It is September 24; I am sitting he...

It is September 24; I am sitting here in the comfort of my to one's home office. It is an auspicious day for couple reasons:

(1 ) This was suppos to be D-Day. The day when principally of the pundits predicted that the FOMC (Federal set by Open Market Committee for the unwashed) would announce its economy cooling, inflation fighting, rescript market killing hike in interest rates. Gues what? It didn't happen. The F passed forward monetary restraint, bond prices rose (yields declined) and the stock market has again established novel all-time highs. In Canada, the TSE is zeroing in forward 5,300, and in the U the Dow clos within a whisker of 5900

(2) Tomorrow is deadline day. I must file my fundamental market prospect article. I need fresh ideas-and suitable ones too! I need to be bold-faced creative, provocative.

My dilemma is the financial writer's worst nightmare. The cupboard's bear. I've already shared one of my best ideas and forecasts with you. Faithful readers will recall my last outlookdelivered as the markets plummet into the measures of the May/July setback. At the time, I boldly predicted-and mathematically proved-that North American equity markets were only witnessing a "mild correction." Now, as promised, the gross mistake is alive and stampeding by the and of Wall and Bay Streets. Reaching 6000 onward the Dow is a done deal and I'm dusting not upon my earlier prediction that the TSE 300 could pierce that high barrier before the year is revealed

WHAT'S IN A BULL?

But maybe there is more to the story after all. Maybe the story is the male itself-its remarkable stamina, its uncanny ability to defeat each and every setback. nevertheless despite these credentials, as Rodney Dangerfield would say, this edict gets "no respect."

What can chiefly be learned from this particular edict market is the importance of adhering to a long-term view of investing. The alternative is market timing which about call by the fancier name of tactical asset allocation (not to be confused with transcendental meditation). The extract of market timers is their unwillingness to stake disclosed a bullish or bearish long-term view. These iconoclasts are the ultimate opportunistsshifting from common camp to the other forward a quest to maximize reward. However, the reality is that market timing succes stories are not many and far between.

YOU PLAY WITH THE male (OR "OUCH!")

Market timing was quite popular a two of thousand points ago. yet now, many investors who tried to time this blunder market are kicking themselves. Market studies (especially in the US) exhibit to how costly it is to be abroad of stocks during those highly short stretches when markets make their sharpest gains. Witness the saga of Elaine Garzarelli-the prototypical market timer. Elaine's claim to guru status descendants from her notorious foreboding of the October 1987 crash. Unfortunately for Elaine, that was probably her last major winning market call. Still throughout the past decade, that prescient prediction has been the backbone of her image. A classic example of the "if you're eternally right, never let 'em forget" institute

No one knows whether or not Elaine advised her clients that they should be getting back in the market the morning after the crash. And thus, clients who heeded her vend signal may ultimately have finised up worse off than if they had missed the beginning of the massive male market.

More recently, Elaine, now a portfolio manager, has gone bearish again, liquidating all stock positions in late July just when the market was wager for a furious rally.

Contrast this to a long-term "buy and hold" philosophy. above a 40 year period starting in 1954 the S&P 500 get backed 11.4% annually. However, being disclosed of the market in the 10 best month dropp that reply to 8.3%. By missing the best 20 month that annual get back would shrink to only 61% The Canadian evidence, although les compelling, is similar.

THE BOTTOM LINE

It takes courage to be a "buy and hold" long-term investor. However, in a world of gentle inflation, that strategy will ultimately experiment upon rewarding for equity investors. And remember, this summer's market correction will definitely not be the last. You can bet onward that. Just don't bet upon it-if you know what I mean.

EARL BEDERMAN IS PRESIDENT OF INVESTOR ECONOMICS INC., A CONSULTING FIRM SPECIALIZING IN APPLIED RESEARCH IN FINANCIAL SERVICES, ECONOMICS AND coin MANAGEMENT.

Copyright Canadian Shareowner Magazine Inc. Nov/Dec 1996

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