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To: Thean who wrote (11644)	1/25/2000 9:03:00 AM
From: SJS	Respond to of 14427

I found this interesting, especially the part where they talked about 10% of the folks are in self-directed brokerage IRA's... ____________ The New Millennium Market 24-Jan-00 00:21 ET [BRIEFING.COM - Robert V. Green] There is no question that this market is unparalleled in history. After five years of steady 20% growth, certain sectors, particularly Nasdaq tech stocks, seem to be accelerating, rather than slowing down. Many believe this accelerated pace simply cannot be sustained. Certainly plenty of seasoned professionals with years of experience feel that disaster is right around the corner. But it isn't the only possible viewpoint. Here is a minority viewpoint on why current market conditions may not only continue, but actually strengthen. Individual Investors Are In Charge The individual is firmly in charge of the market, at least the sections that are rising rapidly, and driving the valuations of many stocks to all time historical highs. Equity money managers have either become followers, or underperformers. After all, how many technology managers beat 86% returns last year, the return of the Nasdaq composite? Understanding this simple fact is necessary to understanding today's market, and why things may continue rather than collapse. In the individual investor marketplace, there are three trends driving more liquidity to the market. These are: Mutual funds are dull. Asset allocation is forgotten. Tax-free trading is becoming more popular. Mutual Funds Are Dull Ten to fifteen years ago, cocktail parties were abuzz with talk about mutual funds. There was always one guy bragging about how he got into Fidelity Magellan years ahead of everyone else. That just doesn't happen now. The "bragging rights" belong firmly to the guys in tech stocks that have tripled in less than two months. And brag they do. And all it does it attract more people to the market. Just take a look at advertisements on television. Name a recent television ad for a mutual fund. Even the much heralded "Peter Lynch/Lili Tomlin" ads for Fidelity, which got press coverage before they appeared, ran only a short time. But it sure seems like everyone can identify "Stewart." It is a well known fact in the mutual fund industry that the only growth is coming from funds in 401(k) plans. Retail funds are stalled or falling at many fund families. Money that used to go into funds is going into online accounts. Asset Allocation Is Forgotten As a corollary to this, asset allocation has fallen by the wayside. After all, who wants to put money in anything except stocks? The traditional argument that bonds are valuable, when the market declines, simply hasn't had a chance to prove itself true for a long time. It is as if asset allocation has been benched as the third string quarterback, while the highly leveraged all stock approach has been scoring touchdown after touchdown. Experienced professional investors and financial advisors know the value of a diversified portfolio. But it is darn hard to convince a new investor of its value by using a real market example during the last five years. No one even remembers when diversification helped returns. Can you name the most recent example? The market decline in late summer of 1998 is the nearest example of when an individual with 50% in bonds felt like they were outdoing the market. The market dropped about 20% from July to October, while interest rates fell from 5.75% to 4.75%. But who talks about that? In fact, the very reason that mutual funds look dull, even all equity funds, is that they are diversified! No one can get a diversified investment to double in a month. And investments that double in a month are what people talk about right now. SBD's Are Growing In IRA's and 401(k)'s Another trend driving the market is the growth of self-directed brokerage (SBD) options in IRA and 401(k) plans. Unheard of ten years ago, SBDs are now present in 10% of all 401(k) plans. In addition, IRAs in brokerage accounts, instead of mutual funds, are becoming common. The tax-advantaged nature of the trade eliminates long term/short term issues. And while most 401(k) plans with SBDs limit the total amount of money that can be invested in stocks, IRAs have no such limit. Individuals can put their entire retirement savings behind a single stock trade. And pay no taxes on the trade. It's an appealing proposition to many investors. And it is causing a shift of funds into IRA brokerage accounts. Analysis All of these trends add up to one thing: more money chasing stocks. It is a liquidity driven market. But a market driven by liquidity has long term problems. After all, you have to sell your stock to someone eventually. And in a liquidity driven market, value is associated more with supply and demand than with intrinsic value. That is fine for as long as demand outstrips supply. But when supply outstrips demand, a market driven up by liquidity falls extremely hard. There are plenty of examples in history to point to. Nevertheless, if you admit that the individual investor has taken control, and brought money managers along with them, then you need to ask yourself if this is the beginning of their control, or the end. And it sure seems more like the beginning, than the end. A liquidity driven market won't be over until the last guy has put his last dollar in. And as scary as that thought may be, we aren't there yet.