Conference nyoss1::market_investing

Some of the best mutual fund manager's in the country don't practice market 
timing, and they have a lot more information availible to them.  I put a 
note in here awhile back that tracked the performance of my top mutual fund
from the date that we were supposed to enter the "long downward slide" of the
DOW (it seems to be missing now??), the results now are pretty staggering. 
I'm up about 25%....so let's see if the DOW even corrects by 10% I'm still
up, and I didn't pay the capital gains.

I don't do individual stocks, but taken from the CGM Capital Development
holdings I'll add these stocks for 1994.

TelMex, Toll Brothers, and Chrysler.


Michael

Musings on a brutally cold Sunday morning......

Market Timing is a very complicated task. 

Prognosticators of economics are as accurate as weathermen.

Back when the market was at 3000 and we were still running into a recession, 
the common theme of the "experts" was that the market was at its top since the 
P/E ratios were too high.  This theme continues to this day.  There are two 
parts to the P/E ratio and, since we were in a recession, I felt that the 
earnings part was the aberration.  If so, as we climbed out of the recession, 
P/E ratios should improve.  Also, since a recession is marked by low spending, 
in general, (driving down bank interest rates) "money" would be looking for 
someplace to go ( a dumb reason to invest in stocks).  My CONSERVATIVE, LOW 
RISK investments have averaged well over 20%/annum since then. Many others 
have been as fortunate due to similar reasoning.  Most of us ignore the so 
called "experts".  They make their money from newsletter subscriptions and 
television appearances.

The problem is, as I noted a ways back, as the P/E ratios come back in line, 
and they are coming back in line now, the GROWTH of the market (not just the
DOW) will cool.  At some point there will be a "correction".  If you are a "buy
and hold"er, you will ride out the correction. If you will need money during
the correction, you will suffer a tad.  The most prudent actions you can take
TODAY is to plan your defenses now; decide what your "bail out" criteria is,
decide what you will do with your money when/if you pull out of the market. 
That way, when the time comes, you may act quickly and minimize your losses. 

Will a correction come?  Yes.
When will the correction come?  :-) :-) :-)  And that's where opinions come in.

My only prediction is that there will be a flattening of the growth of the 
overall US market (I consider International markets too risky for my blood; too 
many bannana republics) sometime in mid-to-late 1994.  Likely, it will be 
accompanied by one or two corrections.

Will you be prepared?  You can be, I offer a few suggestions:

* Buy low, sell high.  Buy more when prices are going down.  Sell some when 
  prices are going up.  Buy when the experts are predicting gloom & doom.  Sell 
  when the experts are predicting the second coming of the savior.

* Invest, not trade, in quality (not Digital) stocks and/or Mutual funds.  

* If you cannot pay your bills if all of your investments fail, put the monies 
  back in the bank.

* Diversify.  

* Know up front if you are in for long term or short term and invest 
  accordingly.

* Know up front what level of risk you can stand and invest accordingly.

* Know when to hold'em and know when to fold'em.  And if you don't know, find 
  someone who has consistently done well and pay attention to her/him.

* Stop thinking about your investment monies as $$$$$; look at investing as a 
  game and money as a way of keeping score.  You'll sleep better and actually 
  make more money.

Then again, perhaps a small house on the eastern side of Maui as a winter 
retreat..........

Of course, and as usual, For What It's Worth...

Dave

    
    re: -.1  sounds like good advice
    
    re: -.3  this proves that fundimental analysis...
    
    	sorry, it proves nothing of the kind.  There are no methods of 
    	fundimental analysis that I'm aware of that would indicate that
    	the market as a whole is undervalued.  Any traditional valuation
    	method (again, that I'm aware of) based on fundimental analysis
    	(i.e. based on projections of free cash flow or earnings) would
    	reach the same conclusion as has been reached by analysts who
    	look at other information in addition to fundimental data (e.g.
    	sentiment, yield curve, consumer debt levels, etc.).
    
    	I think that you'll agree that performance over one period 
    	hardly constitutes proof of anything.  If it is indicative of
    	anything at all, it supports the academic community's view that
    	prices follow a geometric Brownian motion distribution, and are
    	not sensitive (or at least not very sensitive) to all the other
    	factors that analysts would like to think are important.  Of
    	course it doesn't prove this point of view either.
    
    btw, academic studies show that:
    
    	�  fundimental analysis does have some information that is useful
    	   in predicting future returns
    	�  price return "momentum" actually seems to exist, and contains
    	   some information that is useful in predicting future returns
    	�  the time series of percent changes in earnings growth is a
    	   random series, so earnings momentum probably doesn't exist.
    	�  the academic model of "Beta" as the single factor that
    	   explains risk vs return doesn't hold up too well empirically,
    	   so even the academic-types can't agree about very fundimental
    	   assumptions about stock prices.
    
    So my conclusion is that none of us should pretend to know very much
    about what moves market prices; be humble about discounting (or
    accepting) anyone elses theory, because the more you know, the more
    you know that you don't know.
    
    ...and by the way, this field attracts a VERY smart and capable crowd,
    so don't assume that the other players are ignorant or have overlooked
    any interesting corner...  or that their interests aren't based on
    good information that you may not know quite as much about.
    
