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Strategies & Market Trends : Watching the market collapse -- Ignore unavailable to you. Want to Upgrade?

To: Giordano Bruno who wrote (17)	7/28/1999 8:48:00 AM
From: pater tenebrarum	Respond to of 150

Jim, re: bliss figures, what else to expect? 22,6% annually has become normal... regards, hb

To: Giordano Bruno who wrote (17)	7/28/1999 4:28:00 PM
From: Giordano Bruno	Read Replies (1) \| Respond to of 150

Market corrections By Thomas O'Neill, 07/27/99 <Picture>Since the beginning of last year, three distinct stock markets have emerged in the United States, and investors have floundered or flourished based upon their exposure to each of those markets. Unfortunately, the headlines of the day have failed to recognize the divergent paths of the overall market, often conveying instead the impression that publicly traded stocks, en masse, have been booming. That is not true. This misimpression, I fear, has given many investors unrealistic expectations about the future and is encouraging them to take unnecessary risks with their portfolios. That needs to be corrected. The three markets can be identified as Internet stocks, the Standard & Poor's 500 index, and the broad publicly traded market of 3,500 stocks. Between Jan. 1, 1998, and the end of the first quarter this year, the NDR Internet index surged 176.6 percent while the S&P 500 increased 25.4 perecent. The broad market of stocks, however, fell 10.7 percent. Those wide discrepancies shed light on the risks ahead for investors. Rising Internet stock prices have come amid the mania of a ''Web-based paradigm shift.'' Now, I don't know exactly what a Web-based paradigm shift is, but I do know that the valuations associated with many of these on-line companies have had little to do with their fundamentals - that is, mundane stuff like revenue and earnings. Internet stocks trade as a distinct group, and their valuations as a whole are difficult to support based upon their fundamentals. The S&P 500 market represents the nation's 500 largest publicly traded companies. It is the benchmark used by many professional money managers and individual investors, and its blockbuster returns in recent years have prompted many investors, big and small, to buy index funds that match the performance. But S&P investors have been like rafters on the ocean. They float merrily along while seas are calm, impervious to all the churning beneath the surface. The index's superb performance in recent years has been derived from the spectacular returns of a relatively small number of very large companies. Last year, for example, 14 of the S&P 500 stocks - a mere 2.8 percent - accounted for 50 percent of the gains of the index. Why does this matter? Because the trumpeting of the red-hot S&P numbers can lead investors to believe the entire stock market is doing well. Intoning the gains of the Dow Jones industrial average, which tracks 30 large stocks, or the Nasdaq Stock Market, which is heavily weighted toward the technology sector, can be equally misleading. But those giddy market indexes can lead investors to frustration when their own mutual funds or stock picks ''underperform'' the S&P or Internet stocks. Frustration, in turn, can lead to an ill-considered decision to chase the hot fund or stock and make emotional investments. The relative underperformance of our third stock market - the broad array of 3,500 companies - indicates opportunities for investors. America did not build the strongest economy in the world on the backs of 15 large-cap companies and a gaggle of Internet start-ups. Many excellent companies have been overlooked or undervalued amid the euphoria over the other two stock markets. The focus on the turbo-charged tech stocks and the popular large-cap stocks has misrepresented the performance of the overall market. More importantly, this focus is encouraging investors to take imprudent risks. Patience and diversification may not get the headlines; but they are words for any investor to live by, never more so than now. Thomas O'Neill is chief investment officer of Fleet Investments Advisors.