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INSERT INTO `wp_posts` VALUES (8471,3,'2021-06-16 16:28:07','2021-06-16 16:28:07','<!-- wp:heading -->\n<h2>Consumers optimism emerges, but it\'s not all good news…</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Consumer optimism has been held down by the pandemic over the past year, but attitudes have started to improve as COVID-19 disruptions begin to fade.&nbsp; Consumer Sentiment from the University of Michigan jumped to the highest level in over a year in April –due in large part to improvements in the labor market– which should be supportive of the economic recovery in the months ahead.&nbsp;</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>While the rebound in Consumer Sentiment is a positive development, the fact that consumers’ inflation expectations have climbed to an 8-year high is a major concern.&nbsp; The University of Michigan expressed their concern over this trend by stating that “<em>contingency plans are urgently needed to avoid declining inflation-adjusted incomes and surging interest costs.</em>” In other words, the Federal Reserve and the federal government should be prepared to combat rising inflation as it is becoming a greater possibility.&nbsp; We concur.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":7941,\"width\":742,\"height\":489,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/05/insight.jpg\" alt=\"\" class=\"wp-image-7941\" width=\"742\" height=\"489\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p></p>\n<!-- /wp:paragraph -->','Consumers optimism emerges, but...','Consumer optimism has been held down by the pandemic over the past year, but attitudes have started to improve as COVID-19 disruptions begin to fade. ','inherit','closed','closed','','7727-revision-v1','','','2021-06-16 16:28:07','2021-06-16 16:28:07','',7727,'https://ns2020-investech.investech.com/?p=8471',0,'revision','',0);
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INSERT INTO `wp_posts` VALUES (8473,3,'2021-06-16 16:51:32','2021-06-16 16:51:32','<!-- wp:block {\"ref\":5238} /-->\n\n<!-- wp:heading -->\n<h2>About Daily Data</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>The following data will be updated each business day as it becomes available from our sources.&nbsp; Some entries are preliminary and may not be finalized until the following morning.  </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Market Indexes</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>A market index is a hypothetical portfolio of investment holdings that represents a segment of the financial market. The calculation of the index value comes from the prices of the underlying holdings. Some indexes have values based on market-cap weighting, revenue-weighting, float-weighting, and fundamental-weighting.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:visualizer/chart {\"id\":1979,\"route\":\"renderChart\"} /-->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Breadth/Volume Indicators</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Measures market \"breadth\" or participation. Deteriorating breadth is one of the earliest and most reliable of bear market warning flags. Trend is most important.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:visualizer/chart {\"id\":1986,\"route\":\"chartSelect\"} /-->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Leadership Indicators</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Negative Leadership Composite: Measures internal leadership for evidence of a new bull market - or the danger of an imminent bear market.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:visualizer/chart {\"id\":1998,\"route\":\"chartSelect\"} /-->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Short-Term &amp; Miscellaneous Indicators</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Used to forecast the short-term outlook for the market, which can be useful in improving entry/exit decisions in individual stocks or mutual funds. When at Oversold levels, a rally or upward reversal is very likely within the next few weeks. An Overbought reading indicates the market has climbed too far too fast and is likely to experience a consolidation or correction.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:visualizer/chart {\"id\":2004,\"route\":\"chartSelect\"} /-->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>InvesTech\'s Indicators</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Indicators developed by InvesTech Research that measure developing risk in various parts of the stock market.  Learn more about <a href=\"https://ns2020-investech.investech.com/investech-indicators/\" target=\"_blank\" rel=\"noreferrer noopener\">InvesTech\'s Indicators and monitor LIVE updates</a> here.  </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:visualizer/chart {\"id\":2013,\"route\":\"chartSelect\"} /-->\n\n<!-- wp:spacer {\"height\":25} -->\n<div style=\"height:25px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Historical Data:</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>InvesTech Research is unable to provide historical data listings other than what is provided on this page.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:block {\"ref\":5343} /-->','Daily Data','','inherit','closed','closed','','2593-revision-v1','','','2021-06-16 16:51:32','2021-06-16 16:51:32','',2593,'https://ns2020-investech.investech.com/?p=8473',0,'revision','',0);
INSERT INTO `wp_posts` VALUES (8478,3,'2021-06-16 17:49:34','2021-06-16 17:49:34','<!-- wp:group {\"className\":\"wall-to-wall neutral-warm pad-3-0 toolboxed\"} -->\n<div class=\"wp-block-group wall-to-wall neutral-warm pad-3-0 toolboxed\"><div class=\"wp-block-group__inner-container\"><!-- wp:heading {\"textAlign\":\"center\"} -->\n<h2 class=\"has-text-align-center\">Subscriber Resources</h2>\n<!-- /wp:heading -->\n\n<!-- wp:columns {\"className\":\"btn-bottom-align\"} -->\n<div class=\"wp-block-columns btn-bottom-align\"><!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:image {\"id\":4934,\"width\":72,\"height\":72,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2020/12/pub-icon.svg\" alt=\"\" class=\"wp-image-4934\" width=\"72\" height=\"72\"/></figure>\n<!-- /wp:image -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>InvesTech Publications</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>InvesTech Research Publications feature most recent issues of our Market Newsletter and Interim Bulletins.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:buttons -->\n<div class=\"wp-block-buttons\"><!-- wp:button -->\n<div class=\"wp-block-button\"><a class=\"wp-block-button__link\" href=\"https://ns2020-investech.investech.com/publications/\">Latest Issues</a></div>\n<!-- /wp:button --></div>\n<!-- /wp:buttons --></div>\n<!-- /wp:column -->\n\n<!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:image {\"id\":5759,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/knight.svg\" alt=\"\" class=\"wp-image-5759\"/></figure>\n<!-- /wp:image -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>InvesTech Indicators</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Stay ahead of the market by accessing InvesTech\'s proprietary technical indicators.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:buttons -->\n<div class=\"wp-block-buttons\"><!-- wp:button -->\n<div class=\"wp-block-button\"><a class=\"wp-block-button__link\" href=\"https://ns2020-investech.investech.com/investech-indicators/\">View Indicators</a></div>\n<!-- /wp:button --></div>\n<!-- /wp:buttons --></div>\n<!-- /wp:column -->\n\n<!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:image {\"id\":4932,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2020/12/support-icon.svg\" alt=\"\" class=\"wp-image-4932\"/></figure>\n<!-- /wp:image -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Subscriber Support</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>We are here to assist you. Call our office at 406-862-7777 or request assistance using our Contact form.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:buttons -->\n<div class=\"wp-block-buttons\"><!-- wp:button -->\n<div class=\"wp-block-button\"><a class=\"wp-block-button__link\" href=\"https://ns2020-investech.investech.com/contact-us/\">Contact Us</a></div>\n<!-- /wp:button --></div>\n<!-- /wp:buttons --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:paragraph {\"align\":\"center\"} -->\n<p class=\"has-text-align-center\">Find more tools and resources in your <a href=\"https://ns2020-investech.investech.com/my-account/\" data-type=\"page\" data-id=\"373\">account dashboard</a>.</p>\n<!-- /wp:paragraph --></div></div>\n<!-- /wp:group -->','Library - Subscriber Resources','','inherit','closed','closed','','7111-revision-v1','','','2021-06-16 17:49:34','2021-06-16 17:49:34','',7111,'https://ns2020-investech.investech.com/?p=8478',0,'revision','',0);
INSERT INTO `wp_posts` VALUES (8485,3,'2021-06-16 18:02:45','2021-06-16 18:02:45','<!-- wp:heading -->\n<h2>The Indexing Craze</h2>\n<!-- /wp:heading -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:66.66%\"><!-- wp:paragraph -->\n<p>The indexing craze… it’s sure to be remembered as a hallmark of the 1990s! What has made investing in the S&amp;P 500 so popular these days? If you buy into a recent Business Week article, “Index funds are cheap, easy–and they’re changing the way Americans invest.” A value investor might disagree, since index funds are holding a group of stocks which are at their most overvalued levels in history.  However, in a sense, they are “cheap”… you don’t have to pay a fund manager to search for attractive stocks, and there are few transaction fees when the portfolio doesn’t change much from year to year. As for “easy,” that’s a different story. Our October 23, 1998 issue of the InvesTech Mutual Fund Advisor devoted considerable space to dispelling some of the myths of easy profits and safety that enthusiasts claim for these funds.</p>\n<!-- /wp:paragraph --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>Saving for Retirement Index Fever</p><cite>Fortune, 11/9/98</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>Who Needs a Money Manager?</p><cite>Business Week, 2/22/99</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:66.66%\"><!