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Don't Be a Yahoo: It's Time to Preserve Capital

All but the wiliest short-term traders should tread with extraordinary caution in these treacherous market times, says <I>TSC's</I> chief markets writer.

It's capital preservation time for tech investors. Momentum has reversed. This week's 15% decline in the

Nasdaq Composite Index

(so far) has put real fear into tech investors. If you bought the dip last week, you have lost. And high-tech stocks with little revenues and no earnings may have seen their all-time highs. Even great companies like


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are being taken out and shot. They don't take prisoners in a massacre like this.

So what in the heck should you do? Use your head.

In some basic sense, it's already too late to do too much. If you were going to sell the Nasdaq Comp, you should have done it back on March 10 when it peaked. If you are thinking about getting out while the getting is good, you missed your chance. You just sat through a 25% decline.

So should you bottom-fish? Probably not. In a moment like this, the prudent thing to do may be to do little, other than raising some cash by selling the tech stocks in which you have the least confidence. Unless you are a short-term trader, this is not a time to be aggressive. Those stocks can be taken down too. If you buy anything, you'd better make sure you would be happy to own it permanently. You'd better be sure that you want to own


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for the long haul, not simply a quick pop.

'Our research department has been very quiet today,' says a Goldman broker. 'I don't think we really care about the market as long as we can do the underwriting.'

Don't short tech, please. It is quite possible, even likely, that some of the bigger and better companies will rally up in the short run. If you are still concerned about capital preservation at that point, you will want to be in a position to sell into those rallies to raise cash.

"I expect to see at least one more bounce before we bottom," says a broker who specializes in handling stock accounts for the billionaire set. "It won't be a recovery -- in fact, I expect the rally to be quite narrow -- but there may be another opportunity to sell into and raise cash at higher levels."

Get used to a less euphoric market for tech stocks. All the young yahoos who made a bundle last year in

JDS Uniphase


or whatever just took a big hit. They have been hurt and will be more cautious going forward. So should you. "We will not be returning to the tulip-bulb mania of before," says

Prudential Securities'

Larry Wachtel. People will be more circumspect. No longer will


get all the mutual-fund inflows."

Don't rely on the big Wall Street firms to tell you what to do. They were very quiet today. Why? The bulls were busy trying to cobble together something intelligent to tell clients. And frankly, research analysts have become such flacks for the investment bankers that many are indifferent to market declines. As one broker at

Goldman Sachs

told me, "Our research department has been very quiet today. I don't think we really care about the market as long as we can do the underwriting."

It's a cold, cruel market.