Re: responses to Mark Hulbert's NY Times article on indexes.
Wow, don't know where to begin.
As for your question, Michael, on how Hulbert arrived at his number (decline of less than 1% for the average stock), he explains how he arrived at it:
The Value Line Arithmetic Index of some 1,700 widely
traded stocks has an upward bias -- it rose 0.4 percent at the same time the Nasdaq was plunging 34 percent. Its sister benchmark, the Value Line Geometric Index, makes use of logarithms in its calculations, which gives the index a downward bias. It fell 1.6 percent over the same period. I simply split the difference to arrive at my estimate of a loss of just 0.6 percent for the average stock....
I used my own portfolio to check out his hypothesis. Not a very scientific test, I will admit, but still it suggests that an average does not tell you how the average stock performed. If my portfolio is at all typical of the universe out there, then I would suggest that some stocks went way up, others went way down, and they pretty much cancelled each other out, giving us that misleading -1% "average."
Let me share some of what I found out, because it surprised even me, and because I think it's instructive (I could be wrong about that one). I had ten stocks in my portfolio of individual stocks (let's forget the mutual funds for now --ugh!). What happened to them between March 10th and April 14th?
I had only one internet stock: Network Solutions (NSOL). It's a darned good thing I sold half of my position in NSOL when it was at its height, because it fell by 56%. Brokerage firm SWS was also down by a goodly percentage - 38%.
My three tech stocks -- EMC, SCI, and CPQ -- fell by smaller percentages, by 15%, 12%, and 14%, respectively.
However, all the non-tech and non-net-related stocks (with the exception of poor old Abercrombie & Fitch, which has inexplicably been getting beat up in any kind of market)went up, several by very impressive margins. The leader was a furniture company (STLY), up 39% during this period; then CVR, an obscure little nuts,bolts & rivets maker (up 15%); next CLB, an oil service stock (+10%); and finally Schering-Plough (+9%).
Not one stock held steady, as would follow from the Hulbert scenario.
What is also interesting is what has happened to these same stocks since April 14.
NSOL whing-whangs around a lot, but has not regained that much ground. (It's p/e is too high, IMO, for it ever to hit previous highs again.)
SWS (the brokerage) is now only 15% below its March 10 level.
As for the big techs, they have not only rebounded, but have bounded above their March 10 price levels. SCI, in particular, commands a price 10% higher than it did on March 10.
As for the non-tech non-net stocks -- again, with the exception of ANF, which has crawled even further into the doghouse -- they have held their ground, even posting slight gains.
So, if I wanted to generalize about the market as a whole from this very small sample, I would have to agree with Hulbert, that there has not been a real 'market' correction, but rather a sector correction. And even then,some companies within the technology sector (witness SCI and EMC) bounced right out of the hole, apparently none the worse for wear. They could get sucked in again, of course, but I guess the moral might be to hold a more diversified portfolio. There is more out there than boring REITs, fuddy-duddy utilities, and (yawn!) bonds.
Any further thoughts? Comments? Violent disagreements? (Actually, I like the last-named best.)
jbe |
