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Strategies & Market Trends : Bob Brinker: Market Savant & Radio Host -- Ignore unavailable to you. Want to Upgrade?

To: Kirk © who wrote (5977)	7/15/1998 6:29:00 PM
From: sea_biscuit	Read Replies (1) \| Respond to of 42834

What wakened me about the big correction of '87 was how index funds did fine that year staying fully invested while almost all funds lost big time as their managers played lemmings and bailed. I had no idea mutual funds could "get out of the market" ... The following excerpt from Chapter 17 of "A PIECE OF THE ACTION: How the Middle Class Joined the Money Class" by Joseph Nocera, makes interesting reading. Apparently, Fidelity (and most other funds) chickened out and bailed during and after the crash, not before. ---- Begin Excerpt ---- There was, however, a more significant move [Fidelity's Ned] Johnson could have made to protect his customers from the full force of the coming crash. He could have changed the company's firm but unspoken rule that Fidelity's stock funds had to be fully invested at all times. He could have let it be known, as the market began to tumble, that it would be all right for the fund managers to shelter some assets in cash. But Johnson did no such thing. He had always believed that people who handed over their money to Fidelity did so in the expectation that it would be invested in the market. That belief did not change once the market peaked in 1987. Surely, though, Johnson was giving his customers too much credit. Most middle-class investors found mutual funds appealing precisely because they wanted someone more knowledgeable than they to make market decisions on their behalf. The decision about whether or not to be fully invested was exactly the kind of judgment a novice investor would want his fund manager to make. Yet after everything that had happened during the past decade--after all his prescient moves to draw middle-class money to his company--Johnson still seemed to perceive his customers as investing sophisticates, which they were not. If, late in the summer of 1987, he had allowed his fund managers to begin moving some assets out of stocks and into cash, he might have saved his customers some money. But this he was not yet ready to do; in his own way, he was also hanging on to an image of Fidelity that no longer reflected reality. ---- End Excerpt ----