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Strategies & Market Trends : Waiting for the big Kahuna -- Ignore unavailable to you. Want to Upgrade?

To: Bonnie Bear who wrote (21052)	6/28/1998 11:42:00 AM
From: Berney	Read Replies (3) \| Respond to of 94695

Bonnie, Let me offer an opposing view. Are stocks are over-valued? Yup. Will they continue to become more over-valued? Probably. I did this analysis that I call the Big Boyz. It focuses on the companies that at either the end of April or end of May had a market cap of over $40 or were on the DJIA. There were 85 of them. At the end of May, the 5 year annualized return of the S&P 500 was 22.2%. Of the 4,310 stocks in the data base I use, which have a 5 year track record, the average annual return for the 5 years was 11.8%. However, the 5 year annualized return of the Big Boyz was 30.1% Enough said! Gersh stated, and Jim amplified, Follow The Money! Big Boyz, while being only 85 companies comprise 40% of the total equity market on our exchanges. I would agree, that by what ever historical measure one chooses to utilize, GE, MSFT, XON and KO, etc. are dramatically over-valued, and 26% (Dr. Yardini's number) would be conservative. Nonetheless, if you bet against them, you are ignoring a fundamental and dramatic shift in modern investing. Again, Jim stated it; the Index fund. I read last year that some $10T will flow between the Children of the Depression and the Baby Boomers over the next decade. Where do the Depression Children have their money? In equities --- I don't think so! It is my experience that they have most of it tucked away in bank CD's. Where are the Baby-Boomers going to put the money. In bank CD's --- I don't think so. I think this is reflected in the current mania of the banks gobbling up the brokerage houses. They see what is coming. IMHO, as long as Indexing is with us, the Big Boyz are going to continue to out-perform. In life the rich get rich; the big fish eat the little fish. It was one of those self-perpetuating realities. Yes, I do believe that eventually it will end badly. However, I equally believe that it will be some event that we are not considering at this time. Just some musing from the swamp on a lazy Sunday. BWDIK. Berney