A NP search on word BIRCH:
nationalpost.com
Saturday, August 28, 1999
The case for market timing
Many fund managers go short term despite long-term hype
Jonathan Chevreau
Financial Post
Market timing generally gets a bad rap with financial advisors and mutual fund salespeople. In theory, the pot of gold at the end of the market-timing rainbow is found by selling stocks or equity funds near a market top, remaining in cash in a bear market and reinvesting the cash in stocks and equity funds at the end of the bear market, before the next bull roars.
In the real world, this is impossible, many investment professionals insist. That's because market timing requires getting two decisions right: when to get out of the market and when to get back in again.
But once a bear market actually sets in, it can be a disaster to ride it to the bottom. The case for market timing is made in a just published book called Timing the Stock Market: When to Buy, Sell, and Sell Short, by Colin Alexander (New York: McGraw Hill, 1999)
Mr. Alexander is publisher of The Five Star Bulletin, an advisory service for futures traders, as well as Stocktimer, a service for buying stocks and selling stocks short. He is critical of mutual funds and devotes two chapters to showing where they fail and what risks they pose to investors.
Mr. Alexander says many fund managers do not practise what they preach. They advise unitholders to invest for the long term but, on average, a fund turns over almost its entire portfolio every year. However, that hasn't always been the case. In 1977, annual portfolio turnover for U.S. mutual funds was only 30%, compared to almost 100% in 1997.
Thus, many fund managers would be more accurately described as traders rather than investors, Mr. Alexander observes. What's more, funds "have an almost infallible record of being fully invested at market tops," he says. Anyone check the cash levels in their funds lately?
When pressed, fund managers argue "it is not their job to avoid bear markets," Mr. Alexander says. As Andy Sarlos wrote in Fear, Greed and the End of the Rainbow (Toronto: Key Porter 1997), funds are in effect stock-buying machines. When you buy an equity fund, the managers are committed to staying in the stock market on your behalf. They may hold their nose when buying today's high-priced wares -- but buy they must. In Canada, mutual funds are not permitted to short-sell.
The result, Mr. Alexander says, is funds' stock purchases "extend market highs beyond where they otherwise might stop. Instead of selling at market tops and buying at market bottoms, fund managers almost invariably do the opposite. The standard pattern is that funds, fully invested at the top of the market, then ride stocks to the bottom of a bear market. As a result, they never have money to buy when stocks are really down."
The author's conclusion is that, if you wish to take the challenge of market timing, you're going to have to do it yourself.
He outlines the risk of buying at market tops and outlines why it is necessary to avoid bear markets. "Market tops occur when there is maximum enthusiasm. Then there is no fear, and people expect the bull market to continue to infinity."
Sound a bit like this year?
Just how important it is to avoid bear markets is outlined in the accompanying chart: The classic 89% peak-to-trough decline in 1929 took investors 26 years to recover from losses. In 1973, a 45% decline took 10 years to recover losses. The 1987 crash was relatively benign; it took just two years to recover from a 42% drop
"If it is important to own rising stocks in a rising market, it is imperative to own few stocks or none in an established bear market," Mr. Alexander says. "Ninety percent of all stocks go down in a general bear market."
He is not specific about when he thinks the current mania -- which he calls the biggest bull market of all time -- may end, although he seems to suggest it will be soon. "Curiously, perhaps, the extremes at the bull market tops in 1929, 1972 and 1987 came nowhere close to those in the late 1990s."
Mr. Alexander spends a lot of time on value and fundamental analysis, as well as growth and technical analysis. The best value during the 20th century was available in 1932, when the dividend yield was a rich 9% and price/book ratio was 0.35. The Dow Jones industrial average stood at 41.
Compare that to Japan's Tokyo Stock Exchange (first section) at the 1989 top, when the dividend yield was just 0.5 and the price/book was 5.6. As of June, 1997, when the Dow was at 8222, the dividend yield was 1.6 and price/book 6.4. At 11,300, the Dow is more than 25% higher.
Mr. Alexander reminds us, however, that a bull market dies hard: "Stocks that have been rising strongly for a long time seldom turn down sharply unless they have been driven to absurd heights in a speculative frenzy or there is some unforeseen cataclysmic occurrence affecting the company or the economy."
