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February 19, 1999

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Subject: Re: a SPLITting headache
Author: horacekgl

All joking aside. The "a split is no big deal/it's great" debate is a tip-off about how the stock market works that people just don't get.

Analysts (technical or otherwise), some value investors (it's a great company but the p/e is too high), etc don't have a clue as to how the market works, particularly duing the current bull run. It's all emotion folks. We perceive that the stock market is going up, we invest all we can, and it is going to go up. And it will continue to go up until we lose confidence in it. Bollinger bands, moving averages, mathematical models etc are for predicting events that move because of natural laws, events that are based in cause and effect relationships. The stock market is not one of these; there is no cause and effect, scientific basis for its movements, particularly in the '90's.

"It's all emotion folks. We perceive that the stock market is going up, we invest all we can, and it is going to go up. And it will continue to go up until we lose confidence in it."

So what do you do. You pick good stocks that share in the rallies and yet will be the first to bounce back from the downs. Cisco is one of these. So is MSFT, Dell, LU, Intc, AOL just to name a few. If you like a little more security (like me), you also buy the Dow Dogs because they don't enjoy the "favor" of all those emotional investors right now, but historically have rallied when the emotional (momentum) investors get burned and look for value as a safe haven. KO, MRK, PFE, G, GE fall in here too; they will go up over the long run, but may run flat for years until the value investors "find" them again. Obviously, it's not easy to do this (pick winners). And there are things that play in that aren't emotional like tax season selling, dressing up the portfolio by fund managers, etc. But my point is, unless you recognize what's going on around you with the momentum players, the shorts, the newbies that have only seen a bull market, etc, you're going to get caught with your pants down and wonder what happened.

So rant and rave about idiots who can't wait for a split and get really excited about it all you want. Just remember there are more of them than there are of you. Understand what's going on and you'll be a more relaxed, tolerant investor. And, no you can't "educate them" until they are ready to hear.

Relaxed and fully invested in the above and more,
glh

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