Online Extra: Five Rallies, Six Declines in Three Years

In some sectors, stocks move so fast that rallies end before you realize they've even begun

Since March 24, 2000, Standard & Poor's 500-stock index has lost 45% of its value, crushing the portfolios and spirits of many stock investors. But in those nearly three years, traders might have made piles of money buying rallies and selling declines. Since the March, 2000, record high, the S&P has rallied five times by more than 10%, according to Birinyi Associates. The average gain in the rallies: 18.8%.

And if you had shorted the market for the six declines around the rallies, you would have done even better. The declines averaged 21.6%. Therein lies the temptation to try to trade the market -- usually a sucker's bet and one burdened with commissions and other trading costs.

Regardless of whether you take such bets, the rallies and declines show just how fast the market is jerking around portfolio values. The average length of the rallies was only 74 days before the market dipped 10%. In contrast, the market climbed for seven straight years, from October, 1990, to October, 1997, without a 10% decline. No wonder many people came to believe in buy-and-hold investing.

In some industry sectors, stocks move so fast that rallies are over almost as soon as you realize they've begun. Computer stocks of the S&P 500, for example, zipped through their rallies in an average of 30 days since March, 2000. In the 38 years before, rallies on average lasted 139 days and carried stocks up 33%. The more recent rallies added a lot of value, too, 25%, despite their brevity.

"The market's moves have become compressed," says Laszlo Birinyi, founder of research and investment firm Birinyi Associates. "We've gone from a market where people invest to one where people trade."

By David Henry in New York

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