnings upward. In the 1990s, it was personal computers, cell phones and the Internet.

Others, like Lance James, analyst with D.L. Babson & Co, Cambridge,MA, says that small company stocks should lead the market coming out of the recession. The reason: The slightest pick-up in the economy will boost the earnings of small companies compared with large multinational firms. Small companies also are not dependent on overseas business, tend to lead and lag the performance of large stocks every three or four years, and historically, are undervalued compared with large company stocks. So they soon could have their turn in the sun.#

Alan Lavine and Gail Liberman are husband and wife columnist and authors of The Complete Idiot's Guide To Making Money With Mutual Funds, (Alpha Books).

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