Conference nyoss1::market_investing

I pay a management fee which is included in the price for all of my mutual 
funds.  I pay this fee for management....not robot management (ie. idex funds).

Let's say you limited your choice of funds to the Morningstar 500 list of funds
(they've done the work to selected what they consider the best 500 funds), and
then you limited yourself to their core funds or (if you're lucky enough to be
invested already) their list of Hall of Famers (closed funds).  You would find
that 79.8% of those 104 funds beat the SP500 last year.....82.7% beat the 
SP500 annualized for 3 years....and 66.3% for the last 5 years.

The funds on the list use many different techniques for management....from gut
feeling to complex computer models....so the management fees pay for their gut
or their program.....this is their job, they do it more than 8 hours a day, and
have staffs to help....my portion of the management fee goes to paying their
staff....I don't mind.

Morningstar is one of the leaders in Mutual Fund coverage....I subscribe to 
their magazine....they have researched the industry, and have many people and
computer programs to help them....they have choosen a short list of what they
consider the best funds, part of what I pay for the subscription goes towards
this research....I don't mind.

SP500 returns, and the average return of "all funds", good or bad would be a
waste of time for me, and more importantly a waste of money....I pay for 
management, and I subscribe to a high quality Mutual Fund magazine...this is
my research...this is what I base my results on.

CGM Captial Development Fund (bought continuously and never sold since 1/12/85)

   YEAR                            RETURN
   1985                            46.15%
   1986                            28.44%
   1987 (OH NO HERE IT COMES)      15.89% (FOOLED YA)
   1988                            -0.30%
   1989                            17.71%
   1990                             1.50%
   1991                            99.08%
   1992                            18.78%
   1993                            28.83%

I will agree that it is easy for me to have this kind of attitude because my
family and I personally know the president of Capital Growth Management.  I will
also venture to guess that there are other stories of equal success out there.

Most people don't have the skill, knowledge, and resourses to be a market timer.
I still stand by my statement that it's not necessary for success!

Michael

    
    re: .0  1/3 the risk
    
    	risk should rise with the square root of the holding period, so 
    	triple the time in the market and you raise the risk by a factor
    	of sqrt(3), or 1.73.  The results still look good, though.
    
    re: .1
    
    	>> ...their list of Hall of Famers (closed funds).  You would find
    	>> that 79.8% of those 104 funds beat the SP500 last year..
    
    	pretty impressive results!  These results are also inconsistent
    	with at least one study that I know of, so it bears further 
    	examination.
    
    	Was the performance of all of the 104 'hall of famers' measured
    	after or before induction into the hall?  If some or all of the
    	performance was measured *before*, then the results merely confirm
    	that funds are only closed if they are doing very well rather than
    	very poorly.
    
    	...also, and very importantly, was the performance of the funds
    	measured after dividing by the standard deviation of each funds'
    	returns?  If not, then there is a very serious bias in the results,
    	or at least the potential for serious bias.
    
    	let us know the details
    
    /jim
    

re .2

A little clarification is needed.  The Morningstar 500 was a list of funds that
the company selected based on their prior results.  The original list did not
include any closed funds.  Morningstar is very good at listening to their 
subscribers and they added a special section known as the Hall of Fame.  This
was reserved for closed funds that they also felt met the standards they set.
There is no limit on the number of Hall of Famers, but the main list is of
500 currently open funds.  They break the 500 down into categories (Aggressive
Growth, Core Funds, Hybrid Funds, etc).  When I fund from the 500 closes to new
investors than it is moved to the Hall of Fame, and another is chosen to take
its place.  I took the 100 stocks listed in their Core Funds category, plus the
funds listed in their Hall of Fame category (there are currently 24) and looked
at the returns based on the SP500 returns.  As always, Morningstar does not
adjust the returns of funds based on their risk assessment.  They report the
return rating based on the comparison to SP500 and they report the risk rating
based on the SP500.  They use these two number to determine the risk/return
star rating they currently use.  The fund performance numbers are unaltered ie.
not adjusted for risk (this is how Morningstar has always reported the 
information).  I don't think there is intentional bias, they do give the risk,
and the risk/return star ratings.  That's the way they choose to do it, and
have for quite a few years.  