    /jim
     

    re .3
    I agree wholeheartedly with your reasons. Fundamental analysis would
    not explain this at all.  I suspect that this entire rise is led by the 
    DJIA and not the S&P 500.

	Re. .4

	While the DJIA rose nearly 20% in 1993, S&P500 also rose a respectable
	9% or so, with a strong last quarter when there were even more
	gloom and doom stories. With NASDAQ 100 and Composite as well as
	Russell 2000 Small Stock indices all rising substantially in 1993,
	it is clear, at least to me, that the market rise was broad-based
	and not just limited to the 30 industrials. 

Thanks for making the article available.

I think this paragraph either is missing something, or has an overabundance:

>One sad proof is that even
>today, though the market has moved steadily upward fro the longest uninter-
>rupted period since the invention of the abacus, the percentage of U.S. 
>household invested when it climbs, good luck--just because nobody has ever
>actually been able to do this with any consistency throughout human history
>doesn't have to mean that you won't be the first does it?

Reprinted without permission, from Louis Ruckeyser's Wall Street, February 1994.

                  "Buckle Up and Hold On For the Long Ride"
                                                       -Louis Ruckeyser

   One of the reasons many people haven't been making the money they should 
have in a stunning bull market like this is that they persist in asking the 
wrong questions.  They want to know, for example, exactly when the next sell-off 
is coming, and precisely how bad it is going to be.  There are only two 
problems with those recurrent questions:  (1) nobody really knows the answers; 
and (2) the woods are full of charlatans more than willing to pretend that they 
do.  The names of those charlatans change from time to time (after a while, 
people do wise up to perennial error), but there is always a new crop eager to 
claim the discovery of a wonderful new system that enables them, flawlessly and 
super-humanly, to tell you precisely what is going to happen, and when, to 
every market from titanium to tadpoles.
   All this would merely be amusing--a gory diversion from the humdrumness of 
real life here on earth--if it didn't frighten so many innocents away from the
profits that are aching to be made in the stock market.  One sad proof is that
even today, though the market has moved steadily upward for the longest uninter-
rupted period since the invention of the abacus, the percentage of U.S. 
household assets in stocks (including mutual funds) is way below what it was 
three decades ago.  Plainly, the gloomsters can be poisonous when it comes to
a subject on which most people are already naturally jittery.  The fellows 
telling you it's time to cash in and get out will always get more media
attention than the ones whose advice genuinely makes people money.
   But could the market now finally be getting ready for a significant 
"correction"?  Sure it could.  As the inimitable John Templeton points out in
The Rukeyser Interview this month (and as Peter Lynch reminded us a month ago),
bear markets happen--but the wise investor will regard them as buying 
opportunities rather than selling panics.  As for "timing" the market so as to 
be in cash when the market tumbles and fully invested when it climbs, good 
luck--just because nobody has ever actually been able to do this with any 
consistency throughout human history doesn't have to mean that you won't be 
the first does it?
   Or you might prefer to act like a grownup--in which case, the answer, it
seems to me, is simpler (if perhaps less initially arresting).  Certainly it's
OK to lighten up a little bit after a long market run, but don't try to be, as 
the British wryly put it, too clever by half.  Basically, the way most people
are going to make the most money in the next decade is the way most people
have traditionally made the most money in investing:  by finding quality stocks
at reasonable prices and then holding on to them through the hysterical 
fluctuations of the marketplace.
   Lest this just sound like a truism, let me cite a specific, instructive
example that arose in my interview with John Templeton in these pages exactly
one year ago.  Templeton's great knack over more than a half century has been
his ability to find the securities, anywhere in the world, that have been
beaten down by too much pessimism--or, as he likes to put it with characteristic
simplicity, "bargains".  Last February he told us that one of those he had
spotted was National Medical Enterprises.  The stock, then around $10 a share,
was eaten down to $6.50 as the negative news continued--at which point I heard
from a few disgruntled readers who wondered why I thought this Templeton guy
so great.  But those who hung in there have been spectacularly rewarded:  The
stock was recently trading around $15.

When The Price Is Right
   Now, clearly, one abiding lesson of this experience is that successful long-
term investors really do have to practice the patience that Templeton preaches.
But when I reminded John the other day of this remarkable one-year performance,
he wasted no time crowing, but instead voiced and additional lesson worth
remembering:  "The lowest price occurs at the time of maximum pessimism.  With
the price of the stock up, it would not be one of the very best bargains today."
   And so, since I suspect that like myself you are more interested in solid
wealth than spurious wizardry, our emphasis in this newsletter will continue to 
be on what I strongly believe will be the most important single tool in the
1994 financial markets:  careful selectivity in choosing your investments,
rather than idle speculation about short-term oscillations.  For the longer run,
I remain unfashionably convinced that stocks are going to be surprisingly 
rewarding investments over the next decade.  We have many and well-known 
problems, but America and much of the rest of the world are finally getting 
their economic acts together, with greater efficiency and less inflation than 
seemed probable even 10 years ago.  It looks to me like one of the most 
exciting periods in human history, and we'll be doing out darnedest each
month to assure that you keep getting the authentic information you need to be
amoung its biggest winners.

    Templeton's comments might just apply to Digital (DEC) stock right now.