People terrified by last Friday's stock market collapse may be tempted to sell out now. Financial advisor Martha Myron, the Moneywise columnist for The Royal Gazette's Saturday Personal Finance section, says investors will be better off if they sit tight: After the incredible stock market roller coaster ride of Black Friday, April 14, 2000, financial planners are advising their clients to wait until the market stabilises; to work with their advisor to assess their portfolio; then consider their options. It becomes a good time to remind clients again about their planning strategies and long-range investment goals.

And many financial planners see the market turmoil of the past few weeks as a vindication of the principle of asset allocation (spreading your money among a variety of sectors and asset classes). If you are properly diversified, not playing with borrowed money or cash that you will need in five years, then volatility in the market is not as worrisome, because statistically planners know that over longer periods of time, the market has come back and brought a decent return to investors. Properly diversified portfolios experience less volatility overall.

What Happened? What caused this dramatic drop in the leading stock market of the world? There is any number of reasons, some of them not even quantifiable, but the major economic triggers of uncertainty were many of the following: Continued Increases in Consumer Spending and Excessive Credit Card Debt: The Consumer Price Index released on Friday was higher than expected and re-ignited fears of inflation and further interest rate hikes by the Federal Reserve Board.

Excessive Margin debt: By the end of March 2000, margin debt had reached an all time high of $278 billion, more than double the $125 billion in January, 1999. Margin buying has been a factor in driving stock prices to artificial and unsustainable high valuations. As the stock bought on margin falls in value, brokerage firms issue margin calls, forcing investors to either put more money into declining stock or have their positions sold out. Economists said margin calls appeared to have contributed to the near collapse of the NASDAQ last week. Waves of margin calls can trigger secondary charges that accelerate falling prices. Individual and money managers both were margined in this irrational market.

Because of the influence of all the high-tech stocks, it was not as surprising to see the NASDAQ decline so far, but it is yet to be explained as to why the DOW fell even further. One theory is that in meeting margin calls, traders and individual investors alike had to sell all their holdings which included Old Economy stocks, too.

Yesterday's Hot Issues Have Become Today's Cold Turkey: The lack of fundamental values in the overpriced tech/Internet stocks finally came home to roost.

When so many of the Internet/tech highfliers had little or no earnings, some for as long as five years, analysts start looking at the company's cash funds flow. In other words, how long can these companies keep going without a new infusion of cash? If market is uncertain, venture capitalists will not step in again to help out. That leaves companies the option of issuing a secondary offering of new stock. But with the current stock values falling rapidly, it is doubtful that another offering will sell at any price.

Market Makers and Orderly Markets: In the past, market makers (or specialists on the New York Stock Exchange) assume a role of conducting an orderly market.

Very, very simply explained, these are actual companies who are charged with finding buyers for sellers, and sellers for buyers in the course of a trading day. For this they are paid on the spread between the ask and the bid price.

In the crash of 1987, market makers played a huge role by stepping in and buying stocks when there were no buyers because everyone wanted to sell.

However, as access to stock markets for all investors has increased and with it, increased competition for the investor dollar, the amount of the spread paid to market makers has dropped dramatically. They are not always willing to keep the buy/sell process orderly by committing all of their capital for so little profit. Thus, as many stock prices swung significantly downward, some as much as 60-90 points, many traders stayed on the sidelines waiting to see if the value had bottomed out before they would consider purchasing.

Greed and the Lemming Syndrome: Because individuals and many money managers got totally caught up in the entitlement of ever increasing returns, 12 to 20 percent annual returns were considered minuscule. Why, even boasting of a 1,000 percent return in a year was considered downright dull. Expectations of continued profits accelerated beyond comprehension.

Investment advisors and money managers alike bought, sometimes against their own judgment, and certainly under pressure from their clients. A portfolio that did not achieve at least a 50 percent return in a few months or a year saw heavy redemptions as clients took their money elsewhere. We all saw this `lemming syndrome' as even elderly and retired clients whose preservation of principal was paramount, were requesting that we "get into those tech stocks and see some real returns''.

Irrational Exuberance and Reality: As the bubble burst, there is no question that some people have (on paper) lost a great deal. The tide of exuberance has been turned; managers and individual investors alike will focus on quality stocks of all sectors, for a while.

What Happens Now and Positive Indicators Things are different than the 1987 crash and even 1998, as there are far more economic indicators in our favour.

We need to remember that: Interest rates are still low; in fact mortgage rates recently dropped again in the US.

There is still little or no inflation (only the worry of inflation).

There is still very strong employment and expendable income in many households. Contrast that with 1987, we were heading into a depression and there were already thousands of layoffs nationwide.

The Federal Reserve may not have to raise rates because the correction achieved the same goal.

There are thousands of good solid companies with great track records and strong earnings projected for the year. Right now, many of these stocks are very undervalued and it will not be long before the bargain hunters take opportunities to buy at bargain sale prices.

The small prudent investor may turn out to be the wisest investor of them all.

They have learned to live with this seesaw market and continue to grow in sophisticated investing. They were the ones who did not panic in the last two corrections (1987 and 1998). They patiently waited until the storm subsided and went back into the stock market in full force.

After stabilisation, the market will be back. After all, we do know (from Ibbotsen and other studies) that over time (74 years) remaining fully invested, the market has returned an average of 12 percent and that includes the years of the great crash of 1929.

Baby boomers -- some 70 million (of us) strong and the most influential group today, have not saved enough money to even begin to think of retiring in 10-15 years. They will stay in the market and accept the risk of investing, because there is nowhere else that they can achieve the same rate of return over time.

They are at their peak earning years. Will their participation drive the market up again? You bet.

Martha Myron CPA CA is Programming Chair for the International Association for Financial Planning/Bermuda