HiSpeed....the following Washington Post story appears to agree with your statement about large funds not having a reason to put money in the market. But, in my humble experience, money does sometimes vanish into thin air without going into anyone's pocket or into any fund that can invest it at a more opportune time.
Just ask the many people in my area of the country who paid $600,000 or more for a home at the peak of the market in 1990, and then had to sell the home at $500,000 a few years later. The buyer didn't get that seller's missing $100,000 in his pocket...he simply paid current market value for the house..... and he had to "earn" that missing $100,000 lost by the seller by holding the home until year 2000 or 2001, when the value returned to its previous $600,000 level.
Same goes for stocks. Money does vanish into thin air sometimes, sad to say.
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Stocks Are Still Overvalued, Investment Pros Say
By Jerry Knight
Washington Post Staff Writer
Wednesday, March 14, 2001; Page E12
"You hear that hissing sound?" Bethesda money manager Daniel H. Abramowitz said yesterday when he picked up his phone to talk about the stock market.
"That's the air coming out of the bubble."
The technology bubble that began to deflate a year ago -- right after the Nasdaq Stock Market composite index topped 5000 -- is still leaking air, still overinflated even with the Nasdaq index now down to 2014, said Abramowitz, who runs a small stock fund at Hillson Financial Management.
"People still haven't thrown in the towel," he said. "We still haven't seen the final capitulation that usually signals the end of a bear market."
That's the view of four out of five Washington money managers who were asked yesterday where they think the stock market is headed and what investors ought to do.
The fifth, Susan Stewart of Charter Financial Services, hardly qualifies as bullish. "I don't know if it's going to go lower or not," she said. "I think it may be time to buy into the things that have been hurt badly."
The five Washington professionals, who together are responsible for investing more than $2 billion, reflect the cautious approach of people who get paid for their ability to make money in the stock market.
They're dubious about the "buying opportunities" that are touted on television stock market shows every time the market drops, because they believe the trend in the market is still down.
By historical standards many stocks are still overpriced, the five agreed. And they said the market is teaching new investors that the stunning stock market performance of the 1990s was a once-in-a-lifetime phenomenon.
The money managers all pay more attention to the Standard & Poor's 500-stock index than the technology-dominated Nasdaq or the narrow sample of companies represented by the Dow Jones industrial average.
Even after their recent decline, the S&P stocks sell for 24 times the profits they made in the previous year, far above their historical average of 14 times earnings. Just bringing the S&P's price-to-earnings ratio back to "normal" would result in the index falling another 40 percent, two of the money managers noted, though they said they are not predicting that the S&P will fall that much.
The pros said they are counseling clients that as stock prices return to normal levels, the returns to investors will be much lower than they've been in the past decade.
"Until the middle part of last year, I'd had any number of people suggest to me that their target was 15 to 20 percent a year" in stock market gains, said Randall Eley of Edgar Lomax Co. in Springfield.
"It was never reasonable. It was an expectation that I've always believed was never going to be met."
Unreasonable or not, it was what investors had gotten used to and the decline is so painful that they are reluctant to start buying stocks again.
"I just feel that investors -- whether they are institutional investors or guys like you and myself -- have no confidence in the market at all," said Fred Burke, president of Johnston Lemon Asset Management, which manages money for clients of Johnston Lemon & Co., one of Washington's oldest brokerages.
Disillusioned as they are, some of those clients are holding on to stocks, Burke said: "If they could get out, they would, but they've got such big losses they can't get out."
Burke said he began shifting money from stocks to cash last year and is still not ready to switch back. "We've got pretty sizable cash positions and are just not going to come into the market for a while."
The 60 percent plunge in the Nasdaq, which wiped out $3 trillion in stock values, has scared many investors out of the market, said Prabha Carpenter, portfolio manager of the Growth Fund of Washington, a mutual fund investing in local stocks that is also an affiliate of Johnston, Lemon.
Carpenter said that as prices have come down recently, "there are some opportunities" to buy stocks at low prices. "But I wouldn't establish full positions," she said, suggesting that investors buy cautiously to see how the market holds up.
Stewart said she sees opportunities to get back into the market, but not back into the high-tech stocks that pulled so many investors into the market a year ago. The retail, drug and consumer-products stocks she's looking at, Stewart said, "are things that people don't go to cocktail parties and talk about."
© 2001 The Washington Post Company |