-- wp:paragraph -->\n<p>The popularity of investing in a large-cap index is a phenomenon of long-running bull markets, especially in the latter stages like today. There are several reasons for this. After years of positive gains in the stock market, new investors latch on to the implied idea that making money is simple. It’s also assumed that index funds are safer than other mutual funds because many S&amp;P 500 stocks have widely recognized names. And finally, index funds are the obvious choice for novice investors who tend to be drawn in during late stage bull markets. [Just try to talk a non-investor into putting money into the stock market in the depths of a recession when bull markets are typically born!] During the longest running bull markets, like today, index funds appear attractive even to more experienced investors, simply because that’s when they outperform other funds.</p>\n<!-- /wp:paragraph --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:heading -->\n<h2>Historical Perspective</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>They may be at the height of popularity now, but index funds aren’t just a phenomenon of the 1990’s. If you were investing in 1975 you would have seen this announcement in U.S. News &amp; World Report:</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>INVEST IN THE STOCK-MARKET AVERAGE?</p><p>A new investment vehicle -the \"index mutual fund\"- is making a big pitch for some of the billions that pension funds, college endowments and other institutions invest in the stock market.  </p><p>For most of the big institutional investors, just keeping up with the general stock-market averages would present a large improvement over their performances in past years</p><cite>U.S. News &amp; World Report, 12/29/75</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":5397,\"sizeSlug\":\"full\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-full\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/usnews.png\" alt=\"\" class=\"wp-image-5397\"/><figcaption>\"Invest in the Stock-Market Average?,\" World Report, Dec. 29, 1975</figcaption></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>Index funds were a hot new concept in 1975, just in time to dramatically UNDER-perform the majority of stocks. Over the next seven years, the smallest 20% of NYSE issues outperformed the S&amp;P 500 by more than 5-fold (752% versus 150%). After this less-than-spectacular start, the popularity of index funds came and went with the market cycles for the next decade. They really started to proliferate only when the current bull market turned into a large-cap bonanza beginning in 1994.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Last year, index funds attracted nearly 19% of all money invested in mutual funds. And Vanguard Index 500 with $74 billion is close to passing #1 Fidelity Magellan in net assets. But that’s just the tip of the iceberg, as the majority of mutual funds are now investing in the “big 50 ” –the 50 largest-cap stocks in the S&amp;P 500– simply to keep pace with that index’s momentum. This flow of money into a handful of large stocks affects not only the market averages, but it can have long-term repercussions for the market as well as your future investment strategy.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading -->\n<h2>The Impact</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Here’s the current, and potential, impact as we see it…<br></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Investor psychology is distorted. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":5403,\"width\":374,\"height\":611,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-large is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/top-20.png\" alt=\"\" class=\"wp-image-5403\" width=\"374\" height=\"611\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>Many novices view index funds as a type of variable rate CD. In Canada, one of our readers reports roadside billboards are promoting a guaranteed principle type of market index investment over GICs (the Canadian equivalent of a CD). What happens when index funds fail to return that expected 11%, or worse, when a major bear market wipes out 40-50%. Someone’s going to be left holding the bag.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3,\"className\":\"unclear\"} -->\n<h3 class=\"unclear\">More and more “non-index” funds are actually indexing a large part of their portfolios. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>As index funds have been the only ones to keep pace with market averages in recent years, the natural reaction is for fund managers to change strategy. The philosophy seems to be, “If I can’t outperform the market, at least try to imitate it.” The result is an increasing number of equity funds that look like mini-index fund clones as managers are dragged into the same stocks. Any fund wanting to match or beat the averages must hold at least some of the “big 50 ” of the S&amp;P 500. To make this point, we looked at the portfolios of the ten top performing “non-index” growth funds for the past 12 months. On  Average, 5 of the top 10 holdings in each portfolio are among the 20 largest stocks in the S&amp;P.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>As an example, take the Fidelity Dividend Growth fund which, by its very name, seems to imply conservative growth with a focus on dividends. But there’s nothing conservative about an annual portfolio turnover rate exceeding 105% for each of the last 5 years. And its dividend yield is only 0.4% – less than one-third the dismal yield of the S&amp;P 500.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3,\"className\":\"unclear\"} -->\n<h3 class=\"unclear\">Investments in momentum related funds are funneling into the most overvalued stocks in the market, driving them even higher. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Remember, the S&amp;P 500 is a capitalization weighted index, so money going into index funds is not evenly distributed in all 500 stocks. Only fifty stocks account for 55% of S&amp;P 500 capitalization and 55% of an index fund portfolio. That leaves the other 450 stocks to split the rest. Indexing contributes to explosive run-up and overvaluation in these top 50 stocks. Microsoft today is valued at 1.4 times the total capitalization of GE, Intel, Merck, Wal-Mart, Pfizer, Exxon, Coca-Cola, IBM, Cisco, AND Microsoft in December of 1990 at the start of this bull market. And America Online, which has yet to show any significant earnings, is now valued at more than ANY of the ten largest companies in the U.S. in 1990!</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Market volatility increases whenever interest narrows to just a few stocks. All eyes are on the same select group (the largest companies in the S&amp;P 500). Any news or earnings surprises can cause wild gyrations in price as funds scramble to dump or pile into hot movers. No wonder the intraday volatility in 1999 is running the highest for any bull market year since 1929!</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Finally, indexing amplifies the technical distortion in the markets. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>The current issue of the InvesTech Market Analyst takes an insightful look at what’s really happening in breadth and other technical divergences. With support from the “big-50\" stocks of the S&amp;P, the closely watched indexes like the DJIA and NASDAQ simply don’t reflect these divergences. For a broader view of the market, take a close look at the Russell 2000 Index (premier small cap index) or the Value-Line Composite Index (an equally weighted index of 1700 stocks).</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading -->\n<h2>Investment Strategy</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>First, we advise that you examine the individual stock holdings in any mutual fund you own – especially for any funds that have “performed” well over the last couple years. Ask yourself, “How ‘indexed’ is this fund?” We’ve listed the 20 largest cap stocks of the S&amp;P 500 in the table shown here. If you find more than 3 or 4 of these stocks in the top 20 portfolio holdings of your fund, then take heed – your fund is nibbling on indexing.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>In addition, avoid judging a future fund by its 1997-98 performance. If a fund was near the top of the performance list for these past two years, chances are it was momentum investing. Blue chip stocks are often the last to peak in a long-running bull market, benefiting from a “flight to safety” as other stocks falter. Unfortunately, when they fall from overvalued heights, they can be the last to recover from a recession.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":5406,\"width\":514,\"height\":530,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-large is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/mutualfundperf.png\" alt=\"\" class=\"wp-image-5406\" width=\"514\" height=\"530\"/><figcaption>\"Mutual Fund Performance\" graph from 1991-93</figcaption></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>This past bull market illustrates our point. Index funds have enjoyed the run up in blue chip stocks, handily beating most actively managed funds over the last few years. Since 1994, the Vanguard 500 Index Fund has more than doubled the total return of the average small stock fund, and provided 1.6 times the return of the average value fund. This performance may seem unbeatable, but it’s only part of the story. </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>This \"Mutual Fund Performance\" graph from 1991-93 reveals the comparative performance of the Vanguard 500 during the first three years of this bull market… the safest years to be invested. Note that the average “value” fund outperformed by a factor of 1.4… and the average small company fund literally doubled the return of the Vanguard 500 Index fund. From the perspective of risk management now (and future profits later), it’s never been more critical to know your mutual fund or prospective mutual fund. </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>We firmly believe the big-cap leaders of today will again become the laggards after the next bear market washout. If that is the case, then you don’t want to find your portfolio indexed to under-performance at what may become one of the best buying opportunities of our lifetime.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:spacer {\"height\":38} -->\n<div style=\"height:38px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:separator -->\n<hr class=\"wp-block-separator\"/>\n<!-- /wp:separator -->\n\n<!-- wp:spacer {\"height\":38} -->\n<div style=\"height:38px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:paragraph -->\n<p>This report was originally published March 12, 1999 and is also available to read in PDF format.&nbsp;<a href=\"https://ns2020-investech.investech.com/wp-content/uploads/2020/08/InvesTech-V99I04-Indexing.pdf\" target=\"_blank\" rel=\"noreferrer noopener\">Download the PDF</a>.</p>\n<!-- /wp:paragraph -->','The Lemming Principle','Just as relevant today as in the Tech Bubble of the 1990s, this issue (originally published in March 1999) is particularly enlightening in view of today\'s infatuation with passive and index investing. Instead of falling off a cliff, these lemmings fell into the largest bear market since the 1930s!','inherit','closed','closed','','2470-revision-v1','','','2021-06-16 18:02:45','2021-06-16 18:02:45','',2470,'https://ns2020-investech.investech.com/?p=8485',0,'revision','',0);
