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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Casaubon who wrote (42773)	3/11/2000 7:25:00 PM
From: Haim R. Branisteanu	Read Replies (1) \| Respond to of 99985

Until now I was not believing in a crash scenario, but it seems I am wrong again - if we crash we will crash hard. Just read this. Mutual Funds Column Sat, 11 Mar 2000, 7:11pm EST New Fund Manager Breed, the Fully Invested Bear: Chet Currier New Fund Manager Breed, the Fully Invested Bear: Chet Currier New York, March 10 (Bloomberg) -- A strange new species of manager is popping up in mutual fund offices everywhere -- the fully invested bear. You find these dangerous creatures most commonly running growth and aggressive growth stock funds. But some have staked out territory in places as remote as junk bond funds. Fully invested bears believe to the tips of their toes that most hot growth stocks, especially in fields like the Internet and biotechnology, are overpriced and vulnerable to a fall. But they keep buying more of them anyway, figuring they have no choice. ``New economy' growth stocks are the only game going in the financial markets right now. To sell them means risking your job, in the oh-so-possible event that they keep going up without you. ``That's the dilemma,' says Marion Schultheis, who oversees $2.5 billion in growth stocks at J. & W. Seligman & Co. in New York. ``I'm playing the game and I know I'm playing the game. All the growth managers are saying, `Sure, we're worried, but we have to be there.' Schultheis, who has spent 20 years as an analyst and money manager, says about half the money in her charge is invested in new-economy ``tech' stocks now. ``Yes, I am in stocks that I think are overvalued,' she acknowledges. ``If I didn't do that, I'd have a value portfolio.' Big Gap What would be so bad about that? Well, Schultheis' growth- style Seligman Capital Fund has gained 105 percent since a year ago at this time. Meanwhile, in a performance typical of bargain- hunting value funds, Seligman's Large-Cap Value Fund, with its forest-products and bank and auto stocks, is down 19 percent. Fund managers can usually hold onto their jobs despite losses like that if they have crystal-clear mandates to operate with a value style. For lots of other managers, though, old-economy stocks are potential tickets to the outplacement office. That goes even for big-name ones like Procter & Gamble Co., whose stock has plunged 50 percent since mid-January (once a growth stock, now applying for value status). Many fully invested bears are motivated by pay systems that reward them not for absolute investment performance -- how much did your fund make or lose? -- but for their relative results compared with a market index or an average of other funds like theirs. Bring in a 20 percent return when your peers are hitting 50 and you're in trouble. Lose 35 percent when others are down 50 and you may be quite safe. Whatever the numbers, fully invested bears promise to turn vicious in a falling market because of the way they think. They own their stocks out of expediency, not conviction. In a crunch, they'll find it easy to forget what was so wonderful about all that broadband or genome stuff in the first place. Relying on Hope Beware especially of fully invested bears in unexpected places. Does that zippy little high-yield bond or convertible fund own a slew of Internet-company securities? And don't get too comfy in index funds, which are fully invested at all times. A Standard & Poor's 500 Index fund, just by matching the makeup of the index, now has about a third of its assets in computer and telecommunications-related stocks. If they go down, the fund goes down with them. Instead of honey, fully invested bears live on hope. They hope that techmania will go on a while longer. If it doesn't, they hope they will have time to get out before everybody else. They hope the Federal Reserve's campaign to raise short-term interest rates won't hurt the new economy. If it does, they hope the Fed will jump in to cut rates before the stock market falls too far. Let's suppose you don't rely on hope. You're a true believer in the awesome, open-ended promise of the Internet and genetic research. OK then, own funds that get you in on the action. But keep thinking long-term, stay diversified, and prepare yourself mentally for the possibility of a big market setback at any time. If you're not ready to face that kind of menace, don't feed the fully invested bears.