Subject: IC940830: Where the market is going - more debate

From: "Gray Zhu, 800-289-2498, 212-279-6700" <[email-masked]>
Date: Mon, 29 Aug 94 21:13:57 CDT

==================    IC940830: Investment Club  ======================

1. Where the market is going - Debate continues ........ Jianping Zheng
2. Another starter book ................................ Charlie Li
_______________________________________________________________________
   (be sure to read the Disclaimer in the end if you have not read)

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1. Where the market is going - Debate continues ........ Jianping Zheng

>From [email-masked]  Mon Aug 29 08:11:30 1994
> Re: Re: IC940827: Thoughts about Market (Ken Gu)

>> At the time, things were still uncertain. The most obvious: people were 
>> still haggling whether the Fed should or should NOT raise the rate again. 
>> And perhaps more important, whether the market will react to such a move 
>> or non-move. 
>> 

>Well, I don't think things are "certain" at any stage of the market.  One
>thing is certain though: last week's rally is good for the market trend.
>Also, if you knew that the analysts were mostly wrong in their views of
>where the market was heading, you would have made a lot of money last week.
>When interest rates go up, the market goes down.  But, it is also true, when
>the Fed is done with interest hikes, the market goes up about 15% on average
>in the next six months (I may be wrong in the time window).
>If you decided to stay out because you were uncertain where the market was
>heading, you would have missed a lot in the past two months.  Again, if
>you are still uncertain where the market is heading, you will continue to
>miss a lot of opportunities.

Well, mine is plain English: things were UNCERTAIN when I made my judgement,
and they were CERTAIN when I wrote the above.

I do agree that market has  uncertainty all the time. But it would be very
unwise to believe that the chances of UP and DOWN are 50-50 any time,which 
is why you need to assess risk/reward ratio when making every decision.

Last week's rally means the bull is not dead. But could you tell me the
bases of you assumption that it will roar back 15% immediately after the 
bad days? In particular, how greater is the risk to grab that 15% gain?!

You may miss oppoturnities because of the loss of positions, but don't forget,
you may loss your investment capital because of over-positioned.

>> However, the unexpected rate-hikes in Italy and Sweden did betray the market
>> psyche. Rather than seeing a great turbulance, many markets stabilised 
>> after the initial shock. What it told us? Well, the market is waiting 
>> for something: some GOOD news (or excuses) to muscle a rally. Seeing that,
>> the decision of riding over the storm would not be too difficult to make.
>> 

>Europe's economic recovery is ahead of expectations.  Unlike the US, the
>unemployment rates are higher, thus keeping the inflation down.  Many expect
>many European countries will follow the US by raising interest rates.  If
>you agree, then stay out.  If you don't agree, buy on sell-off (like a week
>ago).

What is your opinion? Will you buy Europe or NOT? I can't see too much 
differences between US and Europe, other than that they are in different 
stages of recovery. If your decision is US is a buy, so should be the Europe.

>> Don't Forget: The Bull has been Wounded
>> ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

>I would said the bull has been recharged or refueled.

You mean it was away and charging its battery when the BEAR had its upperhand? 
Don't forget, the market is played by the same people!

>> It will be unwise to think that the market will rocket regardless of the 
>> recent deep scar. The Bull is already severely wounded. 

>A particular stock may go up like rockets.  Some stock indices may as well
>(like the Hengseng Indix or the Shanghai Stock Exchange).  But not the three
>major indices in the US!

Good point. Agreed. That does mean the market should have a few months 
digestion.

>> If the 70 points rise of Dow tells that the market is still a place to stay,
>> the afterwards 50 points rise should be an alarm. A too rapid rally would 
>> only bring, at the best, a subsequent prolonged period of consolidation.
>> I would rather see a few months digestion at the current level rather than
>> a sharp up-and-down, which will give us an ominous short-term double-top 
>> pattern and an extremely difficult time.

>Why a few months of digestion?  Are you saying we buy in a few months?
>Why not next year or now?  You seemed to be "certain" in when the market
>will go up higher.

What I am saying is: we still have a few months to re-adjust our portfolio,
and prepare for the next stage's rally. The precondition is that the market
does not go hype RIGHT NOW. If it does, the next stage will be a very danger
downward slope.

I am talking about the possibilities: the possibilty that market should
be consolidating recently is greater than it is going up sharply. Or, if
it does go up sharply, the possibilty that it goes down SHARPLY will be 
greater.

Unfortunately, we need to make a few assertions like the above to reach
useful decisions of investment. A rough judgement of how 10 years (or even 
a half year) trend will go simply does not help too much, as the chance 
of one-off bust also becomes greater. 

>> When over-pessimism turns to over-optimism, it is probably the time to make
>> an orderly retreat.

>I agree when you are overly invested at this stage, you probably want to
>lighten up.  I would not stay out completely.  I would lighten up on
>cyclicals for example, but stay with some of the technology sectors.
>Always keep some cash available when opportunities arise.  Read the
>WS Journal daily and keep an eye on the healcare debate.  Some drug
>and hospital supply stocks have made quite a come-back recently, but
>it is not over-yet.  Also, look for stocks that have been slashed
>badly, but are still fundamentally sound.  Furthermore, computer prices
>are being cut drastically.  What does it mean for this sector, and
>what will happen to the computer peripheral stocks (chips, keyboard,
>computer screens, memory, HD, CD ROM drives, etc.)?  Lastly, but not the
>least, the dollar is at all time low.  What does it mean for companies
>doing bussiness with Japan, the European countries, and booming markets
>in Asia?  
>
>My advice is: spend less time worrying about interest rate hikes, but
>instead, focus on fundamentals.  The US economy is robust.  The weakness
>in dollar is helping its competitiveness in world economy.  Stay invested
>and use any sell-off as buying opportunity.  Stock market is the place to
>be in the 1990s!

Interest to see your way of making investment decisions, which is more close 
to a big fund manager. I would just pick up a few companies, dig deeply 
into their reports, make sure that they are fairly priced and have got enough 
space to grow. Just a few correct decisions are enough to beef a small 
investor's portfolio up.

A few distinct facts also help. One thing I noticed is that (US)Dollar/
(Japanese)Yen exchange rate has double bottomed these days. That does tell 
Japanese market is more likely to be a place to invest in short-term. It is, 
however, still early to say what the whole 1990s' trend will be, as far as 
I can perceive from reality.

Thanks for a very fruitful review.

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2. Another starter book 

>From: "NUHEP::YUEKUAN"@FNALF.FNAL.GOV

        In addition to the books about wall street recommended, I would also
    recommend 'A random walk down wall street"-By Burton G. Malkiel, 
    which is a pretty good personal investment book. Some schools use 
    it as a undergraduate finance sourse textbook. 
        
        Cheers.

                                   Charlie Li

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