This is not a market for the meek or timid. On October 7, 2002, when the S&P 500 index average hit 785 and the NASDAQ average bounced on 1119, it was hard to find a soul brave enough to buy stocks. These lows were enough to drive many from "The Great Game" and into safer money funds.

When assessing their tolerance for risk, investors often overlook the most obvious (and certainly from an intellectual point of view, the most difficult to understand) risk-the risk of not being in the stock market.

Let me make a point here. Those who fled and bought money funds have earned maybe 2% on their money . . . or even a little less. But those who stayed, even if they owned just the index funds, have seen the S&P index go from 785 to 1039, a gain of 32.3%. The NASDAQ-hold onto your hat-went from 1119 to September 19th's 1909, a gain of 70.5%. The difference between those increases and the earnings from a money fund was the price of risk insurance purchased by the timid who fled the market.

These statistics refer to unmanaged indices and may not necessarily represent the results investors got from all equity investments, as not every stock shared in those increases. But overall, those who stayed on the train benefited from their decision to take the risk.

As we look forward, the picture is beginning to brighten. This Bull is just starting to romp. The Federal Reserve recently voted to keep short-term interest rates at a 45-year low amid signs that the economic recovery is gathering momentum, and said rates will remain low for "a considerable time."

Overall, those who stayed on the train benefited from their decision to take the risk.

The consensus among economists seems to be that they expect the Fed to leave rates as they are until at least next year. These lower rates should spur a faster recovery and strong economic growth into 2004. Whether they have overcorrected, keeping rates too low, remains to be seen. Certainly if the economy reaches a full head of steam more quickly than expected, we may see rate increases also come more quickly than expected.

Jobs remain a big question mark. Some economists worry that if the job picture doesn't start improving soon, consumer spending may start to cool, removing a key support for the recovery.

Tobin Smith, market follower and regular on the Fox "Bulls and Bears" program, offers up a different perspective on jobs than you might hear from your local democratic presidential hopeful on the street corner. He declares that the real stats from the Bureau of Labor Statistics (BLS) show we have created 1.12 million new jobs this year. This is contrasted by the claims of Bears and Democrats that we lost 437,000 jobs in the first eight months of 2003.

The difference between the figures lies in the interpretation of the data. The BLS's Household Survey speaks with a carefully selected panel of 60,000 households about employment. Bears and Dems follow the Establishment Survey, which takes raw data from 160,000+ existing businesses and government agencies each week. This data provides the "437,000 jobs lost."

Smith argues that this is a totally fictitious number because the BLS Establishment Survey does not count self-employment. With so many entrepreneurs starting businesses and working on their own, this can be terrifically misleading. If you think about it, being self-employed does not mean "between jobs" today. People like me, my wife and a good number of clients and friends manage to make a living as self-employed workers, and we are not counted in the job picture.

A jobless recovery? It seems doubtful to me. In fact, while we're at it, how about an office pool on when the markets will surpass their year 2000 highs?

Contact Saperston Asset Management Inc. at: willard@saperston.com

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