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

To: Proud_Infidel who wrote (23176)	8/20/1998 11:13:00 PM
From: David Rosenthal	Read Replies (1) \| Respond to of 70976

Brian and Ian, Not that I am any expert and am not an investor in his fund but I imagine his argument goes like this: The market is overvalued and will seriously turn soon. It hasn't hit the major drop yet and my fund has still made 66% return of what the longs have made. When it does turn their extra 33% and more will evaporate. My fund however will make a killing. Additionally, since we are overvalued and will correct, it is safer to be short than long. If we do go into a sustained bear or a major correction then he is positioned correctly. I think someone said that he made a lot of money since the end of last year. That might indicate the start of success for his strategy (I would say that shorting semiconductor stocks over the last year was a winning strategy). I seem to remember that the argument for staying invested in the market continually is that if you missed only 10 days you would have drastically reduced your return. His strategy could lose for years but hit the jackpot during a real debacle of short duration and still have been the correct thing to do. I personally find it hard to believe that we are not in for a major drop when you look at the micro conditions: Many large caps are significantly overvalued (i.e. DELL, a great company, is selling at $122 when it made 50 cents last quarter. Projecting forward at the 65% growth rate they achieved over the last year you get a forward PE of 44. Undervalued if they continue growing at 65% but seriously overvalued if growth slows for any reason), the absurd speculative valuations on the Internet stocks and the bear market in many small caps. And the macro conditions: Slowing U.S. growth and widespread recessions throughout the world. All this may pass but I don't find it so easy to dismiss his strategy. Anyone with an accurate crystal ball please step forward.<G> Dave