> In a true bull market, bad news about a company can have only a
> transient effect. For example, Intel stock plunged in May, when the
> company warned that its second-quarter earnings would be
> disappointing. This week it reported earnings that were a bit better
> than the profits it had forecast in May, but still well below what
> analysts had expected before the May announcement. The stock zoomed up,
> and hit a record high Wednesday. It has risen 25 percent since the end
> of June.
I'm way too nervous to be a good investor...... somebody get me my boomstick!
I got this article using the NYT search engine, so I
have no idea what the actual URL is. This is what it gave me:
http://search.nytimes.com/search/daily/bin/fastweb?getdoc+site+iib-site+36+1+wAAA+%28Floyd%29%26OR%26%28Norriss%29%26OR%26%28%29
Market Place: A Market Oblivious to Gravity
July 17, 1997
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Related Article
Dow Gains 63.17 Points to Close Above 8,000
Recent Ups and Downs of the Dow (July 16)
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Join a discussion on Stocks
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By FLOYD NORRIS
[W] hat goes up must come down.
Says who?
The Dow Jones industrial average climbed above 8,000 Wednesday, just
seven months after it first topped 6,000. It has doubled in less than 30
months.
Over the past 12 months, the index has risen 50 percent, a kind of
performance seen only during the most explosive market moves.
Why is this happening? "Things are perfect," said Edward Kerschner,
Paine Webber's top strategist. "They truly are. How else can you
describe 2 percent inflation and 10 percent profit growth?"
That is not all. Interest rates have been falling, and some of the
overseas markets that had seen explosive growth have begun to seem
risky. Individual investors have continued to pour money into stock
mutual funds, with many accepting the thesis that stocks are the best
long-term investment, and companies are buying each other at a fast
pace. When they pay cash for shares, as many do, that shrinks the
available supply of stock.
Many Wall Street veterans find the market's surge hard to believe, and
valuation measures show stocks to be quite expensive. But that was also
true 1,000 Dow points ago, and anyone who got out then has missed a
great few months.
Alan Greenspan, the chairman of the Federal Reserve Board, scared
investors in December with talk of "irrational exuberance," and then
frightened them more by raising short-term interest rates a bit in
February. But since then the Fed has backed off, and now there is
confidence that it will do nothing to spoil the party.
"The question," added Kerschner, "is what price you pay for perfection."
He thinks the price being paid now is dangerously high, and expects the
Dow to suffer a 10 percent drop soon, something that has not happened to
that index since 1990. It has never gone longer than that without such a
pullback, but similar forecasts in recent years have always been wrong.
People do not care about value, Steve Leuthold, a Minneapolis-based
analyst whose Leuthold Group closely monitors valuation, said
Wednesday. "Individual investors don't know price-to-book value, or any
of those things," he said. "They know prices are going up." Given the
market's momentum and the strong demand for stocks, Leuthold's market
model is bullish, however, even with valuations looking to be very high.
Perhaps the most impressive aspect of the Dow's ascent is its 50 percent
climb since this time a year ago. Over the past half-century, there have
been only three times when the market managed to show gains of as much
as 47 percent over a 12-month period. Two of them, in 1982-83 and
1975-76, came as the market exploded out of severe bear markets that had
been accompanied by recessions.
The only similar move in a market environment like this one -- after a
prolonged rise in stock prices -- came in 1986-87. It was followed by
the 1987 crash, but prices rallied, and within a couple of years the Dow
was again setting new highs.
By some measurements, the current bull market can be traced to the 1982
low. By that definition, it will celebrate its 15th anniversary next
month. Those 15 years have been better than any comparable period in
American stock market history. The Dow is now more than 10 times as high
as it was in 1982.
In a true bull market, bad news about a company can have only a
transient effect. For example, Intel stock plunged in May, when the
company warned that its second-quarter earnings would be
disappointing. This week it reported earnings that were a bit better
than the profits it had forecast in May, but still well below what
analysts had expected before the May announcement. The stock zoomed up,
and hit a record high Wednesday. It has risen 25 percent since the end
of June.
In that kind of market environment, the risk of not being in stocks
seems to many investors to be much greater than the risk of being in
them, regardless of whether valuations seem high. There is nothing
apparent on the horizon that is likely to change that risk-reward
calculation.
----
adam@cs.caltech.edu
I just read a little article about the pride of workmanship that the
person at an Irish bar displays in pouring out stout; why it takes 10
minutes; and, why its the very worst of manners to try to hurry him
along.
-- Mani Chandy