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Strategies & Market Trends : Stock Attack II - A Complete Analysis
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To: LTK007 who wrote (38169)7/20/2002 2:58:38 PM
From: Jack T. Pearson  Read Replies (1) of 52237
 
It is human nature to look for a magic bullet--the universal problem solver. Everyone is telling me the market will go down on monday in response panic by stupid small investors who always buy at the top and sell at the bottom and then reverse as the pros cover their shorts. I am told that will mark the bottom and a new bull market will begin. That is the conventional wisdom. Sometimes conventional wisdom is right. Conventional wisdom has recognized "the bottom" every week for the last couple of months. Sooner or later, a prediction of the bottom will be correct. But I think you would be better off with a broken watch. A broken watch is correct twice a day.

1. Most retail investors have been very badly hurt. Their children's college funds are gone. Many are rapidly accumulating debt, trying to maintain their standard of living or fund college for their children. Comfortably retired people have been pushed close to or into poverty. Many who were planning to retire soon now fear they will have to work for the rest of their lives. These people won't have much appetite for throwing money into a recovery. Very few of them will trust the advisors who told them to buy and hold 30% to 70% ago and who have been telling them all year, "Buy, because things can't get much worse, and you can't go wrong buying good companies."

Of course, institutional money managers probably control 70% of the market. I'm sure they will convert most of their cash and bond holdings into equity holdings as soon as they believe the market has bottomed. Fund redemptions, the falling dollar, lack of confidence in corporate reporting, and the difficulty in comparing corporate revenues and sales as reporting standards change won't have any impact on institutional money managers. Or will they.

Bottom line: We aren't in Kansas anymore, Toto.
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