A few days ago, I said, "This is where I thought we were in 1999. Thanks to criminally reckless credit expansion in the interim, we're still there, only the results may be worse than I feared then." Now, Tom Madell draws comparisons between 2000 and 2007.
Few are brave enough to come out and declare the start of a bear market; but the watchword is "proceed with caution".
11 comments:
Sackers, I have infected you with 'wrong link' syndrome !
Oops. Now corrected; thanks!
I guess my article "Warnings Signs of a Bear Market? Mirror Images Between 2000 and 2007" wound up on the mark. At the time I wrote it, it was based on research I did which suggested that data showed a clear resemblance between the onset of the 2000-2002 bear market with what was happened in 2007. It appears that my research turned out to reflect something significant.
Thanks for the mention in your blog.
Tom Madell, PhD
http://funds-newsletter.com
Thanks for your visit, Tom. MayI ask, what data did you consider significant when making your prediction?
Sackerson - I study the trends in the performance of different mutual fund categories, such as Large Growth, Small Value, International, etc. While most people focus on how the stock market as a whole is doing, it is certainly possible that one or more categories are doing well in spite of an overall bear market.
So, category performance trends are important, even once a bear market starts. My research tends to confirm that since no category can produce outsized returns indefinitely, nor can the market as a whole, it makes sense to start cutting back on a category or the market as a whole after 5 or more years of being bullish.
Another warning sign to me is when a category, or the market as a whole, is showing much less good performance than during its last 5 yrs. and this dropping off has gone on for around a year. By Jan. of '08, the S&P 500 Index, was approaching being lower than it had been in Jan 07.
The above 2 warning signs together were very troublesome to me.
As I said in my article, I wasn't really predicting a bear market at the time. All I was doing was suggesting that people who wouldnt just be able to sit back and possibly watch the market correct after the long bullish phase, should start to take some money out of stocks. This, as it turns out would have been a good strategy and prevented these people from greater losses.
Tom, thanks, that's very enlightening. From what you say, I'd guess you would now be considering the large-cap value sector.
Sackerson - Large Value would certainly be quite a contrarian play right now. But I have actually been negative on that category for quite a while, and still am. (If you want to see which categories I favor more, please see my July 08 Newsletter and scroll down to Third Quarter 2008 Model Portfolios.)
The problem with investing in Large Value is that while it is certainly beaten down, you would have no idea as to when it might return to favor. It has to stabilize for a considerable period (6 mos. to a yr.) before I would consider it worth taking the risk. Large Value funds are usually loaded with financial stocks and those are the ones that no one knows how much further they will fall.
Point taken, Tom; I was thinking more of utility companies.
I dont particularly follow utilities as a sector, but I would tend to avoid them now as well.
Tom, that's interesting, I shall have to watch what happens. I thought of them as defensive stock, cash cows. How about railroads, since Buffett and Soros got into them last year?
Sackerson - I don't follow all sub-areas with the stock market. I usually confine my newsletter to the major categories of mutual funds, with an occasional mention of some of the largest sector funds. I have never taken an opinion on specialized areas such as gold, and certainly not railroads.
Also, my work is designed to help in making picks for the intermediate to long term. (My picks have continued to outperform even 5 yrs after I first made them.) So, while a group might be a temporary winner, it might no longer be particularly strong once the current set of crises are over.
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