Mohan, from an old dog to an old dog, FWIW. Still waiting for the herd to do their thing -- stampede. What are the probabilities that it will happen today?
I'll greatly appreciate your sounding the alarm when those big fellas are coming to town.<VBG>
Beni Mick Mormony
It's stocks, not markets
By Laszlo Birinyi Jr.
AS WE ALL KNOW, the stock market is a continual battle between the bulls and the bears. Lately it seems more violent than normal, and it seems as if the bears have the upper hand. But that spectacle should be of only casual interest to the investor. There are issues more critical than where the market is heading. Money is made in stocks, not in markets. For the greatest majority of us, the critical issue is not what the market is doing but how our stocks are performing.
The interns from a variety of colleges and business schools who worked with my firm this summer were taught the company's motto, which is: Predicting rain doesn't count; building arks does. While predictions on the market abound, I find precious few investment ideas in them. If a strategist's negative outlook includes a recommendation to short IBM, I would put more credibility in it than if he simply predicted that the market will fall 10%. So it falls 10%. What are you supposed to do about it?
Many of today's predictions and outlooks appear to have no disciplined, detailed approach. The greater majority of commentary seems to begin with a conclusion and then find supporting evidence. This has always been one of my concerns about technical approaches, which can encompass charts, monetary indicators, sentiment, economics or whatever. Too often, the sage simply mines the data to support a conclusion already arrived at.
Today, for example, I recognize that the advance/decline line is faltering, and technicians have noted the lack of breadth. But in 1997 the A/D line for the Nasdaq market ended the year at -15,000, but that market ended the year up over 20%.
An index fund bought huge amounts of stock late on Aug. 5. This buy program took the market up 150 points in 15 minutes.
So I am skeptical when an analyst is bullish one day but bearish a week or two later. That is troubling because no indicators or approaches turn so quickly or change that dramatically. It brings into question how much discipline was really involved in the process. Or if there was any involved at all.
In times of turmoil, the media often add to the confusion. Reporters try to explain the daily fluctuations on the basis of a few quick telephone calls. Yet even for those of us who sit and watch screens all day, it is not easy to grasp what is going on. When the market is bouncing insanely, it becomes even more difficult. My best advice on media analyses and predictions is the old saw: "Those who know, don't say, and those who say, don't know."
On the day after the 300-point drop, for example, a variety of explanations were suggested for the recovery. As a trader whose book on institutional trading is often considered the textbook, I can assure you that the instant analysis was wrong. The market recovered solely because an index fund bought huge amounts of stock late on Aug. 5. This buy program took the market up 150 points in 15 minutes.
And I challenged one financial editor to find examples of up days this year which were not a result of mutual fund purchases, or to find down days that were not attributed to concern about Asia and its impact on corporate profits.
There is no change in my outlook. I continue to see interest in large visible names as evidenced by the fact that 25% of the net buying on the New York Stock Exchange is focused on only the stocks that make up the Dow 30.
In spite of the recent correction, I still recommend all year (Citicorp, IBM, Bristol-Myers Squibb, Warner-Lambert and Merrill Lynch). One speculative issue is America Online (105, AOL), which, despite having doubled this year, is still being bought.
I say this not only because of the accumulation I see but also because I see no change in the big picture: strong dollar, contained inflation and moderate growth.
Don't listen to the talking heads. They may be making large amounts of money for themselves-but their advice is not doing the same for the public.
Laszlo Birinyi Jr. is president of Birinyi Associates, a Greenwich, Connecticut-based financial consulting firm.
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