HCN Stock Index goes up…and down

In January, this editor predicted that the Dow Jones Industrial Average would finish the year at 13,500 points. A conservative guess at the time, but a little bullish, in retrospect.

Rather than admit defeat, I’m going to borrow two tactics from the major research institutions: 1) “Update” the forecast, and 2) expand the range. I’m now predicting the Dow will end 2008 somewhere between 7,000 and 12,000.

This editor has learned his lesson about stock speculation.

In fact, we intend to upgrade our market coverage with the HCN Stock Index, just in time to track Wall Street’s wildest ride in recent memory. The index is essentially a basket of 20 home channel companies, weighted by market cap groupings—big, medium and small. The big stocks project three times the weighting of the small stocks, and the medium project twice the weighting of the small.

The idea behind the index was to track a cross section of the entire home channel, from manufacturer to distributor to retailer. At the same time, the index was designed to provide the rightful respect to the market cap giants while being responsive to the fluctuations of the smaller companies.

How’s it doing? It’s down. A lot. Since Sept. 15, the day of the Lehman Brothers bankruptcy announcement, the HCN Stock Index has declined 30 percent. (For the updated index, visithomechannelnews.com .)

The downward spiral of the major indices has caused no small degree of consternation. Here in New York City and on the road, people are rapt by the stock market rollercoaster.

This editor has two standard responses to all comments about plummeting stock prices. One is “Stocks go up, stocks go down.” The other is: “You haven’t lost anything until you sell.”

For most of the past two months, both responses were roundly dismissed and ridiculed.

But then came Warren Buffett’s opinion piece in the New York Times. When Buffett talks, American business men of all stripes take heed. In his article, “Buy American, I am,” he explained it’s near impossible to predict where stocks will be in a month or a year. In other words, “stocks go up, stocks go down.” But he added, in the long run, the news will be good. Loosely translated: “you haven’t lost anything till you sell.”

Buffett, himself a member of the home channel community by virtue of Berks hire Hath away’s ownership of Nebraska Furniture Mart, Benjamin Moore and Shaw Industries, pointed to a statistic that should be memorized by every vp-investor relations in the country. At the beginning of the volatile 20th century, the Dow Jones Industrial Average stood at 66. At the end of the century, after two world wars and a depression, it was 12,342.

My last advice: keep an eye on the HCN Index, but don’t panic.