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OK, so now we have had a look-see at the markets since September 11th. This week, the Dow Jones Industrials dropped about 12 percent and the Nasdaq lost about 15 percent.

Don’t expect any quick comeback. After a market break like this, the most likely event is at least another 10 weeks in a trading range between the September 10th high, and this week’s low. That would suggest the next three months will be a very good time to buy stocks, and that 2002 should see higher market averages.

Money managers are most likely to stick with big-cap dominators with strong balance sheets in these types of markets. They will not be brave, or adventurous in what they buy here, not now. Don’t forget that.

They will settle for defensive types of stocks here – food, energy, drugs, railroads, insurance (oh, yes, insurance), defense stocks, some banks and even some tech stocks.

Insurance stocks: Look at a company like American International Group (NYSE: AIG). AIG is one of only 10 publicly traded companies in America to get a AAA rating from Moody’s (think about that). They have a bullet- proof balance sheet.

How bullet-proof is it? Well, lets look at September 11th. American International states that their losses through insurance from this event will be somewhere around $500 million, from an event that was unprecedented in its size.

No one would argue that this is a lot of money. But, look at the big picture. The market cap of American International is about $165 billion. That means the loss was about 1/330th of AIG’s capital!!

During the last quarter American International reported income of $1.7 billion. So, another way to look at it is that this tragedy (and we don’t mean to belittle that) is about one month’s worth of profits for AIG.

In fact, we submit to you that the insurance industry is the only one around that will be able to make-up losses from this event.

How will they do that? By charging higher premiums – and that, we can report to you, is already happening.

Many of American International’s weaker competitors are pulling in their horns, and not actively seeking new business. But for AIG, it is business as usual. As with many catastrophes in the insurance business, the strong will get stronger and the weak will emerge much weaker.

That is why ratings (claims paying ability) for insurance companies are so very important, and you should not miss that point.

American International gets a AAA rating because they can take a licking, and keep on ticking. That is the very essence of the insurance business – being ready for rainy days and catastrophes – AIG was ready.

For you, the investor, that is a very important point to consider. Also important is the fact that American International is very well spread out, all over the globe. In fact, about half of AIG’s income comes from outside the USA. The first rule for any good insurance company is to spread out its risk.

We have recommended American International to our clients since 1994, when it was in the $15 area and it has been very good to us.

We have learned from past experience that when American International is in a correction (as it has been for the last 10 months from the all-time high in the $100 area) that it usually falls about 25 to 30 percent off of its all time highs.

We highly recommend this stock for long-term, patient investors at these prices ($67-75). Buy it now, and in five to 10 years, we predict you will be very happy.

Another stock to consider here is Motorola (NYSE: MOT), which has tumbled from the $60 area, in March 2000, to $15 these days. One sure winner from our recent tragedy is the cell-phone business, and another is the defense industry. These are both areas where Motorola is an important player.

Resist the urge to buy the former hero stocks here on the hopes of a comeback. Indeed, for many of these stocks, the name of the game right now is survival – some will, many will not.

Lucent, JDS-Uniphase, Juniper Networks, Sun-Microsystems, CMGI, Exodus, Priceline and Amazon are examples of stocks we think should be avoided here. You can expect a lot of mergers in the hopes of survival, but if you are looking for the acquirer to pay a good premium for your fallen angel, we think your are just whistling Dixie.

Conclusion: Investing is about building a high-quality portfolio full of market-leading dominators that will do well through good times, and bad (like now). What we must remind ourselves is that buying into the face of pessimism is much more rewarding that buying into the face of optimism – and you, as an individual investor, must learn to act accordingly.

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