INSERT INTO `wp_posts` VALUES (8486,3,'2021-06-16 18:03:05','2021-06-16 18:03:05','<!-- wp:heading -->\n<h2>The Indexing Craze</h2>\n<!-- /wp:heading -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:66.66%\"><!-- wp:paragraph -->\n<p>The indexing craze… it’s sure to be remembered as a hallmark of the 1990s! What has made investing in the S&amp;P 500 so popular these days? If you buy into a recent Business Week article, “Index funds are cheap, easy–and they’re changing the way Americans invest.” A value investor might disagree, since index funds are holding a group of stocks which are at their most overvalued levels in history.  However, in a sense, they are “cheap”… you don’t have to pay a fund manager to search for attractive stocks, and there are few transaction fees when the portfolio doesn’t change much from year to year. As for “easy,” that’s a different story. Our October 23, 1998 issue of the InvesTech Mutual Fund Advisor devoted considerable space to dispelling some of the myths of easy profits and safety that enthusiasts claim for these funds.</p>\n<!-- /wp:paragraph --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>Saving for Retirement Index Fever</p><cite>Fortune, 11/9/98</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>Who Needs a Money Manager?</p><cite>Business Week, 2/22/99</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:66.66%\"><!-- wp:paragraph -->\n<p>The popularity of investing in a large-cap index is a phenomenon of long-running bull markets, especially in the latter stages like today. There are several reasons for this. After years of positive gains in the stock market, new investors latch on to the implied idea that making money is simple. It’s also assumed that index funds are safer than other mutual funds because many S&amp;P 500 stocks have widely recognized names. And finally, index funds are the obvious choice for novice investors who tend to be drawn in during late stage bull markets. [Just try to talk a non-investor into putting money into the stock market in the depths of a recession when bull markets are typically born!] During the longest running bull markets, like today, index funds appear attractive even to more experienced investors, simply because that’s when they outperform other funds.</p>\n<!-- /wp:paragraph --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:heading -->\n<h2>Historical Perspective</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>They may be at the height of popularity now, but index funds aren’t just a phenomenon of the 1990’s. If you were investing in 1975 you would have seen this announcement in U.S. News &amp; World Report:</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>INVEST IN THE STOCK-MARKET AVERAGE?</p><p>A new investment vehicle -the \"index mutual fund\"- is making a big pitch for some of the billions that pension funds, college endowments and other institutions invest in the stock market.  </p><p>For most of the big institutional investors, just keeping up with the general stock-market averages would present a large improvement over their performances in past years</p><cite>U.S. News &amp; World Report, 12/29/75</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p>Index funds were a hot new concept in 1975, just in time to dramatically UNDER-perform the majority of stocks. Over the next seven years, the smallest 20% of NYSE issues outperformed the S&amp;P 500 by more than 5-fold (752% versus 150%). After this less-than-spectacular start, the popularity of index funds came and went with the market cycles for the next decade. They really started to proliferate only when the current bull market turned into a large-cap bonanza beginning in 1994.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Last year, index funds attracted nearly 19% of all money invested in mutual funds. And Vanguard Index 500 with $74 billion is close to passing #1 Fidelity Magellan in net assets. But that’s just the tip of the iceberg, as the majority of mutual funds are now investing in the “big 50 ” –the 50 largest-cap stocks in the S&amp;P 500– simply to keep pace with that index’s momentum. This flow of money into a handful of large stocks affects not only the market averages, but it can have long-term repercussions for the market as well as your future investment strategy.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading -->\n<h2>The Impact</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Here’s the current, and potential, impact as we see it…<br></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Investor psychology is distorted. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":5403,\"width\":374,\"height\":611,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-large is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/top-20.png\" alt=\"\" class=\"wp-image-5403\" width=\"374\" height=\"611\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>Many novices view index funds as a type of variable rate CD. In Canada, one of our readers reports roadside billboards are promoting a guaranteed principle type of market index investment over GICs (the Canadian equivalent of a CD). What happens when index funds fail to return that expected 11%, or worse, when a major bear market wipes out 40-50%. Someone’s going to be left holding the bag.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3,\"className\":\"unclear\"} -->\n<h3 class=\"unclear\">More and more “non-index” funds are actually indexing a large part of their portfolios. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>As index funds have been the only ones to keep pace with market averages in recent years, the natural reaction is for fund managers to change strategy. The philosophy seems to be, “If I can’t outperform the market, at least try to imitate it.” The result is an increasing number of equity funds that look like mini-index fund clones as managers are dragged into the same stocks. Any fund wanting to match or beat the averages must hold at least some of the “big 50 ” of the S&amp;P 500. To make this point, we looked at the portfolios of the ten top performing “non-index” growth funds for the past 12 months. On  Average, 5 of the top 10 holdings in each portfolio are among the 20 largest stocks in the S&amp;P.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>As an example, take the Fidelity Dividend Growth fund which, by its very name, seems to imply conservative growth with a focus on dividends. But there’s nothing conservative about an annual portfolio turnover rate exceeding 105% for each of the last 5 years. And its dividend yield is only 0.4% – less than one-third the dismal yield of the S&amp;P 500.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3,\"className\":\"unclear\"} -->\n<h3 class=\"unclear\">Investments in momentum related funds are funneling into the most overvalued stocks in the market, driving them even higher. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Remember, the S&amp;P 500 is a capitalization weighted index, so money going into index funds is not evenly distributed in all 500 stocks. Only fifty stocks account for 55% of S&amp;P 500 capitalization and 55% of an index fund portfolio. That leaves the other 450 stocks to split the rest. Indexing contributes to explosive run-up and overvaluation in these top 50 stocks. Microsoft today is valued at 1.4 times the total capitalization of GE, Intel, Merck, Wal-Mart, Pfizer, Exxon, Coca-Cola, IBM, Cisco, AND Microsoft in December of 1990 at the start of this bull market. And America Online, which has yet to show any significant earnings, is now valued at more than ANY of the ten largest companies in the U.S. in 1990!</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Market volatility increases whenever interest narrows to just a few stocks. All eyes are on the same select group (the largest companies in the S&amp;P 500). Any news or earnings surprises can cause wild gyrations in price as funds scramble to dump or pile into hot movers. No wonder the intraday volatility in 1999 is running the highest for any bull market year since 1929!</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Finally, indexing amplifies the technical distortion in the markets. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>The current issue of the InvesTech Market Analyst takes an insightful look at what’s really happening in breadth and other technical divergences. With support from the “big-50\" stocks of the S&amp;P, the closely watched indexes like the DJIA and NASDAQ simply don’t reflect these divergences. For a broader view of the market, take a close look at the Russell 2000 Index (premier small cap index) or the Value-Line Composite Index (an equally weighted index of 1700 stocks).</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading -->\n<h2>Investment Strategy</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>First, we advise that you examine the individual stock holdings in any mutual fund you own – especially for any funds that have “performed” well over the last couple years. Ask yourself, “How ‘indexed’ is this fund?” We’ve listed the 20 largest cap stocks of the S&amp;P 500 in the table shown here. If you find more than 3 or 4 of these stocks in the top 20 portfolio holdings of your fund, then take heed – your fund is nibbling on indexing.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>In addition, avoid judging a future fund by its 1997-98 performance. If a fund was near the top of the performance list for these past two years, chances are it was momentum investing. Blue chip stocks are often the last to peak in a long-running bull market, benefiting from a “flight to safety” as other stocks falter. Unfortunately, when they fall from overvalued heights, they can be the last to recover from a recession.