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Let
me begin by emphasizing that I do not consider the Dow
Jones Industrial Average an accurate barometer of anything
other than the speculative and manipulative opinions of
overpaid Wall Street lackeys who want you to think that
they can predict the future. From its beginnings as an
indicator of the direction of the economy, it has become
one of a dozen or so magic numbers that are expected to
tell speculators (not investors) when it is safe to dump
their hard earned into the hands of professional lotto
players.
Ironically,
the larger the numbers become, the "safer" the
sheep are told the investment environment is! Over the
past five or more years, none of the averages or indices
has come close to reflecting the movement of investment
grade securities. Actually, none are even designed to do
so. Now there's a mixed signal for you. A clear indication
that Wall Street has no interest in the safety of your
fortune, and an opportunity for some financial institution
to have the courage and sense of responsibility to develop
a really useful tool for serious investors. In 2000, for
example, the NYSE average was
actually up 1%.
With
that said, let's look at the recent history of "The
Market", which for 95% of the people of the world
is the DJIA. The Dow closed the month of November just
under the 9000 mark...a point it achieved for the very
first time early in 1998. By early 2000, it gained another
2500 points, an increase of 28%. This recent attempt to
scale the 9000 wall represents a mere 20% increase, but
accomplished in less than two months. Wall Street is starting
to get pumped up again. Can they get you to dump the fear
products they just sold you and push that greed button
again? And get away with it? Of course they can.
Soon
you will hear rumblings of "The Entitlement Myth" as
the media picks up on the idea that we are now only 2500
Dow points from the all time high achieved back in March
of 2000. That is where we belong. You're entitled to that
level. Our new "stopthebleeding" fund will get
you back to where you were then, whole again. Aren't you
going to hate yourself if you don't participate? Our super
smart MBAs and Ph.D. analysts will get you there, again.
We love you and want to protect you. Just like we did last
time; Hmmmm, if the market value of your portfolio is just
where it was early in 1998, you've been spinning your investment
wheels for nearly five years! Contrary to the party line
on Wall Street, "Long Term Investing", "Buy
and Hold", and "Growth Mutual Funds" are
not even related terms.
By
the way, when the market gets to that 11,500 level again
as it inevitably will, do you really believe that your
Mutual Fund holdings will be back to even? It's doubtful,
because they really aren't free like you were told. But
even if they were, and it happened by March of 2003, would
three years of zero growth be acceptable? And then, after
a 50% rise in the average, would you still be salivating
for more? Wall Street wants you to think that all of this
is the best that could have been accomplished in the recent
investment climate. There was nothing that could have prevented
this disaster. Please. The truth is that the Mutual Fund
investment mechanism has strayed so far
from its noble beginnings that it just plain can't work any more, and the advisors
you count on haven't figured that out yet. Mutual Funds make a lot of salespeople
a lot of money, and very few prospective investors have any other investment
option.
Think
about it. There are more funds than there are stocks to
invest in. Fund managers have less experience running equity
portfolios than most prudent investors would find reasonable.
Fund managers are not compensated in any way that reflects
the goals, objectives, or safety of the investor. Mutual
funds are an ideal dumping ground for speculative new issues
underwritten by institutional investment banking departments.
[Once you begin to hear about new issues (IPOs) again,
you just know its time to run for cover.] There is
zero truth in the idea that funds are free of investment
costs. The term "no
load" is a euphemism for holding your money for ransom.
Try
to get real. A 20% movement in anything, even a weighted
average as useless as the DJIA means one thing for certain.
There are some professionals out there who have started
to take profits. I know of one Investment Manager who has
taken profits on sixty different NYSE companies during
this mini rally alone! Nearly all of those positions were
established during the June to September downturn. (Here
are the symbols, check it out: AFL, ADP, ABT,AGN, AT, AIG,
ADM, AXP, ASH, BLS, BMY, COF, CLE, C, CCL, CTL, CI, DP,
DD,
DOW, EFX, XOM, EMR, EK, BEN, GSK, GWW, GGG, IEX, IR, JNJ, JPM, LM, LEH, LLY,MYL,
MAY, MEL, MRK, KRB, MCK, MDT, NKE, PEP, PFE, PHG, PLL, MO, PBI, RD, STR,ROP,
RCL, SLE, SPC, TIF, TLB, TXT, UTX, and VZ.)
What
does this tell you? A few things should become very clear
in this
"
mini" cycle. If you buy nothing but investment grade, dividend paying
companies when their prices move lower, you will be able to sell them
profitably when even a brief rally moves their prices higher. Neither
commission driven nor salaried employee financial pros will encourage such
a logical approach because it is much easier to push the fear button than it
is to lobby against client emotions. Thus, the panicked sellers provide investors
with their "buy low" opportunity. The reverse happens when prices
move higher. Investors take their profits, allocating a portion of their gains
to income producing assets, and patiently select equities from a diminishing
supply of high quality possibilities. Today, for example, there are less than
20 high quality companies that (in terms of my well documented investment strategy)
are safe to buy. Here's a free buy list for Monday, December 2nd: KO, COP,
DP, HB, JP, NKE, PNC, PFE, MO, and WAG. "Wall Streeters", on the
other hand, just keep the riches carrot out there on the stick until uncontrollable
greed leads to yet another unsustainable high. It's actually a lot of fun to
watch.
Why
is the public constantly out of sync with the market cycle?
There are several reasons. The media encourages speculation
about the future and feeds the myth that humans are intelligent
enough to time the market. Wall Street has become expert
at playing the emotions of investors, and has bribed and
corrupted the regulatory bodies to the point where billions
of investment dollars annually can be invested only in
Mutual Funds. The financial institutions are so rich and
powerful that they can advertise us to death with poor
advice and misleading statistics. Have you seen the new
rash of brokerage firm advertisements with their pop up
talking pie charts, and
non-commission driven employees? Remember, these are the same people who just
led you down the road to destruction. Nothing's changed.
But
the real reason for all of this confusion is this belief
you have that
you are "entitled" to an investment medium that is fair, meaning
that it only goes up and that you can rely on what ever you hear from Wall
Street suits and other advisors who have too few investment made nickels to
rub together to really be taken so seriously. That every product will "perform" like
it says it will in the sales proposal, and that there is no risk because. Just
because. Blind faith. No responsibility. And absolutely no understanding of
how the stock market behaves. Once again people, this is not rocket science.
You gotta' buy 'em when nobody wants 'em, and sell 'em when they go back up!
The market is more "dangerous" at high levels than at low levels.
There is no free lunch, no certainty, and no Santa Claus. Learn about the process
and the products before you trust anyone. Abandon buy and hold, and recognize
just how speculative Mutual Funds have become.
And
for sure, have a delightfully happy and healthy holiday
season.
Steve
Selengut
Conservative Investment Management That Works!
http://www.sancoservices.com
Lois Center-Shabazz is the founder of MsFinancialSavvy.com
and author of the 3-time award-winning personal finance book,
Let's Get Financial Savvy! ISBN #0971979502.
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