Cents and Sensibility - Kimberly and Friends' Consortium Message Board

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Strategies & Market Trends : Cents and Sensibility - Kimberly and Friends' Consortium

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To: ciVic who wrote (95878)	4/14/2000 4:47:00 AM
From: UnBelievable	of 108040

I don't think that we have to resort to conspiracy theories to explain recent market fluctuations. The fact is that some people who thought that gains of 100% per year were achievable without accepting significant risk are coming to understand that it is not the case. Some of these new companies, with their unproven technologies and untested value propositions will be incredibly successful, and provide stockholders with the type of gains that everyone dreams of. Most will not. The stock valuations that we have been seeing just reflect this fact. An investor holding a carefully researched diversified portfolio of these high risk/high opportunity stocks will receive a good return. This return will not be a great as the current price of any one stock might imply but rather will be the result of one or two of the companies actually being "the next MSFT" and providing a return that even when diluted by the failure of most of their other holdings will result in the investor earning an appropriate risk adjusted rate of return. Many people did not understand this and now that some of the poorer performing companies, of which there are, and will be, many more than super performers, are beginning to become identifiable, people are getting uncomfortable. Selling on fear and rumor is as imprudent as buying on greed and rumor. Continual review and reallocation is prudent, and in the process additional feebler ventures will be shaken out. More people who did not understand the way in which a diverse portfolio of speculative stocks ultimately provides superior returns will panic and act in ways that further diminish the efficiency of their investment strategy. It is not the MM's or Big Investment Bankers that are causing this, even if they do position themselves to benefit from it when it occurs. The vast majority of investors who seek to maximize their profit through highly leveraged investments in a small handful of companies will not be financially successful. While small in number, a few people will actually win big with this approach. Someone does win the lottery. I believe that we are in a time where it will be possible to achieve superior investment returns to those that have been historically achievable. But I don't think you are being realistic if you are assuming that every one of your holdings is going to provide the returns that were suggested by their average growth over the last year. Unless you are inclined to play the lottery it probably is prudent to realize that a well chosen portfolio will do very well, but 100% investment return is not achievable without assuming tremendous risk, recognize that the way in which those superior returns will be provided is by some of the investments not doing very well at all and some doing incredibly well, and understand that neither blind faith nor panic selling will enable you to realize the potential of any portfolio - regardless of the degree of risk which you may be willing to assume.

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