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":5406,\"width\":514,\"height\":530,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-large is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/mutualfundperf.png\" alt=\"\" class=\"wp-image-5406\" width=\"514\" height=\"530\"/><figcaption>\"Mutual Fund Performance\" graph from 1991-93</figcaption></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>This past bull market illustrates our point. Index funds have enjoyed the run up in blue chip stocks, handily beating most actively managed funds over the last few years. Since 1994, the Vanguard 500 Index Fund has more than doubled the total return of the average small stock fund, and provided 1.6 times the return of the average value fund. This performance may seem unbeatable, but it’s only part of the story. </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>This \"Mutual Fund Performance\" graph from 1991-93 reveals the comparative performance of the Vanguard 500 during the first three years of this bull market… the safest years to be invested. Note that the average “value” fund outperformed by a factor of 1.4… and the average small company fund literally doubled the return of the Vanguard 500 Index fund. From the perspective of risk management now (and future profits later), it’s never been more critical to know your mutual fund or prospective mutual fund. </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>We firmly believe the big-cap leaders of today will again become the laggards after the next bear market washout. If that is the case, then you don’t want to find your portfolio indexed to under-performance at what may become one of the best buying opportunities of our lifetime.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:spacer {\"height\":38} -->\n<div style=\"height:38px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:separator -->\n<hr class=\"wp-block-separator\"/>\n<!-- /wp:separator -->\n\n<!-- wp:spacer {\"height\":38} -->\n<div style=\"height:38px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:paragraph -->\n<p>This report was originally published March 12, 1999 and is also available to read in PDF format.&nbsp;<a href=\"https://ns2020-investech.investech.com/wp-content/uploads/2020/08/InvesTech-V99I04-Indexing.pdf\" target=\"_blank\" rel=\"noreferrer noopener\">Download the PDF</a>.</p>\n<!-- /wp:paragraph -->','The Lemming Principle','Just as relevant today as in the Tech Bubble of the 1990s, this issue (originally published in March 1999) is particularly enlightening in view of today\'s infatuation with passive and index investing. Instead of falling off a cliff, these lemmings fell into the largest bear market since the 1930s!','inherit','closed','closed','','2470-revision-v1','','','2021-06-16 18:03:05','2021-06-16 18:03:05','',2470,'https://ns2020-investech.investech.com/?p=8486',0,'revision','',0);
INSERT INTO `wp_posts` VALUES (8487,3,'2021-06-16 18:03:35','2021-06-16 18:03:35','<!-- wp:heading -->\n<h2>The Indexing Craze</h2>\n<!-- /wp:heading -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:66.66%\"><!-- wp:paragraph -->\n<p>The indexing craze… it’s sure to be remembered as a hallmark of the 1990s! What has made investing in the S&amp;P 500 so popular these days? If you buy into a recent Business Week article, <em>“Index funds are cheap, easy–and they’re changing the way Americans invest.”</em> A value investor might disagree, since index funds are holding a group of stocks which are at their most overvalued levels in history.  However, in a sense, they are “cheap”… you don’t have to pay a fund manager to search for attractive stocks, and there are few transaction fees when the portfolio doesn’t change much from year to year. As for “easy,” that’s a different story. Our October 23, 1998 issue of the InvesTech Mutual Fund Advisor devoted considerable space to dispelling some of the myths of easy profits and safety that enthusiasts claim for these funds.</p>\n<!-- /wp:paragraph --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>Saving for Retirement Index Fever</p><cite>Fortune, 11/9/98</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>Who Needs a Money Manager?</p><cite>Business Week, 2/22/99</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:66.66%\"><!-- wp:paragraph -->\n<p>The popularity of investing in a large-cap index is a phenomenon of long-running bull markets, especially in the latter stages like today. There are several reasons for this. After years of positive gains in the stock market, new investors latch on to the implied idea that making money is simple. It’s also assumed that index funds are safer than other mutual funds because many S&amp;P 500 stocks have widely recognized names. And finally, index funds are the obvious choice for novice investors who tend to be drawn in during late stage bull markets.<em> [Just try to talk a non-investor into putting money into the stock market in the depths of a recession when bull markets are typically born!] </em>During the longest running bull markets, like today, index funds appear attractive even to more experienced investors, simply because that’s when they outperform other funds.</p>\n<!-- /wp:paragraph --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:heading -->\n<h2>Historical Perspective</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>They may be at the height of popularity now, but index funds aren’t just a phenomenon of the 1990’s. If you were investing in 1975 you would have seen this announcement in <em>U.S. News &amp; World Report:</em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>INVEST IN THE STOCK-MARKET AVERAGE?</p><p>A new investment vehicle -the \"index mutual fund\"- is making a big pitch for some of the billions that pension funds, college endowments and other institutions invest in the stock market.  </p><p>For most of the big institutional investors, just keeping up with the general stock-market averages would present a large improvement over their performances in past years</p><cite>U.S. News &amp; World Report, 12/29/75</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p>Index funds were a hot new concept in 1975, just in time to dramatically UNDER-perform the majority of stocks. Over the next seven years, the smallest 20% of NYSE issues outperformed the S&amp;P 500 by more than 5-fold (752% versus 150%). After this less-than-spectacular start, the popularity of index funds came and went with the market cycles for the next decade. They really started to proliferate only when the current bull market turned into a large-cap bonanza beginning in 1994.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Last year, index funds attracted nearly 19% of all money invested in mutual funds. And Vanguard Index 500 with $74 billion is close to passing #1 Fidelity Magellan in net assets. But that’s just the tip of the iceberg, as the majority of mutual funds are now investing in the “big 50 ” –the 50 largest-cap stocks in the S&amp;P 500– simply to keep pace with that index’s momentum. This flow of money into a handful of large stocks affects not only the market averages, but it can have long-term repercussions for the market as well as your future investment strategy.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading -->\n<h2>The Impact</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Here’s the current, and potential, impact as we see it…<br></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Investor psychology is distorted. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":5403,\"width\":374,\"height\":611,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-large is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/top-20.png\" alt=\"\" class=\"wp-image-5403\" width=\"374\" height=\"611\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>Many novices view index funds as a type of variable rate CD. In Canada, one of our readers reports roadside billboards are promoting a guaranteed principle type of market index investment over GICs (the Canadian equivalent of a CD). What happens when index funds fail to return that expected 11%, or worse, when a major bear market wipes out 40-50%. Someone’s going to be left holding the bag.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3,\"className\":\"unclear\"} -->\n<h3 class=\"unclear\">More and more “non-index” funds are actually indexing a large part of their portfolios. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>As index funds have been the only ones to keep pace with market averages in recent years, the natural reaction is for fund managers to change strategy. The philosophy seems to be, “If I can’t outperform the market, at least try to imitate it.” The result is an increasing number of equity funds that look like mini-index fund clones as managers are dragged into the same stocks. Any fund wanting to match or beat the averages must hold at least some of the “big 50 ” of the S&amp;P 500. To make this point, we looked at the portfolios of the ten top performing “non-index” growth funds for the past 12 months. On  Average, 5 of the top 10 holdings in each portfolio are among the 20 largest stocks in the S&amp;P.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>As an example, take the Fidelity Dividend Growth fund which, by its very name, seems to imply conservative growth with a focus on dividends. But there’s nothing conservative about an annual portfolio turnover rate exceeding 105% for each of the last 5 years. And its dividend yield is only 0.4% – less than one-third the dismal yield of the S&amp;P 500.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3,\"className\":\"unclear\"} -->\n<h3 class=\"unclear\">Investments in momentum related funds are funneling into the most overvalued stocks in the market, driving them even higher. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Remember, the S&amp;P 500 is a capitalization weighted index, so money going into index funds is not evenly distributed in all 500 stocks. Only fifty stocks account for 55% of S&amp;P 500 capitalization and 55% of an index fund portfolio. That leaves the other 450 stocks to split the rest. Indexing contributes to explosive run-up and overvaluation in these top 50 stocks. Microsoft today is valued at 1.4 times the total capitalization of GE, Intel, Merck, Wal-Mart, Pfizer, Exxon, Coca-Cola, IBM, Cisco, AND Microsoft in December of 1990 at the start of this bull market. And America Online, which has yet to show any significant earnings, is now valued at more than ANY of the ten largest companies in the U.S. in 1990!