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Strategies & Market Trends : Gorilla and King Portfolio Candidates -- Ignore unavailable to you. Want to Upgrade?

To: LindyBill who wrote (1815)	5/8/1999 10:16:00 PM
From: Mike Buckley	Read Replies (1) \| Respond to of 54805

This discussion is FASCINATING to me and I can't imagine a better group of people to discuss it with. The other point of view, of course, is that supply and demand has set a new "paridigm" ... and that these are going to be the PE's from now on. For me, that's a fancy way of saying "It's different this time." I don't buy it. For the last couple of years I've been taking notice every time I read that 450 of the stocks in the S&P 500 underperformed the index. That's been the case for about two years now. Similar statements can be made about the Naz (especially now that the large-cap high-tech stocks dominate the total market cap of the Naz) and the Dow. I wish I had the numbers to support the generalizations, but I don't. The point is that the market breadth continues to narrow as investors pay higher and higher premiums (relative to growth) for the large-cap indexes. The indexes keep hitting new highs, but surprisingly few of the stocks in those indexes are sharing in the wealth. In the current issue of Forbes (Sorry, Stew, but I really like the publication for the most part. :) there is some interesting data about the breadth (or lack of it) of market leadership. There is a graph on page 341 (analog version!) showing that only twice since 1926 has the leadership been almost as narrow as it is now. The first time was in 1929 and the second time was in 1970. Not that circumstances in 1929 or 1970 are comparable to today, but it does make one think. The graph shows the percentage of stocks that are underperforming the market during the previous 12 months. Currently, more than 70% of stocks are underperforming. Never has such a high percentage of stocks been underperforming the market. (In 1929 and 1970 slightly less than 70% of the stocks were underperforming.) Rarely have more than 55% of the stocks underperformed. Since 1994, the number of underperformers has grown fairly consistently from 40% of all stocks to more than 70% of all stocks. This can't keep going on forever. --Mike Buckley