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Good observations. I too have been concerned about the "buy on the
dips" conditioning. Mutual funds and brokerage houses will continue to
reassure their customers that the market will always bounce back and
declines are great times to buy... yeah unless its a secular decline.
There's no substitute for good timing and your using your powers of
observation. Otherwise you resign your money, decision making and
livelyhood to someone else (brokers or analysts) who is no more qualified
to predict the market than you are.
All the conditions have been ripe for a significant decline for the last
couple months now. My fear is how the public and money managers will
react when the market *doesn't* just bounce back. Check out
http://www.computation.com/pub/hacker/ and click on "Investment" for my
latest ramblings.
- Hacker
On Tue, 4 Aug 1998, Timothy Morge wrote:
> Stewart:
>
> I'm not predicting a bear anything either--predictions are for those psychic
> 1-800 people, not traders. But when I think about a possible bear market in
> stocks, the first thing that comes to mind is the lack of experience in these
> markets with bear markets and this is further complicated with the record level
> of involvement by the public in the stock market. Not only is there a lack of
> experience with bear markets but there are now millions and millions of
> individuals [I believe individuals trading individual stocks make up nearly 47
> percent of the volume these days--correct me on this if you have a better
> statistic]. How do you think your Aunt Veronica is gonna react when she gets her
> statement and her account is down 47 percent of value and she can't get Charlie
> Schwabb on the phone to dump her stocks? And where I live [the north shore of
> Chicago, you can see people upgrading their lifestyle because they've got a wild
> ride on the bull markets of the past 16 years...I wonder how much of that equity
> bulge in their purses have been cashed out--or worse, leveraged up with equity
> loans and the like?
>
> And second--the public is now conditioned by the few correctic 'crashes' we have
> had in 1987 and the early 1990s. They have learned, like Pavlov and his dog, to
> call their brokers the minute the news comes on and the guy starts talking about
> the panic on Wall street. You can tell they are all calling their broker--Try
> calling your stock broker when the DOW os down 200...or better, go to a Charlie
> Scwabb place when the market is rocking and rolling [this is a must, just like
> visiting the trading floors]. You won't find people panicking and trying to
> liquidate their stocks. Instead, you see a line of folks waiting to buy more on
> the dips!! And the same on the phones--these people are all conditioned to buy
> on the dips! Now, so far, they have been right and right with a vengeance. So
> who am I to throw stones? My only question is when a true bear market appears,
> how many times will they try to buy the dip or crash before they finally
> understand the rally isn't coming this week, this month, this....whatever. And
> THEN what happens?
>
> I'm terribly sorry if I made some people turn white and check their current
> stock portfolios. These are just thoughts I have when thinking about a possible
> downturn in stocks.
>
> Tim Morge
>
> Stewart Taylor wrote:
> >
> > A lot of the institutional traders and hedgers who have been heros (never
> > confuse a bull market with brains) have never "been there done that." Walk
> > around the bond floor at any dealer and you see a bunch of 20 year old MBAs
> > who have been long for their entire careers.
> >
> > I have always dealt with hedging accounts... Those accounts who have been
> > active risk managers have under preformed. Many of these managers have
> > been replaced by managers who have thrown risk management to the wind and
> > hung themselves and their accounts it out there. I wonder how prepared the
> > market is for a real turndown in the financials?
> > I wonder how many of the managers will have enough sense to throw in the
> > towel and cut their losses before its to late? I also wonder how well the
> > systems that have worked well for stocks and bonds in bull markets are
> > going to preform when the worm does finally turn. Frankly, I (like Neil)
> > love a good bear market.
> >
> > By the way, my comments aren't aimed at predicting a crash in either stocks
> > or bonds.. but major corrections and reversals are a fact of trading.
> >
> > Good post Tim.
> >
> > COPIED:----------------------------------------------------------------------
> > Neal:
> >
> > One thing that is interesting to ponder...and it makes me feel very old, bu
> > the
> > way...We have not seen a prolonged bear market in the US stock market in the
> > 1980's and 1990's, and so very few traders are even trading that have
> > experienced a prolonged stock market decline. I know as soon as they read
> > this,
> > some people are going to post that we have had several 'crashes' and they
> > count.
> > Maybe. Maybe not. I don't think so.
> >
> > The other argument I've heard is that the economic cycles have changed because
> > of technological changes/improvements and so, the economy no longer 'needs'
> > this
> > sort of cleansing cycle...again, maybe, maybe not. I don't think so.
> >
> > Stewart Taylor
> > Taylor Fixed Income Outlook
> > Voice: 501-219-9774
> > Fax: 501-228-0963
> > E-Mail: staylor@xxxxxxx
> > Web Site: http://www.cei.net/~staylor/
>
Dark Hacker | Hacker and Fortress web mechanic
The Guardians Of Computation | Fortress Of Computation
mail: hacker@xxxxxxxxxxxxxxx | web: http://www.computation.com/pub/hacker/
"Building our future... one twisted freak at a time."
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