BC - gotcha! Here is Fisher article from Forbes. -george
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Portfolio Strategy
2002: Another Down Year
Kenneth L. Fisher, Forbes Magazine, 02.04.02, 12:00 AM ET
Expect the S&P 500 to lose another 5% this year. One more plunge is coming, with a last-half recovery not strong enough to erase the losses.
Okay, I changed my mind. In my last column (Jan. 7) I said the market would be up in 2002. It won't. Get over it. Expect the S&P 500 to lose another 5% this year, plunging until spring with a strong rally in the year's back seven months, one that won't quite make up for the downdraft. The bottom might be around May 1, at about 900.
I use a forecasting methodology I developed some time ago (see my Apr. 3, 2000 column) based on market pros' calls about the year ahead--and the fact that they're always wrong since their expectations are already priced into the market. I get my number by choosing among the holes between where their forecasts cluster. This approach is both empirically and theoretically novel, and nifty.
As often happens, I'm surprised by the result. The fourth- quarter rally made American forecasters too sanguine for 2002 to be a positive year. When a bear market really ends, the initial upturn is met with disbelief, not acceptance. That U.S. professionals are so optimistic after years of being wrong says there is more blood ahead. Much is weird this year.
As I've said recently, the U.S. market doesn't like to drop three years in a row. Such a thing has occurred only twice since 1925 (in 1929-32 and 1939-41). But a spate of New Year's stories makes me confident everyone knows this, diminishing its validity. Nor has the market liked to fall both years of a presidential term's first half, which my forecast envisions. The market did that only in 1929-30 and 1973-74. So I'm expecting the market to do rare things. I'm knowingly making a long bet. These last two years were the worst two back-to-back since 1973-74. And 2001 was the worst year since 1974.
Usually after such ugliness you should expect good times soon. The good news is, during all of 2001's downdraft I was on the right side of the market. I had the luck to have America's best market forecast of any nationally published portfolio strategist in two of the last three years. For 1999 I called for a 20% increase and the S&P came in at 21%; for 2001, I expected a flat performance and the index fell 13% in stock price terms (12% with dividends included). Yet I was closer than anyone else. Most predicted solidly positive returns.
Strategists' current euphoria isn't warranted either. Having been too dour all through the 1990s, in 2000 forecasters tilted optimistic. In 2001 they doured down until the fourth quarter, when the upturn too easily intoxicated them. As 2001 ended, the average forecaster, the guy smack in the middle of the bell curve of professional prognostications, foresaw a market rising 17% in 2002. That is a nice notch above the market's long-term-average history. And in 30 years' data I've reviewed, it has never taken place.
In 2002 there are three holes in the pros' array of calls, meaning three likely S&P outcomes: to end above 40%, below –20%, or between –2% and –10%. I'm betting on the latter. A market rise of more than 40% would be weird. That has transpired just three times in the first half of Presidents' terms. If the market fell more than 20%, that also would be weird: Such deterioration this late in the market cycle defies experience.
One caveat is that my methodology might be thwarted by the sky-high turnover among professional forecasters in 2001, because so many had been so wrong so long. Strategists who departed include Christine Callies at Merrill Lynch and Greg A. Smith at Prudential Securities. Still, regardless of who is making projections, I believe pricing is always a function solely of supply and demand; that supply is rather rigid short-term and that demand can be measured through sentiment.
My approach implies Nasdaq will lose another 12% this year after bottoming in the spring at maybe 1350, 33% below the present level. Small-cap value should remain the best part of the market. Longtime readers know I run this column managed against the Morgan Stanley World Index, which should do worse than the U.S., losing about 9% for the year and falling maybe 28%, to 725, in the spring. Stay maximally defensive.
That was my advice throughout 2001. At the outset, before the pros' forecasts were in, I recommended three drug stocks: Schering, Akzo Nobel and Novo-Nordisk. Had you invested $10,000 in each of these, you would have lost 2.5% in 2001, factoring in a hypothetical 1% trading cost, or $750 on your $30,000 investment. You would have soundly beaten the market: Putting the $30,000 into the S&P would have lost you $3,420. Once I could do my own forecast, I advised staying out of equities, going for cash and bonds instead. This would have earned you around 4%. Not bad for a bad year.
Kenneth L. Fisher is a Woodside, Calif.-based money manager. Find past columns at www.forbes.com/fisher. |
