The Speculator's Corner
Looking for Tomorrow's Winners Among Today's Losers
By Laurel Kenner and Victor Niederhoffer

2/1/00 4:36 PM ET
URL: http://www.thestreet.com/comment/thespeculatorscorner/874539.html

Legendary London banker Nathan Rothschild said he liked to buy when the cannons were firing and sell when the trumpets were blowing. While the sound of January's cannons are still fresh in investors' minds, it may be a good time to survey the battlefield for bloodied stocks. After suffering two 10% corrections, the Nasdaq 100 offers a particularly wide assortment of attractive losers right now.

It's so much easier to tell friends about owning a winner than to admit to buying stocks that are down. When we overhear Manhattan dinner-table conversations, we inevitably hear lots of people talking about the big gains they had in JDS Uniphase (JDSU:Nasdaq) and Yahoo! (YHOO:Nasdaq). Nobody boasts about the awful mess they just bought.

But times like these remind us of the wisdom of titans of Wall Street like Henry Clews and Jesse Livermore. In his 1887 book Twenty-Eight Years in Wall Street, Clews notes that few gain enough experience in the market to command success "until they reach that period of life in which they have one foot in the grave." These old veterans, Clews wrote, spend periods at their comfortable homes. In times of panic, they can be seen hobbling on their canes to their brokers' offices, where they "buy good stocks to the extent of their bank balances, which have been permitted to accumulate for just such an emergency."

When the panic has dissipated, they quickly realize their profits, perhaps buying some choice real estate, and "retire for another season."

The expert timing of these hobblers comes from listening to the rhythms of the market. Last week, we mentioned one of our favorites musical pieces, Scott Joplin's Wall Street Rag. We like to remember that the section he called "Good Times Have Come" was preceded by the passage titled "Panic in Wall Street, Brokers Feeling Melancholy."

The canes probably saw much use in Monday's market when, at the bottom, it looked like the end of the world. Those who bought the S&P 500 March contract after it fell 0.7% from its open to its low were able to deposit considerable profits as it rallied a quick 44 points to 1401 from 1357. Anybody who bought futures or a related market basket saw a profit of about $10,000 per contract, or 3%, on their unleveraged holdings.

This is in accord with the 3% to 4% average rise in futures that has occurred immediately after panics in the past, as discussed in our Jan. 28 column. However, with individual Nasdaq stocks, the most effective strategy seems to be to hold them for a few months.

Looking at stocks in the Nasdaq 100 that had monthly declines of at least 30% last year, we discovered they tend to be lackluster in the subsequent month. But four months after the initial decline, we often find spectacular rises.

Two caveats are in order, however. First, our evidence is anecdotal and doesn't carry the weight of a comprehensive study. Second, these gains must be considered in the context of the 102% rise in the Nasdaq 100 from year-end 1998 to year-end 1999.

With that in mind, here's what we found.

The Nasdaq 100's Biggest Losers, by Month Nasdaq 100 stocks that fell 30% or more in any given month during 1999.
Month	Stock	% Decline	% change 1 month later	% change, 4 months later
February 1999	Lycos	-36%	-1.8%	+4.9%
	3Com	-33%	-26	-15
March, 1999	Network Associates	-35%	-57	-43
April, 1999	Network Associates	-57%	+11	+27
	Parametric Technology	-34%	+6.2	+7.2
May, 1999	Real Networks	-36%	-2.8	+48
	Amazon.com	-31%	+5.4	+35
July, 1999	Starbucks	-38%	-1.6	+14
	eBay	-35%	+29	+69
	CNet	-31%	-6.1	+27
August, 1999	Global Crossing	-38%	+2.4	+93
Sept., 1999	Quintiles	-47%	-2.5	+39
Average	--	-38%	-3.6%	+26%

This month's crop of losers may offer similar opportunities. Here are the five Nasdaq 100 stocks that fell at least 30% in January: