Investment Update
Wednesday, July 24, 2002
Dow Jumps Nearly 500 Points (6%)!

    As you probably know, the lions came roaring back into Wall Street today, boosting the Dow  nearly 500 points, and raising the S&P 500 from last night's 797 to 843. This illustrates how fast the market can climb when the money waiting on the sidelines is brought back into play. The Dow would have to rise 50% to reach its early-2000 high. Today, it got 1/8th of the way there. Given another day like today, it would be 25% of the way back to its former peak, and in eight days like this, it could be there. Of course, that isn't going to happen, but it illustrates the difficulty of timing the market.
    The next question is: is this another temporary rally in a near market, or is this the beginning of a bull market? I certainly don't know. The pundits in the articles below are of the opinion that it's probably a temporary reversal. 
    You might wonder why I don't consult experts. I have. Over and over again. I've mentioned the two gentlemen at First Alabama Bank who gave us such good advice for about a year, and then told us that the stock market was getting ready to nosedive, just a day or two before it took off on its way from... 1,000?... to 2,700. I believe that my next advisory service was Marty Zweig. Dr. Zweig was a nervous-seeming and active investor. After a while, I learned that although his recommendations had kept up with the S&P 500... no mean feat, since 85% of all fund managers can't do that well... his recommendations hadn't much exceeded them. After that, I relied upon Growth Fund Guide. By that time, I had been subscribing to Growth Fund Guide for a couple of years. I also watched Lewis Rukeyser's "Wall Street Week" every Friday night. His guests ran the gamut in economic outlook and investment advice. Major stars appeared there. Milton Friedman, Paul Samuelson, and Alan Greenspan were among his guests, as were Sir John Templeton, Peter Lynch, Martin Zweig, and Elaine Garzarelli, to name only a few. It was a Tower of Babel. It reminds me of the quatrain from the Rubaiyet that goes,

"Myself, when young did eagerly frequent
    Doctor and saint, and heard great argument
About it and about, and evermore,
    Came out by the same door where in I went."

   There are hundreds of experts out there, and they all have somewhat different opinions. (Some of them have very different opinions.) We're now hearing that many of the analysts employed by investment firms are flacks, paid to flog whatever the company is selling. There has been talk yesterday and today about prosecuting Jack Grubman, whose story I've told in "Wandering Down Wall Street".
    Growth Fund Guide worked until 1987. After the Crash of '87, the scholars at Growth Fund Guide seemed to be so spooked by what had happened that they became (in my view) extremely cautious. Knowing now with 20/20 hindsight how overpriced the stock market was becoming, I can appreciate their caution, but in the meantime, I also signed up for Mutual Fund Forecaster. That had tables of mutual funds in it. It eventually closed its doors. 
    In 1997, famed investment prophetess Elaine Garzarelli announced that her proprietary indicators indicated that a crash was coming. In 1987, Elaine Garzarelli, a voice in the wilderness, had warned about the impending Crash of '87 predicted by her indicators. No one listened to her before the Crash, and everyone listened to her after the Crash. I subscribed to her $325-a-year  investment newsletter for sic months, and sold some of our mutual funds to prepare for the coming crisis. When it didn't happen, Elaine Garzarelli suddenly discovered an error in one of her indicators. She glossed it over as though it were nothing at all, and made recommendations for future purchases. Of course, we lost some money through her slight imbroglio. 
    My most recent oracle was Dr. Edward Yardeni. That worked until he fell upon his sword over the thesis that Y2K was going to cause a major interruption in the economy.
    By that time, the internet had become available, and it far outclassed these other sources of information.
    For an update on the level of agreement among our most respected investment advisors. visit Smartmoney's "Pundit Watch".
    But the bottom line is that if there are experts out there whose advice you can trust, I haven't identified them yet. My suspicion is that these gurus exist, they're to be found within the folds of the biggest and most successful institutions that invest in the stock market. Of course, the most successful investors--Peter Lynch, John Templeton, Warren Buffett--say they pay virtually no attention to what the market or the economy is doing. They focus on sock picking and the companies behind them.
    For tonight, I'm going to go with the advisory consensus that today's rally was a bear market rally, to be followed by further weakness. However, the next day or two should tell the tale, and if the stock market continues to climb, I'll probably shift some of our conservative assets into riskier ones. (Unfortunately, with mutual funds, you can't move very fast.)
    Below are links to, and excerpts from tonight's investment articles.

Dow zooms higher in biggest rally of the year

"Richard Dickson of Hilliard Lyons notes that the market's recent sell-offs have been accompanied by very heavy volume. He points out that of the five heaviest volume days recorded on the NYSE, three have occurred in the past four days.

"'Waterfall price declines accompanied by very heavy volume are, historically, very reliable indications of market bottoms. Most recently, the two best examples occurred in October 1987 and again in September 2001. Whether the current example proves to be a third remains to be seen, but we think chances are good that it will," he said. "Overall, we would be making a list of stocks to buy right now.'

"The major question, Dickson said, is whether an eventual market turn proves to be a bear market low or simply an intermediate-term low within an ongoing bear market."  

Another Dive in Store for Stocks  

Stocks Rebound, Biggest Gain Since '87
The Biggest Rally in 15 Years
Dow industrials soar more than 490 points in a market reassured by ethics developments
Dow Closes Up Nearly 490 Points
Broad rally sweeps up chips, hardware
Risk Scenarios in an Ugly Market

The Case for Bonds (Again)