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All of us have heard and read of the bullish psychology that characterized
the market in the late 20s and even the first bear market rally following the
Crash of 1929.
As traders and investors, our attitudes tend to most influenced by market
conditions and events that we experience first hand. Thus some of the
reservations being voiced about the current public mania for leveraged short
term trading and twenty-something managers of high tech funds who have never
seen a protracted bear market.
Like a few others on this list, my early experience includes the markets of
1969, characterized by a similar mania for large "conglomerates" and mutual
funds. As the market was topping, managers of some of these funds were
appearing before Congressional hearings touting their funds at 60 and 80
times earnings as safe investments for widows and orphans. Six years later
in 1975, after an excruciatingly slow grind down to the bottom, several
prominent companies were selling for three times earnings and paying 8%
dividends. Many of the formally high flying mutual funds were selling at
substantial discounts to net asset value and most of the public did not want
to own stocks.
I am not suggesting that the current trend or the underlying bullish
psychology is about to change. Only that many people, influenced by their
most recent experience, will not recognize any change of trend until it is
well underway. Their selling will thus provide the energy for the last half
of any substantial correction.
Regards,
Jim Alvis
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