Post of the Day
April 17, 2000

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l'union fait la force

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Subject:  Re: Largest Drops in NASDAQ
Author:  Paytient

A little bit of history for the young among us. Excluding the past five years, in other words, from 1995 back to 1925, there have been 17 major corrections in markets defined as a pullback of more than 15%. The average length of the recovery was 15 months.

Given the change in information availability and the wide spread mutual fund holdings, and the knowledge base of today's individual investors (education made possible by your commissions), we may not have to wait the full 15 months this time, but the next recovery is going to take a bit longer than the ones we have experienced in the past five years, maybe�(notice the liberal use of escape clauses learned from popular financial media)

One of the most prevalent mistakes of the individual investor in the above mentioned time frame has been selling their holdings at the bottom of these cycles, holding cash until the headlines and popular sentiment restores comfort levels in stocks, and then re-entering the equity markets. The problem with this methodology has been that these re-entry points occur after major recovering advances in averages (the source of such reinstated popular optimism). The truth is that by looking at the cycles the re-entry points are two thirds up the next bull wave. The bull bubble then grows the last third before falling off the next cliff. The inexperienced investor only rode one third the rise before being taken down again. No wonder they get turned off to owning "risky"equities.

Much of the above scenario has changed to a very high degree. Today it's the individual investor who has been programmed into LTBH, which they have been doing, and the "smarter"pro's are the ones "timing" the market. I would venture an opinion the vast majority of the selling done this month has been by institutional money managers, many hedge funds, and margin calls. Individual mutual fund outflows have been very low, at least from the verbal announcements by major fund companies. Numbers are scarce at this point.

All of this may sound simplistic, but it bears saying. Money WILL flow back into equities, it's just the timing that is at question now. The cash really doesn't have any other place to go. The money management business has become so competitive that sitting in cash for any length of period is not an option. The bond markets fear another rise in rates, and limited $$ will flow into fixed income. Again, it will be quality well known names that will be bought first, even if their valuations are steep( it's emotions dummy, not economics) followed by the second and third tier firms. Believe me, it is these managers who move the markets and will be responsible for the rate of recovery, regardless of what you personally think of them. Inflation resistant names will be the names thrown around by the talking heads over the next few weeks.

Of course if your letting finance journalists (Jubak, Cramer, CNBC's soap operetta, The Street.com, the current hot one Light Reading et all) run your portfolio, your in for making the same mistake noted above. Their agendas are radically different from making money for your portfolio, never lose sight of this simple fact. I'm amazed at home many investors fail to recognize this. There is a tremendous amount of comfort in traveling the same path as your peers and friends. Emotionally it satisfies our STRONG taught need to turn chaos into order. They make a heap of money knowing this fact. You know what their arch rival is? Knowledge!!! Knowledge builds conviction, conviction reinforces decisions regardless of their popularity. Learn how to make a decision, even if it's not the popular one. Like most things in life, you will get a lot of them wrong, but it's the only way you will learn. Ask any wealthy long-term investor and they will tell you they make money by doing what the crowd doesn't.

Wait�I have a solution. I think there should be a national 1-800-THE-ANSWER phone number (paid for by the WTO and the World Bank) that one should be able to call to get all their "what'st a gunna happen" investing and market direction questions answered. There should probably be the same service for other universal mysteries, such as "how women think", or why ordinarily kind people would tear, rip and claw their way across the top of each other to get their favorite toy or fashion clothing at cost pricing in a liquidation sale, but ignore the greatest companies on the planet, many with dozens of decades of business history and solid earnings when they are being offered on sale at half their historical valuation.

Many research firms are going to be working overtime for the next few months. I'm not blessing the "Wise" here, but don't be afraid to use their work as a starting point to do your own DD. There is so much of the results of good, honest, competent, hard work available out here, some free, but a lot available for a small fee. It is money well spent for a bit of comfort in knowing WHAT you own and WHY. Be wary of research provided by firms with a banking relationship to the firm. By law this relationship must be disclosed in the research report. It's usually on the last page in 6 point font. Throw the report away, immediately.

The work done on this board is excellent and I admire the level of knowledge, dedication, and kindness found here. I may not agree with every holding we have or agree we paid a reasonable price for some of the growth we expected, but the spirit of the hunt has been first class. I am learning much!

Remember at times like these Mr. Market waltzes ALL companies, good and bad, out back and lines them against the wall and indiscriminately and mercilessly shoots the lot. Only knowledge, not emotion, a hunch, a gut feeling, a journalist, an unknown face posting here (me), an opinion by a popular poster will guide you to pick up the right wounded bloody survivors and watch them regain their health. But they are laying there with the rest of the lot. As Doug would put it, they don't have "Hi, I'm an Opportunity" pinned to their lapel.

I can't help but throw my .02 cents in though, I know QCOM has such a pin on its lapel, but go find that out for yourself.

Remember a clich� popularized by an old redneck sergeant on Hill Street Blues:

"BE CAREFUL OUT THERE"!!

Curmudgeon At Large,

Robert

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