In addition to a well thought out Investment Plan,
successful Equity investing requires a feel for what is going on in the real
world that we all refer to as "The Market". To most investors, the
DJIA provides all of the information they think they need, and they worship it
mindlessly, thinking that this time tattered average has mystical predictive
and analytic powers far beyond the scope of any other market number. A cursory
review of New York Stock Exchange (NYSE) Issue Breadth figures (93% of the Dow
stocks are traded there) clearly shows how the Dow has neither been prescient
nor historically accurate with regard to broad market movements for the past
eight years. Additionally, this financial icon that investors revere as the
ultimate "Blue Chip" Stock Market Indicator has lost its luster, with
less than half its members achieving S & P ratings of A or better, and 20%
of the issues ranked below Investment Grade.
Is the
120-year-old DJIA impotent? No, it's certainly helpful for Peak-to-Peak
analysis right now, for example, to see if your Large Cap only Equity Portfolio
is as high as it was six years ago. But it's based upon a seriously flawed Buy
and Hold investment strategy and universally used as a market barometer, when
its original role was as an economic indicator. This is not just semantics.
It's Wall Street's rendition of "The Emperor's New Clothes".
Possibly, a weighted average of investor perceived business prospects for
thirty major companies is a viable economic indicator, but leading or lagging?
Clearly, there is no conceivable way that any existing average/index can
measure the progress of the thousands of individual securities (and Mutual
Funds masquerading as individual securities) that, in the real investment
world, are "The Market". And is there just "a" Market, when
REITs, Index ETFs, Equity CEFs, Income CEFs, and even some Preferreds are all
mixed together in such!
a way that most
brokerage firm statements can't quite distinguish one from the other? Investors are dealing with multiple markets
of different types. Markets that don't follow the same rules or respond to the
same changes in the same ways. The Dow is dead, long live reality.
Feeling statistically naked? Don't fret Nell, here are a
few real market statistics and lists that are easy to understand, easy to put
your cursor on, and useful in keeping you up to date on what's going on in the
multiple Markets of today's Investment World:
1. Issue Breadth is the single most accurate barometer of
what's going on in the markets on a daily basis! Statistics for each of the Stock Exchanges
are tracked daily, documenting how many individual issues have advanced versus
how many have declined. Rarely are these important numbers reported, especially
if they are painting a picture different from that being jammed down investors'
throats by institutional propaganda. Would you believe, that in 1999 (when the
DJIA and other indices) last achieved All Time High (ATH) levels, monthly Issue
Breadth on the NYSE was positive only in April, followed by a 12 month paper
bloodbath extending through May of 2000.
Since then, Breadth has been positive for six consecutive years.
Surprise!
2. Pay close attention to the number of issues hitting
New Fifty-Two Week Highs (52Hs) and Lows each day: a) for trend corroboration,
and b) to obtain a wealth of important information for daily decision-making
and periodic performance understanding. The recent NYSE Bull Market (not a
typo) is clearly evidenced by six consecutive years (from 04/00) with more
issues hitting new 52Hs than new 52Ls... New Highs nearly tripled New Lows. So
much for the standard market tracking tools... not to mention Wall Street
manipulation of all the news that's fit to print for investors. Looking at the
daily lists of 52Hs and 52Ls will help you determine: a) which sectors are
moving in which directions, b) if interest rate expectations are pointing up or
down, c) which individual issues are approaching either your Buy or Sell
targets and, d) which direction your portfolio Market Value should be moving.
In recent months, REITs, metals, and energy stocks
dominated the hot list while regional banks, utilities, and other interest rate
sensitive issues were notsos (sic). These lists always indicate what's going on
now, without any weighting, charting, or hype, making your job almost
simplistic. Take your reasonable profits in the issues that have risen to new peaks
(Sell Higher), and purchase the quality issues among those that are at 52Ls
(Buy Lower). High prices often reflect high speculation with Bazooka potential,
while lower priced value stocks often turn out to be bargains. Ishares, foreign
Closed End Funds, Mining and Energy bloat today's 52H List while preferred
shares and Utilities occupy the 52Ls... a bit more meaningful than "the
Dow is near an All Time High", and a bit scarier as well.
3. Throughout the trading day, periodic review of three
lists called "Market Statistics" will keep you current on individual
issue price movements, active issues, sector developments, and more. How you
interpret and use this information will eventually affect your bottom line,
weather you are a Value Stock Investor or a Small Cap day trader. The Most
Active and The Most Declined Lists describe individual and group activity,
identify where some more detailed research might be appropriate, and provide
potential additions to your Daily Stock Watch List. The Most Active and Most
Advanced Lists will identify the hottest individual issues and sectors,
identify areas where news stories may be worth reading, and instantly make you
aware of profit taking opportunities.
I know you are tempted to shout "Blasphemy" at
the top of your lungs, but the DJIA was developed in a pre-internet world
(actually, pre-automobile) where the statistics discussed above were
unavailable, only the wealthy cared about the stock market, there were no
Mutual Funds, and, frankly Scarlet, 95% of the population just didn't care. Now
here's some blasphemy for you: It is likely that not one person reading this
article has an investment portfolio that closely resembles the composition of
the DJIA. It is just as likely that nearly everyone reading this article will
use the Dow to evaluate portfolio performance. I've never understood this
phenomenon, and I know that change takes time... but really, the Dow (and the
other averages) have had their day, and far too much of your nest egg, for you
to ignore this reality any longer.
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Your Bio: Steve Selengut
http://www.sancoservices.com
http://www.valuestockbuylistprogram.com
Professional Portfolio Management since 1979 Author of:
"The Brainwashing of the American Investor: The Book that Wall Street Does
Not Want YOU to Read", and "A Millionaire's Secret Investment
Strategy"
