Subj : Market Action To : All From : Paul Rogers Date : Fri Aug 27 2004 06:15 pm

"Every dog has his day."  In several of my writings, here, and on my
website I've suggested that most investing styles have their days in the
sun, and shade.  It happens to investors too.  There will be times when
the economy and the ups and downs in the market are, for a while, in
sync with the investments and one can do no wrong.  But then subtle
changes happen, they get out of sync, and everything one does loses
money.

The major mistake the public reputedly makes in mutual fund selection is
choosing the best performing fund for the past few years.  It's the same
sort of thing.  That generally means the public is buying high, and
selling low when their continued performance fails to meet expectations.

In a normal cycle, for a while growth funds will lead the pack, but
their success will lead to their demise--Magellan's the poster-child.
Money flows to them.  Their managers buy more and more of their favorite
companies, bidding up the price.  Initially that's not such a bad thing;
as prices are running the net asset value of the fund isn't being hit.
But there aren't necessarily enough "first-tier" stocks the managers
prefer to absorb it all.  Unless they were smart enough to close the
fund, they get bloated with good stocks they paid too much for and
stocks they really would rather not have bought.  Then they won't be
such a good deal.  They're starting to show trouble because those
"second-tier" stocks don't perform as well.  Magellan got so big it had
to turn itself into more or less just another Index 500 fund--but
with expenses about three times higher than they should be.

During this time value funds will be undesireable and under-valued.
They're buying stock in good companies that most investors are
neglecting, as they should.  But since investors are neglecting those
stocks in favor of the growth stocks, they aren't getting bid up, and
the fund's net asset value doesn't rise.  When investors get the idea
there are no bargains in the growth stocks, they start looking for, say,
under-valued stocks.  As those are bought and bid up, the value funds
begin "performing".  And on the flip side, the growth stocks which are
no longer investors' darlings are being sold, prices are falling, and
the growth funds net asset value likewise falls.  The value fund
managers problem comes when their stocks become "fully-valued", are
beginning to be sold off to realize their gains, as well as attracting
new money, and there are not so many good under-valued stocks to buy
left in the market.

This is a classic sort of explanation for the ebb and flow of growth and
value funds, which usually run opposite or out-of-phase with each other.
But a few years ago the Bear funds that shorted the market had their day
in the sun.  They all have their day.  But sometimes it can be many days
between.  We have to "go with the flow".  The key word there is "with",
not behind, as most of the public is.

My point is we need to be smarter as mutual fund investors than most of
the public in our selection process.  Rather than looking at the past,
we need to be looking forward.  We need a clear picture of the current
state of affairs, and reasonable projections for the economic and market
environment our investments of the present will experience in the
future--that should make our choices much easier.  We will certainly be
wrong to some extent, so we need to have plans for evaluating our
decisions and making mid-course corrections.

Personally, in the forseeable future I think we can dismiss the
likelihood of Bull markets like we saw from 1992-2000, or the over-sold
rebound of 2003, or the 2000-2002 Bear market.  This year has been a
tough one.  It seems likely to me the future will be difficult also.
Interest rates will be rising, that's one reason, but it makes bond
funds unattractive.  Maybe a conservative blend of growth and value
funds, but no bloated funds--I don't want the managers to be forced into
a corner.  Perhaps it's time for funds going for dividends to have their
day.  Maybe we should go further back in history for inspirational
patterns?

As far as today's market action, I had to double check the numbers.
Volume was down -33% below average!  That gets my attention, and it
makes me wonder what's going on.  Since this isn't a holiday, or has
some other reasonable explanation, the fact that prices were up a little
is irrelevant.  The last time volume was this low was the day after
Christmas!  "I've got a bad feeling about this."

 Price     Vola-     Momen-    Volume    Oscil-    Summ.
 Change    tility    tum                 lator     Index
  -__+     -__+      -__+      -__+      -__+      -__+

 _>__      _|__      _|__      |___      __|_      __>_     08/23
 __|_      _|__      __|_      _|__      __|_      __>_     08/24
 __>_      __|_      __|_      _<__      __|_      ___>     08/25
 __>_      __>_      __|_      <___      __|_      ___>     08/26
 __>_      __>_      __|_      <___      ___>      ___>     08/27

Timing Signals:  I don't use or recommend timing signals, but they're
fun to watch.  If I did though, well, I might use something like this.
(Be warned!!  It tends to whipsaw around signal points!)

Last Signal: BUY        Date:  08/24/04 S&P:    1096
Winner or Loser:  tbd                   By:     tbd

See my market tracking charts for '02-'03 and my investment strategy
study at my website(s):
http://www.xprt.net/~pgrogers/Pers.html
http://www.angelfire.com/or/paulrogers/Pers.html
http://www.geocities.com/paulgrogers/Pers.html
Paul Rogers, paulgrogers@yahoo.com -o) http://www.angelfire.com/or/paulrogers /\\ Rogers' Second Law: Everything you do communicates. _\_V .... Rogers' Third Law: There's no such thing as teaching, only learning. ___ MultiMail/MS-DOS v0.35 --- * Origin: The Bare Bones BBS (1:105/360) .