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To: Boplicity who wrote (10834)	2/25/2001 11:42:20 PM
From: stockman_scott	Respond to of 13572

Narrowly focused funds fall hard, Janus shows February 25, 2001 BY MITCH ZACKS suntimes.com The market is starting to feel very ugly. The problem is the Nasdaq, because at its rate of descent, sub-2,000 levels look possible. Last week, the tech-laden Nasdaq touched its lowest point in 26 months before closing Friday at 2,262.51, slightly above its worst levels of the week. Part of the difficulty stems from large mutual funds that maintain concentrated positions, a situation that I warned about several months ago in a previous column. The basic problem is that a large mutual fund that holds concentrated positions in a few stocks has a virtuous feedback cycle when the market is rising. This cycle quickly morphs into a vicious downward spiral when the market is falling. There is no pulling any punches here: Mutual fund families such as the huge Janus group are responsible for part of the problem with the Nasdaq right now. Janus holds the same stocks across multiple portfolios. These "core" positions are also held in extremely large percentages in practically all of Janus' funds. With many of the tech stocks announcing earnings disappointments, Janus serves as the biggest shareholder on record, and very soon after the announcements, Janus is the largest seller. While the Nasdaq was rising at a breakneck rate, money flowed into Janus like no other mutual fund family in history. The conventional wisdom was that Janus could spin straw into gold. For over a year, reaping a hefty return on mutual funds was simple: Buy any Janus fund and wait a couple of months. It is when making money appears easy that the warning lights should go off. Janus was able to become the fastest-growing mutual fund firm in history by practicing a strategy whereby a handful of the same tech stocks was held across almost all its many portfolios. It did not matter into which fund Janus family investors actually put their money, they all ended up with pretty much the same stocks. Anybody researching Janus' holdings would have seen that the stocks held across many of the portfolios had unprecedented price/earnings levels. I have stated this several times, and reiterate it here: Any stock with a P/E above 70 has proven to be a horrendous investment over a five-year period. This time it was supposed to be different: the economies of scale, the first-mover advantages, the unprecedented revolution of the Internet. It wasn't. You see, regardless of how much the technology changes, people and the market remain the same. And markets, unfortunately, are prone to speculative excesses. The way that Janus played the game is as follows: Extraordinarily strong earnings growth in the tech sector caused a select group of around 20 to 30 high P/E stocks to outperform the broader market as has never occurred before. The returns of Janus' concentrated mutual funds rose accordingly. As the Janus core positions rose in price, the soaring investor returns quickly attracted more money. This money flowing into the Janus mutual fund family was quickly put to work in the same few stocks. This caused the prices of these few stocks to rise yet higher, which resulted in increased returns for Janus and attracted even more money into the funds. It was the closest thing to a money machine a mutual fund family had ever seen on the way up. The problem is, of course, that the whole cycle is reversed once the market turns south. Several of Janus' core holdings began to report poor earnings. With these select stocks collapsing, Janus' returns headed south very quickly. The situation was made worse by the piggy-backing on Janus' positions by other traders and portfolio managers. When earnings failed to match expectations, not only did Janus have huge positions in the stocks, but thousands of other portfolio managers chasing Janus-like returns also held large positions. The whole situation has unraveled rather quickly. The poor returns induced investors to pull money from several of Janus' mutual funds. As individuals pulled money from the funds, Janus had to sell some of its core holdings. The selling by Janus in these core positions caused the stock prices to fall. This led to lower returns, and that caused more money to be pulled by investors. So now the game is over, people. We have seen the tech bubble inflate, pop, and now deflate. Tech stocks are not rebounding anytime soon. The day is gone when large-cap tech stocks rule the market. Look at what is happening with Motorola Inc. (MOT). Management said the company will miss this quarter's sales and earnings estimates and might even report an operating loss if economic conditions continue to deteriorate. The stock closed Friday at $16.25, down $1.04 on the day. Now is the time to look at the boring, uninteresting S&P 500 companies that have been pretty much ignored by the market during the last couple of years. It is time for small-cap stocks, and stocks whose earnings are stable and predictable. Mitch Zacks is vice president at Zacks Investment Management in Chicago. He welcomes comments at Mitch@zacks.com.

To: Boplicity who wrote (10834)	2/25/2001 11:45:39 PM
From: DaYooper	Read Replies (1) \| Respond to of 13572

I hate the fact that people are waiting for the fed to save the day. Bad, it's going to blow up in investor's faces. I've just been thinking how ironic -- Greenspan will "save the day" to the extent we're in deep doodoo -- and everyone is hoping for the maximum easing. He is an inflation hawk and doesn't do max easing without knowing some pretty bad stuff.

To: Boplicity who wrote (10834)	2/26/2001 12:38:34 PM
From: bowledover	Read Replies (1) \| Respond to of 13572

Greg, not sure I understand but he seemed to be saying the Fed. would be cutting rates on behalf of the economy not the stock market per se. b.

To: Boplicity who wrote (10834)	2/26/2001 4:45:15 PM
From: mishedlo	Read Replies (2) \| Respond to of 13572

From UncleWest via Email. Concerns your favorite.... HomeDepot BTW The lot was full this weekend where I live. ================================================= From UW: jeez i am a bear today... i was just reading about how great new home sales are expected to remain...some leading leading indicators of this sector are... lowes and home depot...both have declining sales...if they are not selling material...construction is slowing period. and lumber prices (rising fairly sharply right now)...that...imo...is the lumber companies trying to maintain profits in the face of declining sales...there is no other xplanation...there is certainly no shortage of lumber, according to lowes and home depot demand is softtening...what else could it be?