</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Market volatility increases whenever interest narrows to just a few stocks. All eyes are on the same select group (the largest companies in the S&amp;P 500). Any news or earnings surprises can cause wild gyrations in price as funds scramble to dump or pile into hot movers. No wonder the intraday volatility in 1999 is running the highest for any bull market year since 1929!</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Finally, indexing amplifies the technical distortion in the markets. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>The current issue of the InvesTech Market Analyst takes an insightful look at what’s really happening in breadth and other technical divergences. With support from the “big-50\" stocks of the S&amp;P, the closely watched indexes like the DJIA and NASDAQ simply don’t reflect these divergences. For a broader view of the market, take a close look at the Russell 2000 Index (premier small cap index) or the Value-Line Composite Index (an equally weighted index of 1700 stocks).</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading -->\n<h2>Investment Strategy</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>First, we advise that you examine the individual stock holdings in any mutual fund you own – especially for any funds that have “performed” well over the last couple years. Ask yourself, “How ‘indexed’ is this fund?” We’ve listed the 20 largest cap stocks of the S&amp;P 500 in the table shown here. If you find more than 3 or 4 of these stocks in the top 20 portfolio holdings of your fund, then take heed – your fund is nibbling on indexing.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>In addition, avoid judging a future fund by its 1997-98 performance. If a fund was near the top of the performance list for these past two years, chances are it was momentum investing. Blue chip stocks are often the last to peak in a long-running bull market, benefiting from a “flight to safety” as other stocks falter. Unfortunately, when they fall from overvalued heights, they can be the last to recover from a recession.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":5406,\"width\":514,\"height\":530,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-large is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/mutualfundperf.png\" alt=\"\" class=\"wp-image-5406\" width=\"514\" height=\"530\"/><figcaption>\"Mutual Fund Performance\" graph from 1991-93</figcaption></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>This past bull market illustrates our point. Index funds have enjoyed the run up in blue chip stocks, handily beating most actively managed funds over the last few years. Since 1994, the Vanguard 500 Index Fund has more than doubled the total return of the average small stock fund, and provided 1.6 times the return of the average value fund. This performance may seem unbeatable, but it’s only part of the story. </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>This \"Mutual Fund Performance\" graph from 1991-93 reveals the comparative performance of the Vanguard 500 during the first three years of this bull market… the safest years to be invested. Note that the average “value” fund outperformed by a factor of 1.4… and the average small company fund literally doubled the return of the Vanguard 500 Index fund. From the perspective of risk management now (and future profits later), it’s never been more critical to know your mutual fund or prospective mutual fund. </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>We firmly believe the big-cap leaders of today will again become the laggards after the next bear market washout. If that is the case, then you don’t want to find your portfolio indexed to under-performance at what may become one of the best buying opportunities of our lifetime.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:spacer {\"height\":38} -->\n<div style=\"height:38px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:separator -->\n<hr class=\"wp-block-separator\"/>\n<!-- /wp:separator -->\n\n<!-- wp:spacer {\"height\":38} -->\n<div style=\"height:38px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:paragraph -->\n<p>This report was originally published March 12, 1999 and is also available to read in PDF format.&nbsp;<a href=\"https://ns2020-investech.investech.com/wp-content/uploads/2020/08/InvesTech-V99I04-Indexing.pdf\" target=\"_blank\" rel=\"noreferrer noopener\">Download the PDF</a>.</p>\n<!-- /wp:paragraph -->','The Lemming Principle','Just as relevant today as in the Tech Bubble of the 1990s, this issue (originally published in March 1999) is particularly enlightening in view of today\'s infatuation with passive and index investing. Instead of falling off a cliff, these lemmings fell into the largest bear market since the 1930s!','inherit','closed','closed','','2470-revision-v1','','','2021-06-16 18:03:35','2021-06-16 18:03:35','',2470,'https://ns2020-investech.investech.com/?p=8487',0,'revision','',0);
INSERT INTO `wp_posts` VALUES (8490,3,'2021-06-16 18:07:56','2021-06-16 18:07:56','<!-- wp:heading -->\n<h2>The Indexing Craze</h2>\n<!-- /wp:heading -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:66.66%\"><!-- wp:paragraph -->\n<p>The indexing craze… it’s sure to be remembered as a hallmark of the 1990s! What has made investing in the S&amp;P 500 so popular these days? If you buy into a recent Business Week article, <em>“Index funds are cheap, easy–and they’re changing the way Americans invest.”</em> A value investor might disagree, since index funds are holding a group of stocks which are at their most overvalued levels in history.  However, in a sense, they are “cheap”… you don’t have to pay a fund manager to search for attractive stocks, and there are few transaction fees when the portfolio doesn’t change much from year to year. As for “easy,” that’s a different story. Our October 23, 1998 issue of the InvesTech Mutual Fund Advisor devoted considerable space to dispelling some of the myths of easy profits and safety that enthusiasts claim for these funds.</p>\n<!-- /wp:paragraph --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>Saving for Retirement Index Fever</p><cite>Fortune, 11/9/98</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>Who Needs a Money Manager?</p><cite>Business Week, 2/22/99</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:66.66%\"><!-- wp:paragraph -->\n<p>The popularity of investing in a large-cap index is a phenomenon of long-running bull markets, especially in the latter stages like today. There are several reasons for this. After years of positive gains in the stock market, new investors latch on to the implied idea that making money is simple. It’s also assumed that index funds are safer than other mutual funds because many S&amp;P 500 stocks have widely recognized names. And finally, index funds are the obvious choice for novice investors who tend to be drawn in during late stage bull markets.<em> [Just try to talk a non-investor into putting money into the stock market in the depths of a recession when bull markets are typically born!] </em>During the longest running bull markets, like today, index funds appear attractive even to more experienced investors, simply because that’s when they outperform other funds.</p>\n<!-- /wp:paragraph --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:heading -->\n<h2>Historical Perspective</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>They may be at the height of popularity now, but index funds aren’t just a phenomenon of the 1990’s. If you were investing in 1975 you would have seen this announcement in <em>U.S. News &amp; World Report:</em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>INVEST IN THE STOCK-MARKET AVERAGE?</p><p>A new investment vehicle -the \"index mutual fund\"- is making a big pitch for some of the billions that pension funds, college endowments and other institutions invest in the stock market.  </p><p>For most of the big institutional investors, just keeping up with the general stock-market averages would present a large improvement over their performances in past years</p><cite>U.S. News &amp; World Report, 12/29/75</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p>Index funds were a hot new concept in 1975, just in time to dramatically UNDERperform the majority of stocks. Over the next seven years, the smallest 20% of NYSE issues outperformed the S&amp;P 500 by more than 5-fold (752% versus 150%). After this less-than-spectacular start, the popularity of index funds came and went with the market cycles for the next decade. They really started to proliferate only when the current bull market turned into a large-cap bonanza beginning in 1994.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Last year, index funds attracted nearly 19% of all money invested in mutual funds. And Vanguard Index 500 with $74 billion is close to passing #1 Fidelity Magellan in net assets. But that’s just the tip of the iceberg, as the majority of mutual funds are now investing in the “big 50 ” –the 50 largest-cap stocks in the S&amp;P 500– simply to keep pace with that index’s momentum. This flow of money into a handful of large stocks affects not only the market averages, but it can have long-term repercussions for the market as well as your future investment strategy.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading -->\n<h2>The Impact</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Here’s the current, and potential, impact as we see it…<br></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Investor psychology is distorted. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Many novices view index funds as a type of variable rate CD. In Canada, one of our readers reports roadside billboards are promoting a guaranteed principle type of market index investment over GICs (the Canadian equivalent of a CD). What happens when index funds fail to return that expected 11%, or worse, when a major bear market wipes out 40-50%. Someone’s going to be left holding the bag.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3,\"className\":\"unclear\"} -->\n<h3 class=\"unclear\">More and more “non-index” funds are actually indexing a large part of their portfolios. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>As index funds have been the only ones to keep pace with market averages in recent years, the natural reaction is for fund managers to change strategy. The philosophy seems to be, <em>“If I can’t outperform the market, at least try to imitate it.”</em> The result is an increasing number of equity funds that look like mini-index fund clones as managers are dragged into the same stocks. Any fund wanting to match or beat the averages must hold at least some of the “big 50 ” of the S&amp;P 500. To make this point, we looked at the portfolios of the ten top performing “non-index” growth funds for the past 12 months. On  Average, 5 of the top 10 holdings in each portfolio are among the 20 largest stocks in the S&amp;P.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>As an example, take the Fidelity Dividend Growth fund which, by its very name, seems to imply conservative growth with a focus on dividends. But there’s nothing conservative about an annual portfolio turnover rate exceeding 105% for each of the last 5 years. And its dividend yield is only 0.4% – less than one-third the dismal yield of the S&amp;P 500.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3,\"className\":\"unclear\"} -->\n<h3 class=\"unclear\">Investments in momentum related funds are funneling into the most overvalued stocks in the market, driving them even higher. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Remember, the S&amp;P 500 is a capitalization weighted index, so money going into index funds is not evenly distributed in all 500 stocks. Only fifty stocks account for 55% of S&amp;P 500 capitalization and 55% of an index fund portfolio. That leaves the other 450 stocks to split the rest. Indexing contributes to explosive run-up and overvaluation in these top 50 stocks. Microsoft today is valued at 1.4 times the total capitalization of GE, Intel, Merck, Wal-Mart, Pfizer, Exxon, Coca-Cola, IBM, Cisco, <strong>AND </strong>Microsoft in December of 1990 at the start of this bull market. And America Online, which has yet to show any significant earnings, is now valued at more than ANY of the ten largest companies in the U.S. in 1990!</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Market volatility increases whenever interest narrows to just a few stocks. All eyes are on the same select group (the largest companies in the S&amp;P 500). Any news or earnings surprises can cause wild gyrations in price as funds scramble to dump or pile into hot movers. No wonder the intraday volatility in 1999 is running the highest for any bull market year since 1929!</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Finally, indexing amplifies the technical distortion in the markets. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>The current issue of the<em> InvesTech Market Analyst </em>takes an insightful look at what’s really happening in breadth and other technical divergences. With support from the “big-50\" stocks of the S&amp;P, the closely watched indexes like the DJIA and NASDAQ simply don’t reflect these divergences. For a broader view of the market, take a close look at the Russell 2000 Index (premier small cap index) or the Value-Line Composite Index (an equally weighted index of 1700 stocks).</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading -->\n<h2>Investment Strategy</h2>\n<!-- /wp:heading -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":5403,\"width\":374,\"height\":611,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-large is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/top-20.png\" alt=\"\" class=\"wp-image-5403\" width=\"374\" height=\"611\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>First, we advise that you examine the individual stock holdings in any mutual fund you own – especially for any funds that have “performed” well over the last couple years. Ask yourself,<em> “How ‘indexed’ is this fund?”</em> We’ve listed the 20 largest cap stocks of the S&amp;P 500 in the table shown at right. If you find more than 3 or 4 of these stocks in the top 20 portfolio holdings of your fund, then take heed – your fund is nibbling on indexing.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>In addition, avoid judging a future fund by its 1997-98 performance. If a fund was near the top of the performance list for these past two years, chances are it was momentum investing. Blue chip stocks are often the last to peak in a long-running bull market, benefiting from a “flight to safety” as other stocks falter. Unfortunately, when they fall from overvalued heights, they can be the last to recover from a recession.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":5406,\"width\":514,\"height\":530,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-large is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/mutualfundperf.png\" alt=\"\" class=\"wp-image-5406\" width=\"514\" height=\"530\"/><figcaption>\"Mutual Fund Performance\" graph from 1991-93</figcaption></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>This past bull market illustrates our point. Index funds have enjoyed the run up in blue chip stocks, handily beating most actively managed funds over the last few years. Since 1994, the Vanguard 500 Index Fund has more than doubled the total return of the average small stock fund, and provided 1.6 times the return of the average value fund. This performance may seem unbeatable, but it’s only part of the story. </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>This \"Mutual Fund Performance\" graph from 1991-93 reveals the comparative performance of the Vanguard 500 during the first three years of this bull market… the safest years to be invested. Note that the average “value” fund outperformed by a factor of 1.4… and the average small company fund literally doubled the return of the Vanguard 500 Index fund. </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>From the perspective of risk management now (and future profits later), it’s never been more critical to know your mutual fund or prospective mutual fund. We firmly believe the big-cap leaders of today will again become the laggards after the next bear market washout. If that is the case, then you don’t want to find your portfolio indexed to under-performance at what may become one of the best buying opportunities of our lifetime.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:spacer {\"height\":38} -->\n<div style=\"height:38px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:separator -->\n<hr class=\"wp-block-separator\"/>\n<!-- /wp:separator -->\n\n<!-- wp:spacer {\"height\":38} -->\n<div style=\"height:38px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:paragraph -->\n<p>This report was originally published March 12, 1999 and is also available to read in PDF format.&nbsp;<a href=\"https://ns2020-investech.investech.com/wp-content/uploads/2020/08/InvesTech-V99I04-Indexing.pdf\" target=\"_blank\" rel=\"noreferrer noopener\">Download the PDF</a>.</p>\n<!-- /wp:paragraph -->','The Lemming Principle','Just as relevant today as in the Tech Bubble of the 1990s, this issue (originally published in March 1999) is particularly enlightening in view of today\'s infatuation with passive and index investing. Instead of falling off a cliff, these lemmings fell into the largest bear market since the 1930s!','inherit','closed','closed','','2470-revision-v1','','','2021-06-16 18:07:56','2021-06-16 18:07:56','',2470,'https://ns2020-investech.investech.com/?p=8490',0,'revision','',0);
INSERT INTO `wp_posts` VALUES (8492,3,'2021-06-16 18:12:43','2021-06-16 18:12:43','<!-- wp:heading -->\n<h2>The Indexing Craze</h2>\n<!-- /wp:heading -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:66.66%\"><!-- wp:paragraph -->\n<p>The indexing craze… it’s sure to be remembered as a hallmark of the 1990s! What has made investing in the S&amp;P 500 so popular these days? If you buy into a recent Business Week article, <em>“Index funds are cheap, easy–and they’re changing the way Americans invest.”</em> A value investor might disagree, since index funds are holding a group of stocks which are at their most overvalued levels in history.  However, in a sense, they are “cheap”… you don’t have to pay a fund manager to search for attractive stocks, and there are few transaction fees when the portfolio doesn’t change much from year to year. As for “easy,” that’s a different story. Our October 23, 1998 issue of the InvesTech Mutual Fund Advisor devoted considerable space to dispelling some of the myths of easy profits and safety that enthusiasts claim for these funds.</p>\n<!-- /wp:paragraph --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>Saving for Retirement Index Fever</p><cite>Fortune, 11/9/98</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>Who Needs a Money Manager?</p><cite>Business Week, 2/22/99</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:66.66%\"><!-- wp:paragraph -->\n<p>The popularity of investing in a large-cap index is a phenomenon of long-running bull markets, especially in the latter stages like today. There are several reasons for this. After years of positive gains in the stock market, new investors latch on to the implied idea that making money is simple. It’s also assumed that index funds are safer than other mutual funds because many S&amp;P 500 stocks have widely recognized names. And finally, index funds are the obvious choice for novice investors who tend to be drawn in during late stage bull markets.<em> [Just try to talk a non-investor into putting money into the stock market in the depths of a recession when bull markets are typically born!] </em>During the longest running bull markets, like today, index funds appear attractive even to more experienced investors, simply because that’s when they outperform other funds.</p>\n<!-- /wp:paragraph --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:heading -->\n<h2>Historical Perspective</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>They may be at the height of popularity now, but index funds aren’t just a phenomenon of the 1990’s. If you were investing in 1975 you would have seen this announcement in <em>U.S. News &amp; World Report:</em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>INVEST IN THE STOCK-MARKET AVERAGE?</p><p>A new investment vehicle -the \"index mutual fund\"- is making a big pitch for some of the billions that pension funds, college endowments and other institutions invest in the stock market.  </p><p>For most of the big institutional investors, just keeping up with the general stock-market averages would present a large improvement over their performances in past years</p><cite>U.S. News &amp; World Report, 12/29/75</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p>Index funds were a hot new concept in 1975, just in time to dramatically UNDERperform the majority of stocks. Over the next seven years, the smallest 20% of NYSE issues outperformed the S&amp;P 500 by more than 5-fold (752% versus 150%). After this less-than-spectacular start, the popularity of index funds came and went with the market cycles for the next decade. They really started to proliferate only when the current bull market turned into a large-cap bonanza beginning in 1994.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Last year, index funds attracted nearly 19% of all money invested in mutual funds. And Vanguard Index 500 with $74 billion is close to passing #1 Fidelity Magellan in net assets. But that’s just the tip of the iceberg, as the majority of mutual funds are now investing in the “big 50 ” –the 50 largest-cap stocks in the S&amp;P 500– simply to keep pace with that index’s momentum. This flow of money into a handful of large stocks affects not only the market averages, but it can have long-term repercussions for the market as well as your future investment strategy.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading -->\n<h2>The Impact</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Here’s the current, and potential, impact as we see it…<br></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Investor psychology is distorted. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Many novices view index funds as a type of variable rate CD. In Canada, one of our readers reports roadside billboards are promoting a guaranteed principle type of market index investment over GICs (the Canadian equivalent of a CD). What happens when index funds fail to return that expected 11%, or worse, when a major bear market wipes out 40-50%. Someone’s going to be left holding the bag.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3,\"className\":\"unclear\"} -->\n<h3 class=\"unclear\">More and more “non-index” funds are actually indexing a large part of their portfolios. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>As index funds have been the only ones to keep pace with market averages in recent years, the natural reaction is for fund managers to change strategy. The philosophy seems to be, <em>“If I can’t outperform the market, at least try to imitate it.”</em> The result is an increasing number of equity funds that look like mini-index fund clones as managers are dragged into the same stocks. Any fund wanting to match or beat the averages must hold at least some of the “big 50 ” of the S&amp;P 500. To make this point, we looked at the portfolios of the ten top performing “non-index” growth funds for the past 12 months. On  Average, 5 of the top 10 holdings in each portfolio are among the 20 largest stocks in the S&amp;P.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>As an example, take the Fidelity Dividend Growth fund which, by its very name, seems to imply conservative growth with a focus on dividends. But there’s nothing conservative about an annual portfolio turnover rate exceeding 105% for each of the last 5 years. And its dividend yield is only 0.4% – less than one-third the dismal yield of the S&amp;P 500.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3,\"className\":\"unclear\"} -->\n<h3 class=\"unclear\">Investments in momentum related funds are funneling into the most overvalued stocks in the market, driving them even higher. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Remember, the S&amp;P 500 is a capitalization weighted index, so money going into index funds is not evenly distributed in all 500 stocks. Only fifty stocks account for 55% of S&amp;P 500 capitalization and 55% of an index fund portfolio. That leaves the other 450 stocks to split the rest. Indexing contributes to explosive run-up and overvaluation in these top 50 stocks. Microsoft today is valued at 1.4 times the total capitalization of GE, Intel, Merck, Wal-Mart, Pfizer, Exxon, Coca-Cola, IBM, Cisco, <strong>AND </strong>Microsoft in December of 1990 at the start of this bull market. And America Online, which has yet to show any significant earnings, is now valued at more than ANY of the ten largest companies in the U.S. in 1990!</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Market volatility increases whenever interest narrows to just a few stocks. All eyes are on the same select group (the largest companies in the S&amp;P 500). Any news or earnings surprises can cause wild gyrations in price as funds scramble to dump or pile into hot movers. No wonder the intraday volatility in 1999 is running the highest for any bull market year since 1929!</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Finally, indexing amplifies the technical distortion in the markets. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>The current issue of the<em> InvesTech Market Analyst </em>takes an insightful look at what’s really happening in breadth and other technical divergences. With support from the “big-50\" stocks of the S&amp;P, the closely watched indexes like the DJIA and NASDAQ simply don’t reflect these divergences. For a broader view of the market, take a close look at the Russell 2000 Index (premier small cap index) or the Value-Line Composite Index (an equally weighted index of 1700 stocks).</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading -->\n<h2>Investment Strategy</h2>\n<!-- /wp:heading -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":5403,\"width\":374,\"height\":611,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-large is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/top-20.png\" alt=\"\" class=\"wp-image-5403\" width=\"374\" height=\"611\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>First, we advise that you examine the individual stock holdings in any mutual fund you own – especially for any funds that have “performed” well over the last couple years. Ask yourself,<em> “How ‘indexed’ is this fund?”</em> We’ve listed the 20 largest cap stocks of the S&amp;P 500 in the table shown at right. If you find more than 3 or 4 of these stocks in the top 20 portfolio holdings of your fund, then take heed – your fund is nibbling on indexing.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>In addition, avoid judging a future fund by its 1997-98 performance. If a fund was near the top of the performance list for these past two years, chances are it was momentum investing. Blue chip stocks are often the last to peak in a long-running bull market, benefiting from a “flight to safety” as other stocks falter. Unfortunately, when they fall from overvalued heights, they can be the last to recover from a recession.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>This past bull market illustrates our point. Index funds have enjoyed the run up in blue chip stocks, handily beating most actively managed funds over the last few years. Since 1994, the Vanguard 500 Index Fund has more than doubled the total return of the average small stock fund, and provided 1.6 times the return of the average value fund. This performance may seem unbeatable, but it’s only part of the story. </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":5406,\"width\":514,\"height\":530,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-large is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/mutualfundperf.png\" alt=\"\" class=\"wp-image-5406\" width=\"514\" height=\"530\"/><figcaption>\"Mutual Fund Performance\" graph from 1991-93</figcaption></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>This \"Mutual Fund Performance\" graph from 1991-93 reveals the comparative performance of the Vanguard 500 during the first three years of this bull market… the safest years to be invested. Note that the average “value” fund outperformed by a factor of 1.4… and the average small company fund literally doubled the return of the Vanguard 500 Index fund. </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>From the perspective of risk management now (and future profits later), it’s never been more critical to know your mutual fund or prospective mutual fund. We firmly believe the big-cap leaders of today will again become the laggards after the next bear market washout. If that is the case, then you don’t want to find your portfolio indexed to under-performance at what may become one of the best buying opportunities of our lifetime.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:spacer {\"height\":38} -->\n<div style=\"height:38px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:separator -->\n<hr class=\"wp-block-separator\"/>\n<!-- /wp:separator -->\n\n<!-- wp:spacer {\"height\":38} -->\n<div style=\"height:38px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:paragraph -->\n<p>This report was originally published March 12, 1999 and is also available to read in PDF format.&nbsp;<a href=\"https://ns2020-investech.investech.com/wp-content/uploads/2020/08/InvesTech-V99I04-Indexing.pdf\" target=\"_blank\" rel=\"noreferrer noopener\">Download the PDF</a>.</p>\n<!-- /wp:paragraph -->','The Lemming Principle','Just as relevant today as in the Tech Bubble of the 1990s, this issue (originally published in March 1999) is particularly enlightening in view of today\'s infatuation with passive and index investing. Instead of falling off a cliff, these lemmings fell into the largest bear market since the 1930s!','inherit','closed','closed','','2470-revision-v1','','','2021-06-16 18:12:43','2021-06-16 18:12:43','',2470,'https://ns2020-investech.investech.com/?p=8492',0,'revision','',0);
