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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: novice investor who wrote (35487)	11/6/1998 6:14:00 PM
From: Knighty Tin	Read Replies (1) \| Respond to of 132070

NI, I don't know the breakdown. My guess would be something like 60% individuals and 40% institutions, but that may be very stale with this decade of inflows into mutual funds. There are a huge number of folks like those you mentioned. That is one of the reasons I am so bearish on the general market, domestically. This is the herd I always talk about. They are always with us, but we had a huge mass of them in the 1920s and in the 1960s (and I was one of them for awhile, before I became cynical). They have been taught certain "facts" about the market that simply are not true. Most of the time a long term market play does well in nominal dollars. But a large minority of the time it fails in spending power. For example, the Dow hit 985 in 1968 and was 1020 in 1982. But that does not mean the investor made a little bit by holding. The dollar was worth much less in spending power over those 14 years. The CPI increased at a rate greater than 7% a year. That means a dollar in 1968 was worth about 40 cents in 1982 and the Dow would have had to have been closer to 2500 to break even. Yes, buy and hold measured to this manic top may look halfway decent, but it does not look good on a spending money basis in many if not most measuring periods. As long as people believe that sort of crap, have good jobs that give them money to throw in a hole, do not have any kids or wives or husbands who ever have emergencies, and stay alive for several decades, they may do decent holding at a top. But those factors added together make for a lousy bet over time. And when they break, they all seem to break. Somebody loses his job and has to sell his stock. Then 100,000 somebodies. Then the stock goes down. And the funds get redeemed. Which means that the cos can no longer fake eps growth with bull market scams like buybacks and options for pay. The eps become lousy, sort of like now, and eventually folks realize that they are not in a growth faze. Or, Latin America or Asia or gold or real estate or silver or energy get hot and domestic stocks look crummy in comparison. The same religious folks who are buying and holding were buying and holding gold back in the mid 1970s, or their spiritual kin. Suckers always think every trend will go on forever. I have been there on a lot of them. In the late 1970s, you could not convince anyone that oil would ever sell in the teens again. Or silver below $40 and ounce. Same thing with tulips. The mass of suckers do make shorting dangerous and do extend bulls beyond their reasonable lifeline and price. But when the lemmings leap over the cliff, the puts just look so goooooood. BTW, one funny story is the buy and holders belief in Warren Buffett. They talk about how he bought when everyone was selling and got rich. Nobody ever asks why he had been holding cash until everyone else was selling. <G> MB