After my two previous articles in May and June, "Is the Bubble in Trouble?" and, "Party Pooper," I feel a clarification of our stock market concerns is in order. Please know: I am not sounding the bugles for a total market collapse. My concern is for what should be an imminent and significant correction and the potential panic-fall-out therefrom. A public over-reaction could result in domino-effect triggers which would only exacerbate the magnitude of the correction.

For example, let us say the coming correction is only 20 percent, the Dow Jones Industrial Average (DJIA) currently around the 11,000 mark would be lowered to 8800. Not bad and certainly manageable, bearing in mind the DJIA closed above 4000 for the first time in February 1995. But consider this arithmetic. Say you have a $100,000 portfolio with an unrealized gain of $10,000. A 20 percent downward adjustment would not only wipe out the gain, but would produce a loss of $10,000.

With the Instanet and other after hour, momentum trading facilities, the pressure would be on to sell into the correction and thereby contribute to greater losses of value. The correction could even be greater than the 20-30 percent range and still be well above the 4000 DJIA in 1995. Some believe the correction could be smaller.

Abby J. Cohen, a leading analyst, considered an advocate for bullish thinking, recently stated the market is overvalued by just 5 percent. I wonder what kind of data and arithmetic she used. My calculation indicates a 50 percent overvaluation, based on a current Standard and Poor 500 (S&P) price/earning (P/E) ratio of more than 30. Historically, the long-term average P/E has been 15. A higher, P/E of 20 would have been considered on the conservative high-end. The present P/E of 30 is 10 points above the historical figure of 20 and, therefore would represent an increase in valuation of the S&P of 50 percent (i.e., 10/20 = 50 percent).

I am also concerned with pressure put on even the best money managers to outperform the S&P or the DJIA. In order to outperform, higher risks must be taken. This usually means adding high-risk Internet stocks, many of which do not have a measurable P/E. When the "E" (earnings) is less than zero there can be no finite answer for a P/E.

The need to "perform or perish" is a reality in today’s portfolio manager business. A truly independent fee-for-service advisor is hard to find. Most of the proven good ones usually are too expensive for the small investor. They usually accept only high-end portfolios, a million dollars and up. So where does the average investor go for independent advice?

I recommend no-load mutual funds which have performed well in the past 20 years — not the high performer of the past year. There are several which have low management costs and provide their customers with a low-cost portfolio review. My personal, long-term favorite has been the Vanguard Group.

For the truly long term investor there is no need to panic. Corrections offer the opportunity to use cash reserves to add to portfolios at bargain prices. Panic remains the problem. In an old radio and television classic, attorney J. Algonquin Calhoun’s client is heading for the electric chair. His frenzied plea, "Calhoun, what do I do now?" is answered calmly by Calhoun, "Whatever you do, don’t panic. Just don’t sit down!"

Yes, there is no need to panic and create real losses by selling into a declining market. Better look for good buys in a correction.