/mtb

    
    re: .3
    
    	Portfolio performance is usually measured with the Sharpe ratio:
    
    		Sp = (Rp - Rf) / SDEVp
    
    	where Rp is the return, Rf is the risk free rate for the holding
        period, and SDEVp is the standard deviation of returns.
    
        If the S&P 500 index had a return of 11% with a standard deviation
    	of 14% and a 1-year government bill yielded 4% at the start of
    	1993 (I'm making these numbers up, but they're fairly close), then
    
    		Sp = (.11 - .04) / .14	= .50
    
    	You wouldn't expect the money managers to consistently beat the
    	Sharpe ratio (Sp) of the S&P 500 unless they knew something that
    	the rest of the market didn't (which is possible), or unless they
    	were very lucky (also possible).
    
    	As you can see, adjusting for risk is pretty simple to do.  If a
    	manager had been heading a fund for many years, you could even
    	perform a statistical test to establish whether the results were 
    	likely to be due to chance... although it might take a whole career
    	to demonstrate this at a high confidence level; maybe we'll just
    	never know...  in the end, ya pays yer money and ya takes your 
    	chances.
    
    /jim
    

    
    re: .4
    
    	In the interest of honesty, I will confess than I don't fully
    	believe the party line in .3; but that's the currently accepted
    	wisdom in academia.
    
    	Actually, studies have shown that low-beta portfolios consistently
    	beat the market index on a risk adjusted basis.
    
    /jim
    

I found Morningstar's definition of risk...not everyone used just standard 
deviation anymore.

Morningstar Risk Rating

  The Morningstar Risk statistic evaluates a fund's downside volatility 
relative to that of others in its class.  Morningstar uses a proprietary risk
measure that operates differently from traditional risk measures, such as beta
and standard deviation, that see both greater- and less-than-expected returns
as added volatility.  We believe the risk of investing in a particular fund
lies in the potential that it will lose money, not that is will fail to match a
theoretical norm.  As investors can obtain some return with no risk in three-
month Treasury bills, the likelihood of underperforming such T-bills serves as
our risk measure.  Thus, to calculate risk, we concentrate on months during
which a fund underperformed the average return of a three-month T-bill.  We add
up the percentages by which the fund fell short of the T-bill's return, and
then divide that figure by the total number of months during the rating period.
The fund's average monthly loss is then compared with the average monthly loss
for the fund's investment class.  The resulting risk score expresses how 
risky the fund has been relative to an average fund in its group.  Because
the average risk score for the fund's investment class is set at 1.00, a
Morningstar risk score of 1.35 fro taxable-bond funds means that the fund has
been 35% riskier than the average taxable-bond fund for the period considered.

**********

so I guess you can divide these out which everway you feel comfortable.  The
numbers for the specific fund I mentioned are:
                              Annualized Return       Morningstar Risk 
                             3YR     5YR    10YR      3YR    5YR    10YR
CGM Capital Development    42.77% 30.35%  23.50%     1.14   1.28    1.28

/mtb

    
    re: -.1
    
    	When your numbers are _that_ good, you can almost divide it by
    	whatever you like.  It's easy to see why you're so pleased.
    
    /jim
    
    p.s.  end of rathole.  John, congrats on a good year!          