Might he be referring to the speculative frenzy of the credit bubble fuelled by U.S. Federal Reserve chairman Alan Greenspan? Did I hear someone say bubble.com?
But overvalued markets tend to get even more overvalued -- unless of course, there is an "unforeseen cataclysmic occurrence."
Mr. Alexander does not venture to say what such an occurrence might be. For that, it's worth looking at the recently published Crisis Investing for the Year 2000 (New Jersey: Birch Lane Press, 1999). Co-authors Jay Kuo and Edward Dua are principals with San Francisco-based Third Millennium Advisors. They make no bones about what the impending cataclysm might be: It's the Y2K computer crash.
Like Mr. Alexander, Mr. Kuo and Mr. Dua devote considerable space to short-selling techniques, put options and similar ways of profiting from an impending bear market. They see more opportunity in shorting particular sectors of the economy, rather than the market as a whole.
Thus, they come down hard on the three main points of the so-called Iron Triangle: banking, telecommunications and utilities. If one of them fails due to Y2K problems, the others also fail. But they are even more negative about the Y2K prospects of airlines and health care. And they name names, including some well-known Canadian stocks.
Mr. Kuo and Mr. Dua also view most of the world outside North America as being at significant risk to Y2K. They view Asia and especially Japan and China as at especially high risk, and they are not very upbeat about Latin America, Russia and Europe.
They believe the Fed will favour lower interest rates to maintain market liquidity through any new year crisis. "The stock market may be in for a sharp downward move in the latter part of 1999 or early 2000 given the looming Y2K crisis. Risk-averse investors in particular should steer far clear of stocks." For others, they say a zero to 20% equity position may be appropriate, depending on risk tolerance.
"There will be plenty of people out there, many with vested interests in a continued bull market, who will hasten to tell investors that the Y2K bug is a bust and that markets have nothing to fear. They could be right. We happen to think, based on our research, that they are dead wrong."
It pays to avoid bear markets
Years
Peak year % decline to recover
1890ÊÊÊÊÊ ÊÊÊÊÊÊÊ64 ÊÊÊÊÊÊÊÊ15
1906ÊÊÊÊÊ ÊÊÊÊÊÊÊ64 ÊÊÊÊÊÊÊÊ10
1916ÊÊÊÊÊ ÊÊÊÊÊÊÊ56 ÊÊÊÊÊÊÊÊÊ9
1929ÊÊÊÊÊ ÊÊÊÊÊÊÊ89 ÊÊÊÊÊÊÊÊ26
1966ÊÊÊÊÊ ÊÊÊÊÊÊÊ38 ÊÊÊÊÊÊÊÊÊ7
1973ÊÊÊÊÊ ÊÊÊÊÊÊÊ45 ÊÊÊÊÊÊÊÊ10
1987ÊÊÊÊÊ ÊÊÊÊÊÊÊ42 ÊÊÊÊÊÊÊÊÊ2
AverageÊÊ ÊÊÊÊÊÊÊ57 ÊÊÊÊÊÊÊÊ11
Source: Timing the Stock
Market by Colin Alexander
Jonathan Chevreau can be reached by e-mail at jchevreau@nationalpost.com
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Jonathan Chevreau can be reached by e-mail at jchevreau@nationalpost.com
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Chucka- I thinkIwillEMailHim,LOL.Timing can't be done I do agree, but look:
quote.bloomberg.com
Charts of Land Guys in Alberta:
chart.canada-stockwatch.com
divide friday price hi of $1.42 into top at $1.79 and get a recovery of .79%
chart.canada-stockwatch.com
divide friday price hi of $0.33 into top at $0.17 and get a recovery of .51%
chart.canada-stockwatch.com
divide friday price hi of $0.28 into top at $1.62 and get a recovery of .17%
chart.canada-stockwatch.com
divide friday price hi of $0.16 into top at $0.58 and get a recovery of .29%
chart.canada-stockwatch.com
divide friday price hi of $0.175 into top at $0.26 and get a recovery of .67%
chart.canada-stockwatch.com
divide friday price hi of $0.04 into top at $0.235 and get a recovery of .67%
chart.canada-stockwatch.com
divide friday price hi of $0.30 into top at $0.75 and get a recovery of .40%
chart.canada-stockwatch.com
divide friday price hi of $0.15 into top at $0.51 and get a recovery of .29%
chart.canada-stockwatch.com
divide friday price hi of $0.19 into top at $0.45 and get a recovery of .42%
NEW Claymore ( I don't know if that is ALTA Lands)- NCS Fri hi .17
and year high was .87 on that clay wash news announcement so divide by each and .195 is the recovery percent related FRIDAY to the years' HIGH STOCK PRICE...VOILA, Fini....Oh Canada...Nice Age of Geology!!!
