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Politics : Formerly About Applied Materials -- Ignore unavailable to you. Want to Upgrade?

To: Jacob Snyder who wrote (62796)	4/9/2002 2:44:19 PM
From: Sam Citron	Read Replies (2) \| Respond to of 70976

Jacob, As you yourself correctly diagnosed, AD's DT success is substantially based on factors that are not easy to emulate: the hedge, the deep-pocket, the experience, the discipline and the attitude. Sticking with what has worked for you in the past - scale down buying the dips and scale up selling rallies as valuations become excessive appears optimal, except for the fact that most stocks tend to go to these extremes together, hence you may have prolonged periods of reinvestment risk as you sit in cash waiting for valuations to return to normalcy. Few of us can wean ourselves off the daily excitement of bull market returns long enough to have the patience to sit on low-yielding cash for extended time periods waiting for the inevitable correction. This penchant to trade may sometimes cause us to invest perhaps more heavily than may be prudent in weaker companies or to attempt extremely ST market timing. There are a couple of strategies that I can think of to allow you to play the game you love while waiting for valuations to retreat, in their usual three steps down one step up fashion. One is to go short with smaller than average trade size but longer duration as you get used to the dark side, so that you will not be wipsawed by adverse countercyclical moves which are really to be expected. Another is to look for sectors that may be negatively correlated with the overvalued sector you are disinvesting from, e.g., emerging markets, low-tech, bonds, etc. Exchange-traded funds (ETFs)like iShares are a good idea since they mitigate the tax disadvantages of mutual funds and permit efficient sectorwise investing. Morgan Stanley puts out a quarterly publication which tracks the universe of exchange traded funds. Their latest report of 3.14.02 has 3 year charts of each of about 135 ETFs along with summary data on portfolio breakdown, performance, and distribution history. The biotech ETFs are Biotech HOLDRS (BBH) and iShares DJ Nasdaq Biotech Index Fund (IBB). BBH is substantially more liquid, with average daily volume of 1.3M v 162K for IBB. Options also trade in BBH. MS also puts out monthly reports dealing with various aspects of ETF investing. Good luck, Sam