When-and-Why-Funds Beat the Market
    -Don Philips...from Morningstar 5-Star Investor Mar,1994

  Statistics is the language of data, a key to survival in the information age.
Unfortunately, many investors may not fully understand how subtle differences
in statistical procedures can color their perceptions of how investments 
perform.  Often, how one does the counting has as much of an impact on the 
conclusions drawn as what one counts.
  Even the apparently simple analysis of whether funds outperform the market is
colored by differing statistical assumptions.  In the late 1980s, the evidence
suggested that funds regularly trail the market, a conclusion that helped fuel
the popularity of indexing.  More recently, but to much less fanfare, funds seem
to have markedly bettered the market's performance, calling into question the
wisdom of mimicking the S&P 500 Index.  Did fund managers suddenly get smarter?
Probably not.  More likely, something more subtle is influencing investors'
perceptions of the relative merits of actively managed funds.
   Part of the problem involves the benchmark used to measure the market's 
returns.  The S&P 500 Index is market-capitalization-weighted measure of the
performance of the market's 500 largest stocks.  Not only does it focus 
exclusively on big companies, but it gives proportionately more weight to the 
larger stocks in its already big-cap list.  It's a fine measure of how America's
largest stocks are doing.  It is not, however, a particularly accurate benchmark
against which to judge the typical domestic-stock mutual fund.  As seen in 
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Table 1, the 
+ Table 1                                                        + average fund
+                    Median                   5 Yr. Earnings     + invests in 
+                    Market                   Growth Rate        + firms that 
+                    Capitalization           of Stocks          + are smaller
+----------------------------------------------------------------+ and somewhat
+ Average Fund*       $5.2 billion            13.8%              + faster grow-
+ S&P 500            $13.7 billion             8.8%              + ing than 
+----------------------------------------------------------------+ those repre-
+ * Average for 1,040 U.S. Diversified Stock Funds as of 1/31/94 + sented by the
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ S&P 500.
   Accordingly, investors should expect funds to beat the S&P during periods of
small-cap strength, such as 1979-1982 and 1991-1993.  Conversely, in those
periods when large stocks outperform small ones--as they did in 1983-1990--most
domestic stock funds should trail the market, which is, of course, exactly what
happened.  Investors who embraced indexing in 1990 on the assumption that
actively managed funds always trail the market may have identified a trend that
was more a result of statistical procedures than of market reality.  As is often
the case, it appears that the popularity of an investment idea may have 
approached its peak at the same time that its utility approached its trough.
  A second, less appreciated, statistical procedure further colors this 
discussion.  As skewed as the S&P 500 is toward large-stock performance, fund
return numbers are biased toward small stocks.  The typical calculation of 
average fund performance, as run by Morningstar and others, equally weights the
performance of all funds.  Fidelity Magellan counts just as much as a fund with
a $50 million asset base.  As there are a lot more $50 million funds than $30
billion ones, this means that smaller funds have a disproportionate effect on
calculations of category or overall fund returns.  As seen in Table 2, below,
there are 21  ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
diversified   + Table 2                                                        +
domestic stock+                                                                +
funds with    + Fund            No. of   Equal Wgt      Total     Asset Wgt    +
assets of more+ Asset Size      Funds    Calculation    Assets    Calculation  +
than $4 bil-  +----------------------------------------------------------------+
lion. Collect-+ > $4 billion      21        2%          $178 bil     36%       +
ively, they   + $1-4 billion      88        8%          $162 bil     33%       +
account for   + < $1 billion     931       90%          $154 bil     31%       +
36% of the    ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
assets among domestic, nonsector stock funds.  Yet, in an equal-weighted 
depiction of stock-fund performance, they count for only 2% of the calculation.
Conversely, the 931 funds with assets under $1 billion represent 31% of the sum
assets in diversified domestic stock funds, but count for 90% of the calculation
in an equal-weighted system.
   This favoring of smaller funds wouldn't be an issue if small funds were run 
in the same way as large ones.  They aren't.  As seen in Table 3, larger funds
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ Table 3                                                                      +
+                               5 Yr                                           +
+ Fund           Median Market  Earnings    SEC    Exp     Manager   % Foreign +
+ Asset Size     Capitalization Grwth Rate  Yield  Ratio   Tenure    Securities+
+------------------------------------------------------------------------------+
+ >$4 billion    $8.0 billion   10.4%       2.6%   0.81%    11.8 yrs    11%    +