There are other Alberta Devonian Age Players but I thought that the time was well worth this excercise as the age is 350 million years old stuff and goodies of metals are probably all overthere in it as the SEMs are proving and the Diamondificious INDICATING ( Chromites and Others )metals are trending toward. Pipes have to be atleast 80 million years old in hopes to getr diamonds and there are in Alberta as shown, down in the Great Basin of the great Southwest in NV and AZ that I studdied they are two ages, The Laramide Age at 66 Million Years and the Younger ones at 15 Million Years in the volcanics; mostly but some Paleozeoic Age old stuff is there with Dolomites! It seems to me that the stakers of Alberta are on to something and it is less complex than younder age geology and hopefully the clays can be washed away to yield some goodies beitall in diamonds or in metals.
ChuckaEonsErasandTIME
P.S.- New Claymore...was that the Clay Wash System Company: NCS
And they are DROPPING PERMITS...I think I might ask them some questions?
RE:
Canada Stockwatch
Shortcuts Menu Symbols Bulletins Company Participant Insiders AccountStatus NewWindow
New Claymore Resources Ltd -
New Claymore Buffalo Head progress
New Claymore Resources Ltd NCS
Shares issued 4,165,775 1999-08-06 close $0.14
Wednesday Aug 11 1999
Mr. Anthony Rich reports
New Claymore Resources has filed assessment work of $3.5-million on its Alberta diamond permits in the Buffalo Head area. Due to the large exploration expenditures made on the company's lands, a significant number of permits will be maintained for a further two years, with areas of particular interest retained for four years. A total of 1.5 million acres will be maintained until 2001 and 180,000 acres until 2003. Currently, New Claymore's holdings at Buffalo Head total 2.7 million acres. The company's total Alberta holdings are presently 4.7 million acres. A map showing current Buffalo Head lands is presently being updated on the company's Web site.
Exploration is still proceeding on two diamond prospects in Alberta which New Claymore has optioned to other companies. On the Varlaam prospect at Calling Lake, Buffalo Diamonds has recovered significant quantities of subangular to angular pyrope garnets, including G10s, from two separate stretches of the Calling Lake shoreline. An airborne magnetic survey is nearing completion in preparation for a follow-up drill program this coming winter. The quantity and chemistry of diamond indicators recovered from surface sampling to date would suggest that there is excellent potential for the discovery of diamond-bearing kimberlite on the Varlaam property.
On the adjacent Calling Lake prospect, Abaddon Resources has completed an airborne magnetic survey and has also performed sampling for indicator minerals. On the company's 100-per-cent owned lands, a limited program of exploration will be carried out this summer.
Examination of sections of the core from the Cox prospect, which was drilled in March of this year, has yielded no indicator minerals of interest. New Claymore has expended $80,000 on this property and has the option to earn 50-per-cent interest in the Cox prospect by expending $130,000 by Dec. 31, 1999. No further work is planned at this time.
On the company's wholly owned placer claims in Yukon, mining is proceeding under lease this summer on two creeks. This year the company expects to receive $25,000 to $30,000 in royalties from these operations. As demand and prices for metals are presently very weak, the company has expanded its search to include other business opportunities unrelated to mineral exploration. At present there are no arrangements, proposals or negotiations to acquire any interests of this nature.
canada-stockwatch.com
P.P.S.-Again, I stress that my main play in investing is Birch Mountain. BHMNF : OTC BB and BMD : ASE as they trade on both symbols on both exchanges! |
