We would like to be able to give you the reassurance that all of the bad news for mutual funds investors is behind us.
We would like to but we can't.
No one person can ever continually accurately predict over the short term where the stock market is headed. No one.
Of course, some experts will turn out to have made an accurate call six months from now. But since there are only 2 basic possibilities, up or down, by chance alone, 50% of the predictions will turn out correct.
So as much as we'd like to able to give you the answer as to whether your current investing program will start to bear fruit soon, or take you further down, we can't. There is simply too much uncertainty and too much contradictory evidence to basis a strong judgment on.
However, we personally feel far more confident investing at these more reasonable levels of the stock market than we did throughout all of 2000.
So instead, we offer the following information to try to reassure you that mutual fund investing does not have to be akin to throwing your money into a dark hole. Good advice has and is available to those willing to use it.
The table below shows the levels of the key stock indexes at the beginning of last year and early this year and quotes from what we said in our Newsletters at that time:
Note: The current level of the key indexes as of this writing (04/15/01) is:
DJIA: 10,127,
Nasdaq: 1,961,
S&P500:1,184
Date | Where Key Indexes Were on that Date | What We Said |
|---|---|---|
| DJIA:11,497 | "...I do think that today's already lofty stock prices argue against taking a super-aggressive position at this juncture." | |
1/16/00 | DJIA:11,723 | Although it makes good sense maintain a core of stock holdings, this does not mean however that people should continue to blindly throw new money at stocks right now nor that, going forward, they should necessarily continue to maintain their current portfolio holdings with the same fixed percentage of stocks as previously ..." |
DJIA: 10,561 | "...even when investors are highly confident, as they are now, ... the longer-term outlook may wind up bearing little or no relationship to their high expectations." | |
| 4/16/00 (Exactly one year ago!) | DJIA: 10,306 | "Investing in "Hot" Funds Appears DEAD for Now
As investors sailed through the recent period of almost constantly rising stock prices, many did fairly well by just following the flow of money into the latest "hot" fund. However, we believe that for this economic cycle at least, the easy money has been made. I think we are ALL going to have to work harder now that an ever-continuing bull market is no longer going to just keep handing us money. It is during the more trying periods for the markets, when the previous high fliers no longer rule the roost that a truer test of investor success will occur. Specifically, it will be interesting to see how the average investor who spends little time examining the overriding fundamentals does, as compared to investors who follow our type of approach which makes use of the data provided by an analysis of economic trends as well as the psychology of investment behavior. We have been suggesting in our newsletters for quite some time that people need to be investigating categories of funds that may not have performed so well in the recent past, but due to good fundamentals, appear to be good alternatives to the now "former high fliers" for at least some of your investment assets. (How many people acted upon what we suggested is hard to know.) But it now appears that some of these oft maligned categories of funds are coming out on their own, either outperforming the former high fliers or at least helping to balance an otherwise volatile portfolio. ...although we feel that the technology/NASDAQ area will recover too, we think the long period of overperformance of these stocks is definitely over for now and that, in the foreseeable future, these investments will perform on a below par level, or at best, on an equal level with the S&P 500." |
5/14/00 | DJIA: 10,609 | "...we feel that all stock investors should be ready to consider the possibility of taking a little off the table...." |
7/30/00 | DJIA: 10,511 | "...we continue to advocate a somewhat cautious stance, especially for those individuals who insist on holding the kind of aggressive position that worked so well in the last few years, but may not be the best portfolio for today's somewhat changed environment." |
| 10/15/00
(6 months ago) | DJIA: 10,192 | Like it or not, the name of the game right now is trying to hold on to what you've got, trying not to lose as much as some people are losing who continue to feel that the markets will always keep rewarding the investor who takes a highly aggressive and unswervingly confident approach. We, on the other hand, feel that continuing caution is in order. We advise our readers to move to more aggressive investments only after these investments have gone down further or after (most likely months after) the Federal Reserve has begun to cut interest rates. That will most likely be a while in coming." |
DJIA: 10708 | ..."Is this a Great Time to Be Buying?"...we suspect that the answer to this [is] probably not. This is because we suspect that the economy may slow more than most people expect with the result of reduced profitability at the majority of companies." | |
DJIA: 10,525 | "...investment trends tend not to be a series of short-term "jiggles" that completely reverse themselves erratically from one month to the next. Rather, such trends, once established can continue far longer than most people expect. Therefore, although most people, for example, seem to have expected that the current stock market correction would just pass fairly quickly, we now see that it has been with us for 10 long months. Although we seldom make short-term predictions on the direction of the market as a whole, and we are not doing so now, it is still possible that the correction will continue for many more months as well. ..."Rates have been falling and the Fed has started to become friendly. While this is good, there many other pieces of economic data that must be weighed as well, such as falling corporate profits, lower consumer confidence, and the potential for higher unemployment. We will be watching these and other statistics over the coming months before becoming more positive on the overall market and given areas within the broader market." |
We stated these misgivings about the level of the stock market, and aggressive investments in particular, for anyone who cared to listen.
But disappointingly, we didn't get the feeling that too many people were. Our Newsletter did grow a little last year, but since then has gone down a little in popularity along with many investors' apparent overall interest in the market.
We are not publishing these Newsletters to make a profit, so our circulation "hard times" do not threaten anyone's livelihood. And in fact, since our own recommendations in these Newsletters have held up fairly well, offsetting some of the poorer performing mainstays, our portfolio is only down by a few percent in contrast to the huge gains we made in 1999. (For '99, the average stock fund in our portfolio increased in value by 34.5% which compared to the average diversified stock fund return of 26% and 19.5% for the S&P 500.)
We hope that all investors will start doing better in the months and years ahead, and we would like to help with your achieving that if at all possible. But we can only do so if it makes sense to continue use the Internet to publish our ideas instead of looking elsewhere, including more traditional, non-free, ways of giving investment advice.
We have added a "Reader Forum" to our Web site to encourage you to interact with us on issues that are meaningful to you. Take a look and feel free to tell us and your fellow readers what is on your mind. You can also help by telling others about our service.
Tom Madell, Ph.D.