+ $1-4 billion   $5.6 billion   11.8%       2.1%   0.99%     9.4 yrs    11%    +
+ <$1 billion    $5.1 billion   14.1%       1.7%   1.33%     5.2 yrs     6%    +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
invest in proportionately bigger stocks.  They also tend to favor issues with
higher yields and lower growth rates, while exhibiting lower expense ratios,
longer manager tenure, and larger weightings in foreign stocks--important
differences that can also influence performance calculations, as we'll see 
later.
   While large funds still hold smaller companies than those in the big-cap
oriented S&P 500, their companies are markedly larger than those of small funds.
Thus, the practice of equally weighting funds in calculating average fund 
performance further skews fund returns toward those of small-cap stocks, making
comparisons with the market-weighted S&P 500 even more suspect.  If, however,
one were to asset-weight fund returns--that is, to calculate average fund
performance by weighting each individual fund in accordance to its percentage
of the category or industry's total assets--the results would lessen the 
calculation's bias toward small-stock performance.  As seen in table 4 the
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ Table 4                                                                      +
+                        1979   1980   1981   1982   1983   1984   1985   1986 +
+------------------------------------------------------------------------------+
+ Equal-Wgt Fund Rtns  *29.33 *34.77 *-1.15 *26.31  21.84  -1.08  28.63  14.61 +
+ Asset-Wgt Fund Rtns   26.04  33.30  -2.71  25.04 *22.32  *0.29 *28.94 *16.73 +
+ S&P 500               18.30  32.22  -5.08  21.46  22.46   6.27  31.74  18.68 +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ Table 4(cont)                                                         +
+                        1987   1988   1989   1990   1991   1992   1993 +
+-----------------------------------------------------------------------+
+ Equal-Wgt Fund Rtns    1.22  15.65  25.04  -5.87 *36.74  *9.15  12.64 +
+ Asset-Wgt Fund Rtns   *2.81 *17.19 *26.04 *-5.52  35.98   8.70 *15.15 +
+ S&P 500                5.26  16.61  31.68  -3.12  30.48   7.62  10.06 +
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
asset-weighted returns of U.S. diversified stock funds better the equal-weighted
ones during periods of large-stock dominance, but tend to trail in periods of
small-cap strength.
   If asset-weighted returns were more widely accepted, funds wouldn't appear
to fly as high in small-cap rallies or look as languid during a period of large
cap strength.  In fact, using asset-weighted returns, funds actually bettered 
the S&P 500 in calendar 1988 (17.9% versus 16.61%), a year most investors assume
funds trailed the market.
   Over time, equal-weighted returns theoretically give funds a performance
edge in comparisons with the S&P 500, because most investment research suggests
that, over time, small stocks outperform large ones. Ironically, that benefit 
may not help the mutual fund industry too much, since in addition to overstating
the small-cap effect on fund returns, the practice of equally weighting fund
averages also overstates fund expenses.  That's because it gives more weight to
smaller, less-efficient funds and underplays the larger funds that tend to have
lower expense ratios.  The higher costs seem to eat up most of the benefit of
skewing fund averages toward small-stock returns.  In addition, the recent 
popularity of risk-adjusted returns also negates the subtle advantage of using
equal-weighted returns, as the small-cap effect increases the recognition of
risk as well as return.
   One oddity in these comparisons is that the 1993 dollar-weighted returns 
bettered the equal-weighted ones, even though it was a year in which small 
stocks generally outperformed large ones.  One possible cause of this is some
of the other differences between large and small funds cited earlier.  For
example, the added foreign exposure of large funds (perhaps a function of the
critical mass necessary to extend a research effort overseas) likely gave big
funds a boost in a year in which foreign funds soundly beat domestic ones.
Another possible factor is that large funds tend to hold less-costly, slower
growing stocks, which would have helped in last year's value-oriented market.
   That 1993 was considered by many to be a "stock-picker's market" may have
also helped, because big funds have longer manager tenure than do small ones.
Finally, as the absolute return averages were lower than those of many recent
years, the lower expenses of big funds may have also played a role.  In short,
big funds saw a lot of their potential advantages line up in 1993, resulting in
unusually strong gains.
   The rise of the personal computer gives an ever-widening audience access to
complex financial data.  Data alone, however, do not translate into knowledge.
Indeed, unexamined data may be the worst possible investment guide, because
they carry the illusion of certainty, when in fact they may be heavily
influenced by unseen, subjective forces.  Quantitative analysis can be a powerful
investment tool, but even as investors embrace technology to help them make
sense of the seeming overload of information they face, they must be careful not
to do so blindly.  Numbers may not lie, but they can mislead.  To ensure that
the numerical reality on which investors base their assumptions indeed reflects
the true reality of the market, they must constantly question the numbers that 
they are given.

