Samples of Archived Commentaries:
April 1, 2003
Battling with the War
When the consensus of investors thinks it knows what is going on and therefore where the market is going, it is usually wrong, i.e., "What everyone knows is not worth knowing".
In an environment where there is such consensus opinion, and yet we have an indication the market is going to something other than what is expected, we find that things fall into place for us. However, the situation is quite different in the type environment that has been with us since last fall. That obviously has been one of great uncertainty because no one could know, or even think they could know with any confidence, such things as whether we were going to war, how long the war would last or how it would affect the U.S. economically and, very importantly, psychologically.
That fostered an environment in which investors waited for news in order to act. That made these months very tough to gain much headway and as a result the market basically traded in a sideways pattern. It was especially tough for us as our indicators were positive for much of the time and yet the reaction to the news kept a lid on things. Another old Wall Street truism is that "the market hates uncertainty". The low volume that we have witnessed during much of the past few months characterizes the indecision that comes from such uncertainty.
This combination of psychological study and technical analysis of our proprietary investment model leads us to reach two conclusions:
1. According to our model (as well as a long term model that simply quantifies the amount of risk present) there has been an incipient rally brewing since last October and,
2. The war news has kept a lid on this rally.
Will the onset of war remove the existing cloud of uncertainty? And will the removal of this uncertainty allow the incipient rally to emerge? Only time will tell, but we will be prepared.
The Market Indicator has now turned Positive (as of March 31). As we've ve mentioned in recent letters over the past 6 months, there are many factors that lead us to expect a decent stock market this year. Cycle factors favor strength in the markets during the current year and into next. While there may some continued difficulty rallying in the near term, we are confident that a fairly solid base has been put in that could provide a springboard for solid returns during that period.
Currently, fixed income funds continue to display some leadership in the fund rankings, although to a lesser extent as a result of the strong performance in equities in the latter part of March. The high yield segment, contrarily, is rising in relative strength. As far as stock funds go, the large-cap segment of the market continues to rank consistently among the strongest areas, specifically large-cap growth funds. When adding positions, focus on those funds currently near the top of the table of top-ranking funds.