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The Best Lesson From the Market Correction

If I told you one year ago — when the Dow was at 6,500 and the market was in full-on panic mode — to skip Wal-Mart and buy a newspaper stock, you probably would’ve laughed.

Andreas Pollok | Getty Images

But if I had, I'd look like a genius today: Gannett is one of the top five best-performing stocks on the S&P since March 9, 2009, up 728 percent.

That’s right: Dead trees = 728-percent return.

And that’s not all: An office-supply chain and a hotel chain were also on the top-five list of biggest percentage gainers on the S&P in the year following the lows set March 9, 2009. Meanwhile, the stock you thought was the poster child of recession plays — Wal-Mart — was among the Dow’s WORST performers since last March.

So, what have we learned in the past year, after those stomach-churning lows and the slightly nauseating ascent we’ve experienced since then?

We turned to some market pros for some insight.

First, what prompted the meteoric rise of USA Today parent Gannett?

Newspapers may be flailing but Nadav Baum of BPU Investment Management said in every consolidating industry there are survivors — and Gannett may just be the one that doesn’t get voted off the island.

Plus, there’s the wild card of how to charge for online content.

“If people are going to start paying for content on the Internet — somebody’s going to be a leader,” Baum suggested.

What Separates Winners From Losers

Looking at the whole list, the winners tended to be companies that cater to business, while the losers were mostly consumer-focused stocks, which Todd Schoenberger of LandColt Trading said was yet another sign that the business recovery is accelerating faster than the consumer recovery.

Jeff Kleintop of LPL Financial agrees that companies exposed to the credit and business cycle are usually your best bet when the recovery starts to show signs of forming.

“This pattern of performance will likely apply to the next big bear market as well,” he said, but cautioned: “It’s not a guideline for the smaller 5 to 10 percent pullbacks and rallies we are likely to see in the year ahead.”

Plus, the Dow’s losers — ExxonMobil, Wal-Mart and McDonald’s — all reported disappointing earnings for 2009.

“What investors should have learned from these statistics is that earnings are king,” Schoenberger said. When considering a stock during a downturn, he said, “investors need to ask: What products/services are they selling and will the current economic climate allow all them to be successful?”

OK, so stick that advice in your back pocket for the next recession/correction.

As for trading in the here and now, several of our market pros pointed out that it’s time to start looking at companies that are going to pay you.

“Dividends appear to finally be on the rebound,” Kleintop said, especially in the information-technology and consumer-discretionary sectors.

The dividends are a nice little consolation prize after all the money you lost in your portfolio and 401(k) last year, not to mention — they’re a good gauge of a company’s health.

THE MOST IMPORTANT LESSON

The Most Important Lesson

You can look at all the charts and crunch all the numbers you want but Baum said the most important lesson you can learn from this correction may just be about … yourself.

“It’s not about what stocks to buy, it’s more about the psychology of investing for yourself,” Baum said. “You have to get a feel for what your volatility threshold is” — that will help you decide what you should be investing in.

The Dow winners, for example, were quality names that got beaten down — good plays for long-term investors. The S&P winners were more a roll of the dice — better for investors with a higher risk threshold. You could make a big return, or get wiped out.

You have to figure out which one you’re most comfortable with — or what percentage of each.

How you handle a correction is more important than whatever you made or lost.

“If you’re not sleeping at night, then you shouldn’t be in the stock-market game,” Baum said. But if you can “get the fear and emotion out of the game,” he said, “then you follow Warren Buffett — Be greedy when others are fearful.”

So, when you go home tonight, take a good, long look in the mirror. . It’s like that self-help book said: The answer was in you all along.

In the words of the great William Shakespeare, “The fault …is not in our stars, but in ourselves.”

Oh, and, uh, remember what Yoda said: “Ready are you? What know you of ready?”

_____________________________________________

The Best and the Worst in the Year Since March 9, 2009:

S&P 500's Best:

  • Genworth Financial (+1,687%)
  • Office Depot (+1,206%)
  • Fifth Third (+807%)
  • Gannett (+728%)
  • Wyndham Worldwide (+672%)

S&P 500's Worst:

  • MetroPCS (-55%)
  • Gamestop (-19%)
  • Dean Foods (-16%)
  • People's United Financial (-9.4%)
  • Apollo Group (-6.2%)

Dow's Best:

  • Bank of America (+346%)
  • American Express (+273%)
  • JPMorgan (+168%)
  • Alcoa (+156%)
  • Caterpillar (+146%)

Dow's Worst:

  • ExxonMobil (+3%)
  • Verizon (+13%)
  • Wal-Mart (+14%)
  • AT&T (+16%)
  • McDonald's (+25%)

Questions? Comments? Email me at ponyblog@cnbc.com or drop a line in the comment box below.

More from The Pony Blog: ponyblog.cnbc.com

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