Article: 13478
From: [email protected] (Reuter/Clint Willis)
Newsgroups: clari.biz.features,clari.biz.invest,clari.biz.top
Subject: Time to shift out of stock funds?
Date: Mon, 14 Mar 94 22:10:12 PST
 
	 BOSTON, March 15 (Reuter) - The recent turmoil in the U.S.
  stock market has some fund shareholders wondering if the long-awaited bear
    market has finally arrived.
	 Many will try to outmanoeuvre the markets by shifting assets
out of stock funds and into money market funds or bank accounts.
They might succeed in dodging the bullet this time, but any
strategy that depends upon an investor's ability to outguess the
stock market is bound to fail in the long run.
	 The evidence is overwhelming that market timing -- shifting
money between stocks and other assets in an attempt to ride bull
markets and avoid bear market losses -- simply doesn't work.
	 Consider the records of funds that pursue a timing strategy.
Henry Van der Eb, manager of the Mathers Fund, became bearish on
the market in early 1989, and moved to a largely cash position.
	 As a result, the fund has delivered an annualised average
return of only 5.84 percent over the past five years -- compared
with 13.70 percent for the S&P 500.
	 ``When you ask investors who have been successful over time,
they'll tell you that their record has nothing to do with market
timing,'' says Roger Gibson, a Pittsburgh money manager and
author of Asset Allocation.
	 Such anecdotal evidence has been strongly supported by
academic and other formal studies over the years. Those studies
generally conclude that the odds are heavily against a market
timing strategy; over the long run, you are more likely to make
money by sticking with your stock holdings through thick and
thin.
	 Why? Because over periods of three to five years or longer,
stocks are wonderful investments -- far better than cash or
anything else you can buy through a mutual fund. Thus, whenever
you take money out of stocks you are probably going to pay a
penalty in the form of lower long-term returns.
	 Of course, there are times when it pays to be out of stocks.
	 But such times are more infrequent than most investors
realise. Gibson cites a 1987 study by Trinity Investment
Management, which reviewed bull and bear markets over a 40-year
period.
	 The results included these findings: 1) Bull markets lasted
nearly three times as long as bear markets -- 41 months versus
14 months. 2) The typical bull market delivers a 105 percent
gain, versus a 28 percent drop in the typical bear market. 3)
Even during bear markets, stocks go up during three to four out
of every 10 months.
	 The Trinity study is almost seven years old, but its
conclusions would be even stronger today, as stocks have
advanced steadily during most of the intervening period.
	 To succeed as a market timer, you must not only miss bear
markets, you must also be sure and get back into the stock
market in time for the next sustained rise in share prices. But
those rebounds often occur after sharp declines in stock prices
-- the very times when most fine-tuners are still scrambling to
get out of stocks.
	 Also consider taxes and transaction costs. A study by Mark
Hulbert, editor of the Hulbert Financial Digest, looked at pre-
and after-tax returns of the recommended strategies of 29
market-timing newsletters and compared them with the returns of
an index fund that invested in the S&P 500.
	 On a pre-tax basis only four of the letters beat the index
fund over five years. After taxes were considered, only one
newsletter edged out a buy-and-hold strategy.
	 So what should you do if you're worried? Make sure your
savings include three to six months of living expenses in cash
investments so you can cope with unexpected expenses or a
financial setback such as a job loss. Also consider shifting
some money from more aggressive funds to conservative growth
funds.
	 The Crabbe Huson Equity Fund, for example, has been only 41
percent as risky as the average equity fund over the past three
years, but has delivered 24.2 percent annual returns over the
period. The fund's management team uses a contrarian approach,
choosing battered stocks whose shares aren't likely to decline
as steeply as the typical stock in a bear market. The fund has
no initial sales charge and a $1,000 minimum initial investment.
	 (EDITORS: Clint Willis is a freelance writer who covers
mutual funds for Reuters. Any opinions in the column are solely
those of Mr. Willis.)

