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Strategies & Market Trends : Point and Figure Charting -- Ignore unavailable to you. Want to Upgrade?

To: Al Serrao who wrote (2101)	3/31/1998 11:21:00 AM
From: Ms. X	Read Replies (2) \| Respond to of 34811

A must read for everyone! Question for Tom. At times like these its easy to say the big caps are overvalued and it should be time for the small caps to play catch up. However, we've seen that small caps haven't really out performed the big caps except in a few really good years going back a very long time period. So, why even bother with small caps? It appears to me they may continue to underperform. We have money managers who view liquidity more important than earnings. Whats wrong with this reasoning? To hell with small caps. "I agree 100%. We just had a long talk with my analysts this morning on that very subject. Why even take the risk of trying to find the next MSFT when one misstep could cause disaster for a portfolio for the whole year. I look at one portfolio I manage and we are in exactly the right stocks, every position. Stocks I can live with and I hold 45% cash. The returns with that cash level have been in the upper 20%'s. One question we get daily is what to do when things get high. There are many right answers. One right answer for this account is do nothing. I have all the best stocks and have rotated into sectors as they moved off bottoms so the stocks were bought at the right time. My answer to a reversal in the NYSE Bullish Percent is do nothing. That is one right answer. If these were small cap stocks, a reversal in the NYSE Bullish Percent could spell disaster. The stocks I have in this account like AXP will be added to if the market experienced a correction. I have no need to move these positions around. I have only sold calls sparingly in this account and one was INTC where we were taken out at $85, watched the stock go to $93 and then collapse to the low $70's. With the $5 premium we took in our out was $90. I was tempted to sell some calls against positions a few days ago but in thinking hard about the construction of the portfolio the right answer was not to sell calls but to simply hold. If this account was 100% invested then I would take some other action in the event of a reversal but it is not necessary as it stands now. This all speaks to your question about big or small cap stocks. Although I routinely recommend small cap stocks in our daily reports simply because we follow all stocks, I find it much more profitable and comforting to own the big stuff. Analysts continually say to sell KO because it is selling at 40 times earnings. It has sold at 40 times earnings for the last 100% gain, and it is probably on its way to $100 and will split two for one. I would buy KO all day especially on any pullback. I have owned this stock for 17 years now and it's been a stellar performer and probably will continue to be so. Drive a straight line. If the small cap stocks underperform, who cares. Absolute performance is not important, owning stocks you can live with is all important. When asked what was the most important invention in his lifetime Einstein said Compound Interest. Just think of where you will be 20 years from now with a 12.5% compounded return. Aristotle was asked one day by a passerby, how to get to the Parthenon. His answer was "make sure every step you take is in that direction". If financial security is your goal, make sure every step you take is in that direction!" Tom