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Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: Tommaso who wrote (847)	11/21/2000 4:50:10 PM
From: prosperous	Read Replies (1) \| Respond to of 74559

Well the arguments for selling in the current market and holding stocks for long haul being debated here need not necessarily be at odds with each other. For example, Ben Graham's philosophy was: -buy great companies (with his definition of what great meant) at discount with respect to their valuation -sell them when the valuation argument no longer holds. In his security analysis, he pondered on the thought of what an investor should have done during the 1929 market time period and the conclusion was to have stayed away from the market if the stock valuations were not something one could agree with (based on my recollection). The current market is overvalued by many measures and that is significant if one were investing in an index that tracked the market; staying into SPY clearly has more downside than upside potential at this point (large growth dominated). However, it is possible and justifiable that there are individual stocks that someone may want to hold that are well discounted through the current downturn and have much upside potential. The disadvantage of staying out is not knowing when to get in unless one's valuation strategies are well defined. The importance of the valuation metric is illustrated by the current oil and gas situation, can one justify buying this based on perceived demand alone? if one did that, we are close to the top situation around fall 1997 and if the sector starts down from here could face similar problems; however if valuation justifies the price then it probably is a good buy. The Motley fool kind of thinking (buy and hold no matter what), while initially useful for a beginner has its limitations and will not work well for many stocks that they have in their portfolio.

To: Tommaso who wrote (847)	11/21/2000 4:54:44 PM
From: Wyätt Gwyön	Read Replies (1) \| Respond to of 74559

Good points, Tommaso. It is ironic that the LTBH mentality takes root when the risk/reward ratio is unappealing. People in the US think it is the most natural thing in the world to put most or all their eggs in a stock market basket, with the only argument being about what type of basket (indexing, Gorilla Gaming, momo, Dogs of the Dow, etc.) is best. There seems to be an implicit assumption that while the market could go down for a year or two, we will be better off "in the long run". As Keynes noticed, in the long run we're all dead, and the market might not be courteous enough to behave according to our capital needs. I like to contrast this with Japan, where many young people (not to mention old people) keep all their funds in cash. What would you expect them to do given that the Nikkei is more than 50% below its highs of a decade ago. They have developed alternative strategies for building "nest eggs". Mainly that means saving a lot and probably working for a long time (and perhaps retiring poorly). Who in America would recommend a 30-year-old to be all cash? But that is commonplace over there. Somehow, I think our market's behavior this past decade influences our thinking (expect more rewards), just as is the case there.

To: Tommaso who wrote (847)	11/21/2000 6:19:49 PM
From: Joshua Corbin	Read Replies (1) \| Respond to of 74559

The fashion of our time is, "Buy stocks. Stay in for the long term." Our zeitgeist is expressly not to think about the long term: live fast, die young, leave a good looking corpse. The investing paradigm is at best that of the Microsoft millionaire, who cashes in his options for a fortune. At worst is those little old ladies who get lucky on the slot machines. People do LTB&H in retirement accounts only because the system is structured to encourage it -- and sometimes they break the 401(k) piggy bank to pay MasterCard. How else do you explain dot-com mania? Daytrading? SI itself? Why do online brokers have names like E*Trade, Ameritrade and Suretrade? Why are ETFs like the QQQ used as trading vehicles instead of investments? Look at Web sites. Notice that TheStreet.com went public while Motley Fool didn't. Jim Cramer is far more well-known than the Gardner brothers. Hedge fund managers are cool while nobody cares about small-time investors. Brokers do not encourage LTB&H because it cuts into their profits. Human nature makes stocks more attractive during bears and less attractive during bulls. People are always tempted to sell into bottoms and buy at tops.