    
    re: .-1  "When-and-Why-Funds Beat the Market"
    
    interesting, but...
    
    >> Investors who embraced indexing in 1990 on the assumption that
    >> actively managed funds always trail the market may have identified a
    >> trend that was more a result of statistical procedures than of market 
    >> reality.
    
    I think that the author misinterprets the evidence.  What the author has 
    argued is that the S&P 500 index is not an adequate proxy for the 
    'market portfolio', since it is not diversified by firm size.  He 
    presents no evidence that managers can beat a proxy that diversifies 
    across both large and small cap stocks, therefore the claim that managers 
    can 'beat the market' over sustained periods of time is unsubstantiated.   
    
    In 1977, Richard Roll argued that the 'market portfolio' consisted of
    not just equities, but also bonds, bills, and an array of marketable
    and nonmarketable assets that cannot be represented in any index.  His
    conclusion was that the market proxy was intrinsically incomplete, and
    there is nothing that can be done to construct a perfect market proxy.
    Since a perfect market proxy does not exist, the proposition that it is
    optimal is untestable.
    
    It may be well to consider the source as well, since if investing in an
    indexed portfolio was as good as investing in any mutual fund, then why
    would anyone pay for the information in Morningstar?
    
    /jim
    
    

There are two major risks in holding mutual funds:
	- the risk of a down market and
	- the risk of bad calls by the fund managers.

You minimize the risk of a bad call by fund manager with the SP500.
Jeff Neff, certainly a great fund manager, made some extremely poor
calls in the late 1980's. As a result the Windsor fund suffered.
Of course, the upside is that the fund manager makes the right call.

I have a portfolio of individual stocks that has beaten the SP500 - but 
would I keep 100% of my portfolio in individual stocks?  No.

Gim

    
    re: .8, When-and-Why-Funds Beat the Market (CADSYS::BENOIT) and
       .10, yes but...  (me)
    
    but on the other hand, Rolf Banz (1981) conducted a careful study
    in which he controlled for the effects of misspecification of the
    market proxy and other known econometric problems.  His results
    demonstrate pretty conclusively (to my satisfaction, anyway) that
    small cap firms do outperform large cap firms (all other things
    equal), and that the CAPM is misspecified.
    
    More precisely, he shows that returns are significantly negatively 
    correlated with relative market capitalization, and that this is
    invariant with respect to the market index chosen or the grouping
    procedure used to form portfolios.  It isn't known whether this
    "size effect" is due to firm size or is due to something that is
    correlated with firm size, but it is strong evidence that the
    CAPM is misspecified.  It indicates that mutual funds that specialize
    in small cap firms should outperform a market index portfolio on
    a risk adjusted basis (over a long enough period).
    
    /jim                                              

By my calculations, for the first half of 1994 we have the following returns:

	CGM Capital Development		-14%
	S&P 500 Index			- 5.2%
	John's Market Timing		- 2.8%
        Robertson Stephens Contrarian   + 3.4%

I wish I could say that market timing provided a positive return in
these tough markets but as you can see I'm under water for the year
as, I suspect, are most of us. But Market Timing is not as far under
water as the vaunted CGM fund which according to USA Today (30-Jun) is 
off 21.3% from the stock market peak of Jan 31. And as you would expect 
Timing did better than the S&P index, being invested fewer days.

