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Today is January 31, 2001, and we're well into the new millennium (at least no one can debate which millennium we're in anymore!). It seems as good a time as any to discuss game plans for the New Year, doesn't it? After all, Alan Greenspan and the Fed just capped off two days of meetings with another 50 basis point reduction in the Federal Funds Rate-the rate banks charge each other for short-term (read: overnight) loans. It's now 5.50%, a full point lower than it was a month ago. The market had already priced in the rate reduction, which is why it dropped significantly after the announcement. During the last 3 weeks, the Nasdaq has been up nearly 25%. This followed the first surprise rate reduction and was in anticipation of yesterday's historic second reduction in a month, which brought the one-month total reduction to 100 basis points for the first time since 1982.

So what's a savvy investor to do? Here are some of my thoughts and the reasons behind them:

Re-balance. There are so many stocks and mutual funds that have moved (albeit mostly downward!) in the last year. If you haven't really taken the time to look at every position you own, now is the time to do so. No doubt you have under-performers; dogs; laggards-whatever nickname you choose to give them. This raises a question:

Do you keep the weak ones, hoping to see them return to old glory? Or do you sell them and use the money for other purposes and/or other investments? (The correct answer is yes!) We're now at an interesting time with the markets. They're at or near a very solid bottom and the Fed cut the rate so significantly in the last month. If we were at 3200 and heading downward with the Fed raising rates again, you might do well to sell the losers and wait for things to keep falling before committing new monies to the market. However, now that we've seen what looks to be a fairly solid bottom and bounce at around 2300 in the Nasdaq and a rate reduction just announced, do you think the losers could start to come back? Or will they just sit and churn time?

If you believe they might come back (notice I use the word "believe" and not "hope" or "pray") and feel confident enough to put new money into these stocks or funds, then the best decision would be to hold on and track them. I use the term "new money" purposely and believe that we must treat each investment as if though we were putting new money into it today. If you have a stock that ran from 32 to 67 in 3 months, would you buy more at 67? If not, get out of at least some of the position! If you don't believe in further upside, then why would you risk the 67 in value that you already have in each share? Holding onto the stock is akin to selling it at 67 and immediately buying it again at 67 (let's skip the tax effects). You're saying that you'd buy it again at that price. If that's not how you feel, it's time to sell.

Sell the losers and find the winners! This is a painful step for most of us, as it takes a paper loss and makes it a realized loss. However, a loss is a loss, whether it's on paper or booked for the taxman to see. We all have them, and while our losers are heading down, other stocks are heading up. You wouldn't stay on a sinking ship, would you? At some point it's time to get off, take your losses and look for clearer seas ahead. The great aspect of the markets is that there are always new winning sectors, and strong leaders within those sectors. If you have an investment of $10,000 in a stock or fund that has fallen to $5,000, stop focusing on the $5,000 you've already lost. That's the past. The only question you should be asking yourself is, "where is the best place I can put $5,000 I have right now?" If the answer is not with that particular investment, get out and find the investment(s) that can (eventually) turn that $5,000 into $7,000, or $9,000, or $11,000 and beyond. Three years from now, that $5,000 in the loser might return to $8,000. And that same $5,000 spread throughout several investments may turn into $17,000. Are you married to a particular stock or fund? Or are you interested in maximizing your returns?

Pay closer attention to the Fed's moves and an impending tax cut. During the last few years, all you had to do to win in the stock market was be in it. Like they say, a rising tide lifts all boats. Well, all that changed in 2000. Alan Greenspan is now a household name and probably one of the most recognizable faces in America. "The Fed" has become a common topic of conversations at the workplace and elsewhere. George W. is expected to make changes to the federal taxation structure. All of these factors influence the direction of the markets. It's important for you to keep abreast of what's in play, because it affects your investments, your retirement, and, as far too many are seeing now, your job security.

Track your investments. Again, during the last few years, tracking your investments meant looking at the monthly or quarterly statements to see how much richer you became since the last statement. Not anymore! In 2000, we saw how much poorer we became between statements. We all need to be more involved in managing our own finances. This does not imply that you should become a stock or fund jockey, but I absolutely implore you to be aware of where you stand on a regular basis. How? By using the free portfolio tracker offered on Optionetics.com. You can enter stocks, options, mutual funds and other holdings into the portfolio tracker. It will calculate profit and loss data on an as needed or as desired basis for you.

By taking the steps I've outlined above and making them a part of your investing and/or trading methodology, you'll be well on your way to a very sound game plan for the new year, and you'll reap the financial rewards (without the pitfalls) that are there for wise investors.

Plan to succeed, and have lots of fun!

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Recent Articles by Ed Hecht, Optionetics.com

• April 9, 2001
  Riding the (Elliott) Wave to Profits
• February 23, 2001
  Being Assigned is Not the End of the World
• February 14, 2001
  The Generalist vs. the Specialist
• January 31, 2001
  Activating a Game Plan for the New Year
• January 17, 2001
  Lessons Learned the Hard Way Thanks to Last Year's Bears