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Strategies & Market Trends : Graham and Doddsville -- Value Investing In The New Era -- Ignore unavailable to you. Want to Upgrade?

To: porcupine --''''> who wrote (711)	9/1/1998 6:36:00 PM
From: Freedom Fighter	Read Replies (1) \| Respond to of 1722

>The best thing that could happen to the disciplined investor who >is dollar-cost-averaging over the next 20 years is for stock >prices to remain depressed for the next 19 years. That's the second best thing. The best thing would be for a full fledged debacle to occur that creates enormous bargains and then keeps prices depressed for a long time. Of course as Warren Buffett has said "In order to shoot fast moving elephants, you have to have a loaded gun when you see one". Sometimes, the elephants are only in sight for a few days or weeks.

To: porcupine --''''> who wrote (711)	9/1/1998 7:19:00 PM
From: Axel Gunderson	Read Replies (2) \| Respond to of 1722

Notwithstanding the hue and cry over the shift from a manufacturing based economy to a service based one, and the decline of unionization in the private workforce, incomes are at an all time high On what basis did you reach this conclusion? If one believes the outlook is good for the macro economy over the coming 20 years, get in the market and stay in. If not, do the reverse. This ignores valuation and margin of safety issues. Whatever one believes, one can be wrong, hence the need for a margin of safety. Witness the Japanese market in the past decade. No doubt ten years ago the Japanese believed that their macro outlook was good for the forthcoming 20 years. Now it may well be that an investor who monthly made purchases on the Japanese market over the past decade came out ahead, compared to investing in competing instruments. But that kind of investing is almost independent of the macro course of events. History has shown that lump sum investing beats either real DCA or regular periodic investing the vast majority of the time. But there are exceptions, such as 1929 for the following 10 years, or Japan over the last 10 years. So the question I pose to you is this: even given the rosiest of expectations, at what level of valuation would you advise against investing a lump sum in the market? Axel

To: porcupine --''''> who wrote (711)	9/1/1998 10:40:00 PM
From: Freedom Fighter	Read Replies (1) \| Respond to of 1722

>>>1990 was a great year to go long, and stay long, the Market. At the time, virtually every "expert" predicted that the coming war in the Persian Gulf would lead either to another standoff like World War I or a quagmire like Vietnam. Oil would inevitably skyrocket, making the global economy a replay of the 1970's. During the decade of the 1980's, there had been massive leveraging of corporate balance sheets through LBO's, rising budget and trade deficits pushing up interest rates, anemic growth in productivity and return on capital, an S&L bailout that would supposedly cost 1/2 trillion dollars, the emerging markets of Latin America had been careening from one disaster to another throughout the decade, a number of major banks and Wall Street firms had already gone bankrupt, and, the U.S. had lost the technology race, and global economic pre-eminence, to Japan. Further, as the 1990's began, Russia was teetering on the brink of chaos.<<<< This has some similarities to the idea that low inflation, low interest rates, historically high return on equity, high stock prices, no business cycle, unlimited flow of money into stocks, no risk premiums, historically high cost and return on capital spreads, two times replacement costs, are now a permanent state of affairs. At least that's what all the experts are now saying. Funny how the world changes. I do agree though. I was a heavy heavy buyer of bargains in 1990. The pessemism was ridiculous and unwarranted. That's what created the values. >And, U.S. banks generally have never been more profitable than in the >1990's. I bought them then a bargain basement ridiculous prices and sold them at overvalued levels - some at higher prices than they trade at now. I used the proceeds for stocks that are much higher now. If banks keep falling to undervalued levels, I'll buy them again. It is possible to trade from overvalued to undervalued stocks in the same market. >>Lynch said he didn't know whether in the short term the Dow would drop a 1,000 points before it rose a 1,000 points. But, he was confident it would rise 5,000 points before it fell 5,000 points. The key was the U.S. economy's long term performance. If one believes the outlook is good for the macro economy over the coming 20 years, get in the market and stay in. If not, do the reverse.<< Peter Lynch also said that if you spend 5 minutes in a year looking at economics, you have wasted 3 minutes. >>The U.S. is far less dependent on cyclical industries than most other developed economies.<< This is true, but I have a concern here. A very substantial percentage of U.S. GDP growth in this business cycle has come from technology, financial services, and retail (especially the first 2.) That is what the reports I have heard read say. These are three of the most notoriously cyclical industries on earth. Much of Technology is experiencing layoffs, losses, overcapacity and worse while things are still great. The downside potential for financial services is all around us. And I don't have to talk about retail and restaurants, you hate them more than I do. In reality, I don't think their cyclical nature has anything to do with their value. I don't care how smooth or choppy the earnings stream is and neither should other investors. They should only care about the present value of it and realize the cyclical nature to avoid paying high multiples of peak earnings. >>The monetary and fiscal authorities have greater experience, and fewer structural impediments, for preventing both the deflation of the 1930's and the inflation of the 1970's than at any prior time.<< I wonder if the monetary and fiscal authorities in 30% of the world agree with you. There is such a thing as pushing on a string. >>A final thought on long term investing: Harry Helmsley was once asked how he had acquired one of the U.S.'s largest real estate empires. He replied that he kept buying real estate, and not selling it. So, eventually, he owned a lot of real estate. The same could be said of buying common stock through thick and thin.<< I wonder if Harry ever bought overvalued or very pricey real estate? I bet not. Otherwise he wouldn't be Harry or very rich.

To: porcupine --''''> who wrote (711)	9/2/1998
From: Berney	Respond to of 1722

The Long Term Perspective - A Different Perspective Dollar-Cost Averaging makes absolutely perfect sense when applied to the market generally. I believe your example demonstrating the soundness of the concept was in relation to investing equal sums when the DJIA was at the high for the year vs. the low for the year. It's difficult to argue with the logic of this course of action; however, as with most good ideas, it has been distorted and abused by Wall St., particularly the mutual fund industry. The concept of Dollar Cost Averaging presumes that one is investing in securities that are achieving market investment returns. Otherwise, the investor is simply averaging inferior returns. Further, market valuations and the market outlook, currently referred to as Asset Allocation, seem to lose importance in Dollar Cost Averaging. The master (Graham) stated it best in TII (page 41) in discussing portfolio policy for the conservative investor: "We have suggested as a fundamental guiding rule that the investor should never have less than 25% or more than 75% of his funds in common stocks, with a consequent inverse range of between 75% and 25% in bonds. There is an implication here that the standard division should be an equal one, or 50-50, between the two major investment mediums. According to tradition the sound reason for increasing the percentage in common stocks would be the appearance of the "bargain price" levels created in a protracted bear market. Conversely, sound procedure would call for reducing the common-stock component below 50% when in the judgement of the investor the market level has become dangerously high." The master went on to acknowledge the difficulty the average investor would have in implementing this policy. However, the master's policy statement precludes the investor from be required to offer sacrifice on the holy altar of Asset Allocation. It is absolutely absurd that an investor would continue his investing activities without consideration of the relative valuation of the equity and fixed income markets. When I perform my Buy and Hold market analysis, generally less than 10-15% of the stock universe has provided investment returns in excess of the Index over 1-, 3- and 5-years. Thus, 85-90% of the stock universe will provide inferior investment returns. In fact, at the end of July one-fourth of the investment universe was negative for 5-year investment performance. The difficulty of achieving investment returns in excess of the Index has been well documented by numerous authors. Therefore, I suggest that if an investor desires to dollar cost average, the appropriate vehicle would be SPY or DIA. These two securities provide market investment returns in a tax-efficient manner.