Continued: Some Minnesota stocks have prospered

The stock market has experienced its worst year since the tech market crash. The Standard & Poor's 500 index, which mirrors the overall blue chip market, is down about 25 percent and global stocks are down even more. The EAFE index, which tracks stocks in Europe, Asia, Australia and the Far East, is down about 30 percent.

But in Minnesota, stocks across a number of sectors have dramatically outperformed the market averages.

"If you look at bank stocks, that sector is down about 14 percent this year," said Susan Stiles of Minnetonka-based Stiles Financial Services. "But U.S. Bancorp, Wells Fargo and TCF are all doing well this year."

U.S. Bancorp is up about 10 percent year to date, Wells Fargo (which made a surprise bid for Wachovia on Friday) is up about 14 percent and TCF is down about 3 percent. By contrast, one of the nation's largest banks, Citigroup, is down about 38 percent.

One of the best performers in the local market is General Mills, up about 23 percent this year, even though the consumer goods sector is down 5.4 percent.

Imation, a computer data storage manufacturer, is down about 1 percent, while the computer hardware sector is down about 22 percent.

In the medical sector, which has dropped about 6 percent this year, St. Jude Medical is up about 5 percent while Medtronic is down just 1 percent for the year. On the flip side, this has been a dismal year for UnitedHealthcare. The managed health care operation is down about 59 percent for the year.

Among retailers, Target Corp. is down 13 percent while the retail sector is down about 8 percent. Other local retailers have been hit harder. Supervalu Inc. is down about 45 percent and Best Buy Co. Inc. is down about 36 percent. But Best Buy is still doing far better than its leading competitor, Circuit City Stores Inc., which is down about 86 percent for the year.

Some local industrial services companies have had a tough year. Overall, the sector is down about 25 percent. 3M Co. and Alliant Techsystems Inc. are down about 22 percent, and Toro Co. is down about 30 percent. On the other hand, Ecolab has significantly outperformed the sector, down just 12 percent this year.

In the business services sector, Donaldson is down about 20 percent compared with a decline of about 15 percent for the sector. On the other hand, Deluxe Corp. is down about 60 percent for the year.

In utilities, Xcel Energy Inc. is ahead of the sector. The stock is down about 14 percent, while the sector is off about 23 percent.

More pain to come?

Even the bailout of the financial industry by Congress may not stop the fall of the economy and the stock market. Stiles sees several troubling trends. "The bad news for Minnesota is that unemployment continues to climb," she said. "It was 6.2 percent in September -- which is even higher than the national average of 6.1 percent -- and it will probably go higher this month. We have the highest unemployment level Minnesota has seen in years."

The rise in unemployment could spell continued trouble for the retail sector, Stiles said. "Retail sales were down 0.3 percent in August, but if you strip out automobiles, then sales were down 0.7 percent."

If consumers continue to cut spending, it could send the economy into an even steeper tailspin. "Consumer spending drives two-thirds of our economy," she said.

How should investors approach the market in the months ahead? "We don't know what the next few months hold in store for us," Stiles said. "But we do know that stocks have had the best growth potential for the long term. If you're already well diversified across asset classes, stick with that. If you're more short-term oriented and you want to move to a more conservative portfolio, you should use dollar cost averaging to take some money out of the market. Just don't do it all at once."

The buy and sell decisions that investors make in times like these determine the long-term success of their portfolios. "The average investor's performance over the long term is significantly below the market average, because people tend to react based on their emotions," Stiles said.

"People have irrational behavior and unconscious biases that often lead to sub-optimal choices," she said. In other words, they tend to buy high and sell low rather than the other way around. "That tends to happen when the market is down and investors get scared and pull their money out of the market or when the market is nearing new highs and conservative investors suddenly start buying stocks."

In other words, don't panic. But that's easier said than done when the nation's entire financial infrastructure seems to be crashing down around us.

Gene Walden is the author of more than 20 books about business and investing. He lives in the Twin Cities. Send questions or comments to: gwalden100@comcast.net, or visit Allstarstocks.com.