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Strategies & Market Trends : A.I.M Users Group Bulletin Board

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To: Linda Kaplan who wrote (4114)	2/8/1998 6:09:00 PM
From: OldAIMGuy	of 18928

Review: "The Secret Storm" by Peter L. Bernstein. Article in Worth Magazine, March 1998 When I read articles like this one I realize just how timely Mr. Lichello's work is for us today. Mr. Bernstein states that "More "insured" stocks mean more volatile - and less scrutable - market corrections. But that may not be such a bad thing." He compares portfolio insurance to traditional insurances one would buy. When we buy insurance, we expect the ins. company to pay off by using reserves from everyone else's premiums. Not so with portf. insurance. It's expected that other investors will come up with all the money necessary to support a price dive. Next, it is obvious that only during times of great natural tragedy will ALL the insured need payment all at once. This isn't usually the case with most insurance classes. But, what about the market? All portf. insurance programs kick in at about the same time. How can there be enough general liquidity to absorb all the shares that are being sold all at once? Finally, insurance is usually a calculated risk of loss ofset by predetermined income. How can an individual investor or the many insured portfolios calculate just what the worst case sell-off might look like? He states that forced selling programs actually might be good for the market. Sighting examples from history he shows that these panic selling periods have usually been followed by pretty good bull market periods. They have been brutal and will continue to be so, but they are over quickly. He ends with "They (market spasms) are buying opportunities, not reasons to run for cover." We AIMers usually have surplus Buying Power in our cash reserves. It is exactly why we sleep so much better than other classes of investors! It is also why, when we stick to our guns and take AIM, we usually bag some great trophies! I'm still waiting for the next really LOW RISK market. I've seen two since starting as a full time investor - late 1987 and late 1990. Let's all give a cheer for the Portfolio Insurance folks. They are giving us the chance to make more with the volatility they create!! Best regards, Tom

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