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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: jeffbas who wrote (8154)	9/4/1999 11:09:00 PM
From: James Clarke	Read Replies (1) \| Respond to of 78840

Imagine if you were working for a value investment firm determined to maintain its discipline, where clients are benchmarking you against the S+P on a quarterly basis. Looking just at the situation I am familiar with, but I hear it applies to almost any traditional value investor, clients fire you. When a client fires you, your stocks get sold. So you end up being among the largest sellers of your more illiquid holdings, which just drives the price down more, leading to more redemptions. It is brutal. You try to explain to a client that if you ever wanted to do value investing, now is the time to hire us, not fire us. Value investors are firm believers in regression to the mean, and if that idea has any merit, those few disciplined value investors left are due for one hell of a five year rally relative to the S+P. But the client is looking at four or five years of underperformance which has been getting worse and worse. In April, just a day or two before cyclicals took off, I posted something on a similar note that marked the bottom for value investing maybe. The way I felt then was the way any institutional value investor felt - absolute desperation - if this goes on one more quarter we're out of business. The run in April bought us some time - we were well ahead of the S+P for the year - but its starting to get ugly again. I am still very very concerned about the next couple months. I have never been more concerned within a short-term horizon. I am tempted to buy some stocks, and have been recommending a bunch institutionally (we have to be invested no matter what), but I am telling myself to wait until at least the end of October to see what happens. My strategy here is to stay net short (I only have about 40 cents short for every dollar long, but the things I am short are so much more leveraged to the market than the things that I am long that I am finding I like down days - so I guess that means I'm net short.) for the time being, and try to save up some cash just in case a big opportunity (i.e. Dow 8000) arises in October. I'll revisit this strategy on a major market correction or early November, whichever comes first. JJC