Why some of us hope the market goes down

The Advocate, Wednesday April 10, 1996

For those of you who read my financial column regularly, you may recall the article I wrote last October (The Crash of 1987). In it I mentioned that as of September 15th, 1995 the DOW was up 23% for the year.

The year ended up 34% overall. I mentioned that the market could go higher but I would feel a lot more comfortable if it were lower before I invest any new money.

January, when I arrived in Florida for my annual winter vacation, I started to track the movement of the DOW. Thursday, February 1st it reached another record all-time high. Monday, February 5th it reached another record. For the next six days it continued to reach six consecutive all-time highs.

That brought the string to seven-in-a-row. Since I began in the business in 1983 I do not remember that happening before. It continued to reach new highs on or off until Tuesday, March 5th's record high of 5642.78, tacking another 465.33 points or 9% to the DOW.

We are in the sixth year of expansion. This is a market that I am not familiar with. Perhaps because of the huge influx of cash the boomers are putting into mutual funds new rules are being written.

However, one thing I do know for sure, the market doesn't always go up. It also comes down. The question is - when?

When a client called me to ask again why I didn't invest all his money and put 50% in T-Bills last year it was a little embarrassing.

He wanted to know when this so-called correction was coming. I explained that I hate to have new clients begin to see a decline in their investments shortly after they invest with me. If I am going to err, I would prefer to err on the side of caution. Although more money would appear to be made in the short term, if a major decline came that would wipe out these gains. That would be the time to invest the other 50% when prices are low (bargains).

Either way, my client would be protected from losing money. If the market continued to rise (it actually is a lot higher than I expected) he would make money. If the market did correct, (this is what I expect) by investing the balance of his money then, he would average out his cost at a much lower price than if he had invested it all at once.

I have to make some difficult decisions for people who start to invest money with me. Not only do I have to decide the funds to invest in, depending on their risk tolerance, but I also have to assess current market conditions.

As the number of funds continue to increase it is becoming more difficult all the time. In the case I mentioned above, it can look bad if I don't invest all their money and the market continues to rise. They feel they are losing out. (Beware of the feelings of greed. They can get you into trouble.)

If you have at least a 5-year time horizon, lowering your initial costs can make a substantial difference in your returns. After 10 years it is much greater. But please, don't get me wrong, I only use the above strategy when I feel the market is too high. I am NOT a stock market timer, I am a long-term investor.

Once the money is invested it should stay invested. Moving in and out of the market can only be done by a handful of people successfully if at all. I am only suggesting that you play it safe when investing into a sharply rising bull market.

I don't buy stocks. I don't know enough to do it successfully over a long period of time. That is why I use the expertise of those who have proven to me` that they can. I don't know when is a good time to buy or sell.

Sir John Templeton said there are over a hundred ways to assess a stock. When you buy a stock, you are buying ownership in a company. (See my articles "Owning or Loaning" November 1993 and "Investment Choices" September 1993 or call me for copies).

That is why I use quality equity mutual funds. I get to know the people in some of the best companies that run them, often on a first name basis.

I want the market to go down for two reasons. First, because these experts have the opportunity to readjust their portfolios using the cash that has been building up to buy low (bargains).

This buildup of cash occurs when the fund selectively sells companies when their prices are high, plus the continuous inflow of new cash that usually sits because there are no bargains available. After the readjustment accours, all you need is patience to see the process begin all over again until the next correction.

Second, because this time, not only am I sitting on a bundle of cash that I want to invest as soon as possible, but I have several people who want to invest money with me. I told them to wait until the correction occurs before investing any new money.

Because the market is heading into the stratosphere, it has been a very difficult thing for me to do - WAIT - especially when I have several people anxious to start investing. I feel perhaps they may lose their patience and go some place else, I can't imagine.

However, I'd rather be safe then sorry. Was I ever relieved when the DOW fell 171 points to 5470.45 March 8th. The third largest one-day decline. It was a reality check.

Since then it has reached another high of 5683.60 March 18th. How high will it go?

SOON I will invest my money and my client's money when prices are a lot lower and I can once again have peace of mind and sleep at nights. That is why I want the market to go down.

I have an excellent article put out by the Investment Funds Institute of Canada, "Making the right Choice." Contact me for a copy.

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Created: Thu May 16 10:30:50 1996
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