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Strategies & Market Trends : VOLTAIRE'S PORCH-MODERATED -- Ignore unavailable to you. Want to Upgrade?

To: Cactus Jack who wrote (55822)	10/26/2002 11:45:19 AM
From: stockman_scott	Read Replies (1) \| Respond to of 65232

Truths and misconceptions about those bear markets 'Funds with managers who have long memories fared much better in bear markets' by Jonathan Davis 26 October 2002 money.independent.co.uk Is the bear market in equities finally over after 30 months, or have we just been witnessing another bear-market rally? The question has been exercising professional investors for weeks. All professionals know bear markets end (though this attitude is not always shared by all investors), and that end is often marked with with a sharp upward movement easy to miss unless you are alert. Partly for this reason, some of the smartest operators whose opinions I canvass have been quietly making contingency plans to ensure they are not embarrassed by being caught in bearish mode when the inevitable recovery comes. Although several fund managers felt the bear market ended in September last year, few of those who were old enough to have experienced previous bear markets were greatly convinced. History and common sense clearly suggested the fallout from the rampant bull market of the Nineties would take a lot longer to complete than many younger investors anticipated. The latest survey of global equity funds by Standard & Poor's underlines the point. It shows that funds with managers who have long memories and a value orientation have, as predicted here last year, fared much better in today's protracted bear phase. When the stock market hit new lows in July this year, even many of the most experienced professionals did begin to allow that the end might be finally on us. But the timing of those who guessed as much proved out again. The markets touched new lows a few weeks ago, since when we have had a decent but not yet convincing recovery. I continue to detect a reasonable amount of optimism (in private now, as well as for public consumption) that the relentless decline may be coming to an end. If that is the case, it will become safer to dismiss the talk of deflationary doomsters as the scaremongering it probably is, though neither deflation nor a further downward leg in the bear market are things you can yet rule out entirely. Secular market movements of the kind we have witnessed over the past 30 months tend to throw up interesting valuation anomalies, and whether you believe you have any skill at market timing, it is again possible to buy certain shares today with a strong degree of comfort that they will deliver reasonable medium term returns. There is a good case, on those grounds for standing ready to adjust your equity exposure upwards in a measured and selective way. The most sensible thing most of us can do is to stop trying to make a make-or-break decision about the market's direction. Unless your job depends on it, it is not worth the effort or the anxiety. Better to adjust your weightings in stocks, bonds, property or cash in a commonsense way (reduce when an asset class becomes expensive and add to it when it gets cheap) and let time and hindsight tell you what you should have done to maximise your return. The desire to try to call the top or bottom of a market springs from a deep emotional need in investors that behavioural scientists are finding a fruitful source of research. You may not have seen that this year's Nobel prize for economics was shared by Daniel Kahneman, an American professor who has pioneered fascinating attempts to explain why investors are peculiarly prone to irrational decision-making and misinterpretation of the data all around them. None of us is immune. In practice, market timing cannot be achieved with a useful degree of precision by anyone, expert or amateur. This has a bearing on the argument about the relative merits of active and passive funds. One of the arguments most favoured by active fund managers is that they tend to do better than index funds during bear markets, partly because they have the ability to switch money in and out of the market and can dodge the worst of the decline. There is something in this argument. But the evidence from past bear phases is mixed. From data Vanguard showed me this week, for example, the average actively managed fund on average does better than the index in some bear markets and less well in others. Value managers, their data confirms, have done particularly well in the past year. In most cases, any advantage active managers gain this way is surrendered in the period immediately after the end of the bear market. Whether you start in a bear market or not, over any medium-term period, index funds will continue to finish reliably within the second quartile of fund performers; and only a minority of actively managed funds will do better. In choosing (and it is a choice rather than an either-or), investors with medium-term horizons face the same decision in any market conditions, to opt for reliable second-best, or take a punt that they can pick the minority of superior performers. It is easy to forget that almost all actively managed funds – other than those, such as hedge funds, which are explicitly structured to avoid losses – fall in value during bear markets. Their advantage is only relative. This raises another question. If you know when the bear market is going to start and end, you may be able to save a portion of the value of your money for a temporary period by owning (or switching into) an actively managed fund. But if you know when the bear market is going to start and end, you would be better off taking your money out of funds and putting it into cash or bonds. As the veteran fund manager Nils Taube says, you can't eat relative performance. The advantage of switching to an actively managed fund in a bear market is largely illusory, or irrelevant. We will find out in a couple of years when exactly the bear market ended, and you can be sure many of us will claim to have predicted it with unerring accuracy. But the truth is that the best we can do in the stock market is place bets on the probabilities of different outcomes. Those odds are starting to shift in the direction of sustainable market recovery, which has not been the case for a long time. ______________________________________________

To: Cactus Jack who wrote (55822)	10/26/2002 11:58:32 AM
From: RR	Respond to of 65232

Hey Cactus! Good deal on that Tahoe estate! I suspect that is one of those goals you mentioned. Always good to have dreams like that and then when you accomplish it after working so hard to get there, well, it just makes it all the better. Sounds like you are gearing up for a huge family night watching the game. Well, good luck on your Giants! RR

To: Cactus Jack who wrote (55822)	10/26/2002 12:15:00 PM
From: stockman_scott	Read Replies (1) \| Respond to of 65232

<<...When we get our first "big estate" at Tahoe, I'll definitely host the next Porch party...>> jpg: I love Lake Tahoe -- I have skied there several times over the years with my relatives from San Francisco and some close friends (I really like Squaw Valley and NorthStar)...Almost anywhere in Tahoe would be a nice place for a future 'porch party' though...=) <<...This weekend is for (hopefully) watching my Giants win their first World Series since 1954. My parents, siblings, nephews and nieces, and my immediate family will crowd into our living room Saturday night to scream our fool heads off hoping they close out the Angels...>> jpg: Sounds like lots of fun...My relatives in San Francisco will be tuned in too...I'll be here in Chicago watching The World Series with some friends who are Giants fans...I have a hunch that Bonds and his great team will follow through tonight -- lets just call it a gut feeling.* Enjoy the weekend. regards, -Scott *it might take an extra game for the Giants to close out the series BUT IMO they have the momentum to win tonight!