We find that it seldom pays to dump a great stock on temporary adverse action. It is so easy to get out at the worst possible time only to seethe stock turn around again. Nevertheless, we regard it as timely to warn of a potential decline of 10 percent or more in the general market starting any time now. Actually this would be a continuation of the decline that began in mid-July. Since then overall we appear to be ahead because of some spectacular winners. You may care to note that the Dow Transports and Utilities are for all practical purposes in an established bear market even as some great stocks continue to perform wonderfully.

Given the likelihood of more than routine day to day downward fluctuations, we warn subscribers not to be too heavily exposed and certainly not to carry any stocks on margin. Although we are not giving an official sell signal, the following among our stocks appear unlikely to buck a general downtrend: Erickson (ERICY), Corning (GLW), Hewlett Packard (HWP) and IBM. These could be stocks from which to raise cash if your exposure is heavy or if you foresee a requirement for cash from the market within the next 6 months to a year. We are long-term investors but we still want to keep an eye on the exit when stocks are vulnerable.
Many of our stocks continue to look wonderful. Action in Santa Fe and Idec is spectacular, as well as QLT and PMC Sierra. Flextronics seems to be turning up again after a shakedown. We could still see buying oils and oil service stocks here.

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