The other entry, Robertson Stephens Contrarian fund, was selcted on a
prospective-study basis (i.e., I decided to include it before knowing
how it performed). As the name implies, this fund tries to go against
the common wisdom preached on the street. +3.4% isn't a bad return in
today's market.

As a curiosity, equal amounts of money invested in CGM Capital
Development and Robertson Stephens Contrarian would have netted out
-5.3%, almost exactly the same as the S&P 500 Index.

I remain convinced that Market Timing provides a means of obtaining
better returns with lower risk, compared to a buy-and-hold strategy.
In retrospect, selected stocks and funds will always outperform a
conservative timing strategy, but the trick is to choose such funds
before measuring performance -- not after.

  John

re      <<< Note 689.13 by VMSDEV::HALLYB "Fish have no concept of fire" >>>
                            -< 1994 midyear update >-

>these tough markets but as you can see I'm under water for the year
>as, I suspect, are most of us. But Market Timing is not as far under



yup, i'll have to raise my hand to the "under" crowd.  haven't computed
anything - i'm scared too compute I guess!  '94 is definitely a tough
year compared to '93 and '92... seems like there was no way to lose in
'93, now w/ '94 here, seems like hardly any way to win.  i'm sitting
tight; buying a house in a month; then, i need to start hunting around
again.  i do have one stellar winner right now: T ROWE PRICE JAPAN fund.
actually, all japan-oriented funds are up - i think they are doing the
best on the market.  i got in the japan fund in january, it is up over
20% ... too bad i only put 3k in it.... sure wish i put 10k !  if we
only had 20-20 hindsight...


onward to the 2nd half.

>these tough markets but as you can see I'm under water for the year
>as, I suspect, are most of us. But Market Timing is not as far under

For what it's worth (probably not much).......

Last December (when I mentioned in here it was time to get your "defenses" in
order), I moved most of my investments in funds out of growth and into
growth_&_income.  For a variety of reasons, mostly a project that occupied all
of my work and much of my personal time, I have been unable to devote the
sufficient time in research to do intelligent Market Timing.  As it turns out,
my buy_&_hold defensive posture has enabled me to be a tad - JUST a tad- above
water this year. 

Also, for what it's worth, I think it may be time to move back into some growth
areas.   The chart on my Dana investment is beginning to look like the contrail
from a homesick angel; perhaps the automotive/truck sector is about ready to
spring into a longterm growth.  And from what I have seen this quarter (and I 
do not qualify as an insider), the high-tech industry may be through licking 
its collective wounds, maby not.  Time to start sniffing around. 

Later

S&P 500 index at the end of 1993: 468.64
and at the end of September 1994: 462.69

Net 1.27% loss on nominal index value. But the S&P has been paying dividends
this year. I don't have the 9-month yield, but _Barron's_ lists the last
12 months' yield at 2.82%. Scaling that down to 9 months gives us a yield
of 2.115%. Since dividends are taxable even for buy'N'holders, that works
out to 1.35% for taxpayers in the 36% bracket, for a 9-month yield of 
approximately 0.08% (1.35% - 1.27%). 

The buy'N'hold investor is thus about even so far in 1994; below water if
he's paying mutual fund management fees.

My timing account (real dollars traded in real time) is up a nominal 6%,
or about 4.15% after ALL taxes -- dividends (taxed at 36%) as well as 
capital gains (28% tax rate). This account switches between an SPX fund 
and cash depending on the timing model.

The vaunted CGM Capital Development Fund started the year at 27.71 and
ended the third quarter at 25.07 for a loss of 9.6%. The loss will be
a bit higher after paying taxes on dividends, but dividends are low in
this fund so we'll ignore that for now. Heebner's got a lot of ground 
to cover if he expects to turn a profit this year.

Now 1994 isn't over yet and potentially the wildest ride of the year lies
before us. But I continue to believe that market timing is capable of
beating the broad averages on a consistent basis, and will continue to
practice it. For better or worse, there will be a 1994 summary note
sometime in January.

  John