INSERT INTO `wp_posts` VALUES (8493,3,'2021-06-16 18:14:14','2021-06-16 18:14:14','<!-- wp:heading -->\n<h2>The Indexing Craze</h2>\n<!-- /wp:heading -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:66.66%\"><!-- wp:paragraph -->\n<p>The indexing craze… it’s sure to be remembered as a hallmark of the 1990s! What has made investing in the S&amp;P 500 so popular these days? If you buy into a recent Business Week article, <em>“Index funds are cheap, easy–and they’re changing the way Americans invest.”</em> A value investor might disagree, since index funds are holding a group of stocks which are at their most overvalued levels in history.  However, in a sense, they are “cheap”… you don’t have to pay a fund manager to search for attractive stocks, and there are few transaction fees when the portfolio doesn’t change much from year to year. As for “easy,” that’s a different story. Our October 23, 1998 issue of the InvesTech Mutual Fund Advisor devoted considerable space to dispelling some of the myths of easy profits and safety that enthusiasts claim for these funds.</p>\n<!-- /wp:paragraph --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>Saving for Retirement Index Fever</p><cite>Fortune, 11/9/98</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>Who Needs a Money Manager?</p><cite>Business Week, 2/22/99</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:66.66%\"><!-- wp:paragraph -->\n<p>The popularity of investing in a large-cap index is a phenomenon of long-running bull markets, especially in the latter stages like today. There are several reasons for this. After years of positive gains in the stock market, new investors latch on to the implied idea that making money is simple. It’s also assumed that index funds are safer than other mutual funds because many S&amp;P 500 stocks have widely recognized names. And finally, index funds are the obvious choice for novice investors who tend to be drawn in during late stage bull markets.<em> [Just try to talk a non-investor into putting money into the stock market in the depths of a recession when bull markets are typically born!] </em>During the longest running bull markets, like today, index funds appear attractive even to more experienced investors, simply because that’s when they outperform other funds.</p>\n<!-- /wp:paragraph --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:heading -->\n<h2>Historical Perspective</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>They may be at the height of popularity now, but index funds aren’t just a phenomenon of the 1990’s. If you were investing in 1975 you would have seen this announcement in <em>U.S. News &amp; World Report:</em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>INVEST IN THE STOCK-MARKET AVERAGE?</p><p>A new investment vehicle -the \"index mutual fund\"- is making a big pitch for some of the billions that pension funds, college endowments and other institutions invest in the stock market.  </p><p>For most of the big institutional investors, just keeping up with the general stock-market averages would present a large improvement over their performances in past years</p><cite>U.S. News &amp; World Report, 12/29/75</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p>Index funds were a hot new concept in 1975, just in time to dramatically UNDERperform the majority of stocks. Over the next seven years, the smallest 20% of NYSE issues outperformed the S&amp;P 500 by more than 5-fold (752% versus 150%). After this less-than-spectacular start, the popularity of index funds came and went with the market cycles for the next decade. They really started to proliferate only when the current bull market turned into a large-cap bonanza beginning in 1994.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Last year, index funds attracted nearly 19% of all money invested in mutual funds. And Vanguard Index 500 with $74 billion is close to passing #1 Fidelity Magellan in net assets. But that’s just the tip of the iceberg, as the majority of mutual funds are now investing in the “big 50 ” –the 50 largest-cap stocks in the S&amp;P 500– simply to keep pace with that index’s momentum. This flow of money into a handful of large stocks affects not only the market averages, but it can have long-term repercussions for the market as well as your future investment strategy.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading -->\n<h2>The Impact</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Here’s the current, and potential, impact as we see it…<br></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Investor psychology is distorted. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Many novices view index funds as a type of variable rate CD. In Canada, one of our readers reports roadside billboards are promoting a guaranteed principle type of market index investment over GICs (the Canadian equivalent of a CD). What happens when index funds fail to return that expected 11%, or worse, when a major bear market wipes out 40-50%. Someone’s going to be left holding the bag.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3,\"className\":\"unclear\"} -->\n<h3 class=\"unclear\">More and more “non-index” funds are actually indexing a large part of their portfolios. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>As index funds have been the only ones to keep pace with market averages in recent years, the natural reaction is for fund managers to change strategy. The philosophy seems to be, <em>“If I can’t outperform the market, at least try to imitate it.”</em> The result is an increasing number of equity funds that look like mini-index fund clones as managers are dragged into the same stocks. Any fund wanting to match or beat the averages must hold at least some of the “big 50 ” of the S&amp;P 500. To make this point, we looked at the portfolios of the ten top performing “non-index” growth funds for the past 12 months. On  Average, 5 of the top 10 holdings in each portfolio are among the 20 largest stocks in the S&amp;P.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>As an example, take the Fidelity Dividend Growth fund which, by its very name, seems to imply conservative growth with a focus on dividends. But there’s nothing conservative about an annual portfolio turnover rate exceeding 105% for each of the last 5 years. And its dividend yield is only 0.4% – less than one-third the dismal yield of the S&amp;P 500.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3,\"className\":\"unclear\"} -->\n<h3 class=\"unclear\">Investments in momentum related funds are funneling into the most overvalued stocks in the market, driving them even higher. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Remember, the S&amp;P 500 is a capitalization weighted index, so money going into index funds is not evenly distributed in all 500 stocks. Only fifty stocks account for 55% of S&amp;P 500 capitalization and 55% of an index fund portfolio. That leaves the other 450 stocks to split the rest. Indexing contributes to explosive run-up and overvaluation in these top 50 stocks. Microsoft today is valued at 1.4 times the total capitalization of GE, Intel, Merck, Wal-Mart, Pfizer, Exxon, Coca-Cola, IBM, Cisco, <strong>AND </strong>Microsoft in December of 1990 at the start of this bull market. And America Online, which has yet to show any significant earnings, is now valued at more than ANY of the ten largest companies in the U.S. in 1990!</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Market volatility increases whenever interest narrows to just a few stocks. All eyes are on the same select group (the largest companies in the S&amp;P 500). Any news or earnings surprises can cause wild gyrations in price as funds scramble to dump or pile into hot movers. No wonder the intraday volatility in 1999 is running the highest for any bull market year since 1929!</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Finally, indexing amplifies the technical distortion in the markets. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>The current issue of the<em> InvesTech Market Analyst </em>takes an insightful look at what’s really happening in breadth and other technical divergences. With support from the “big-50\" stocks of the S&amp;P, the closely watched indexes like the DJIA and NASDAQ simply don’t reflect these divergences. For a broader view of the market, take a close look at the Russell 2000 Index (premier small cap index) or the Value-Line Composite Index (an equally weighted index of 1700 stocks).</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading -->\n<h2>Investment Strategy</h2>\n<!-- /wp:heading -->\n\n<!-- wp:image {\"align\":\"left\",\"id\":5403,\"width\":374,\"height\":611,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignleft size-large is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/top-20.png\" alt=\"\" class=\"wp-image-5403\" width=\"374\" height=\"611\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>First, we advise that you examine the individual stock holdings in any mutual fund you own – especially for any funds that have “performed” well over the last couple years. Ask yourself,<em> “How ‘indexed’ is this fund?”</em> We’ve listed the 20 largest cap stocks of the S&amp;P 500 in the table shown at right. If you find more than 3 or 4 of these stocks in the top 20 portfolio holdings of your fund, then take heed – your fund is nibbling on indexing.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>In addition, avoid judging a future fund by its 1997-98 performance. If a fund was near the top of the performance list for these past two years, chances are it was momentum investing. Blue chip stocks are often the last to peak in a long-running bull market, benefiting from a “flight to safety” as other stocks falter. Unfortunately, when they fall from overvalued heights, they can be the last to recover from a recession.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>This past bull market illustrates our point. Index funds have enjoyed the run up in blue chip stocks, handily beating most actively managed funds over the last few years. Since 1994, the Vanguard 500 Index Fund has more than doubled the total return of the average small stock fund, and provided 1.6 times the return of the average value fund. This performance may seem unbeatable, but it’s only part of the story. </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":5406,\"width\":514,\"height\":530,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-large is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/mutualfundperf.png\" alt=\"\" class=\"wp-image-5406\" width=\"514\" height=\"530\"/><figcaption>\"Mutual Fund Performance\" graph from 1991-93</figcaption></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>This \"Mutual Fund Performance\" graph from 1991-93 reveals the comparative performance of the Vanguard 500 during the first three years of this bull market… the safest years to be invested. Note that the average “value” fund outperformed by a factor of 1.4… and the average small company fund literally doubled the return of the Vanguard 500 Index fund. </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>From the perspective of risk management now (and future profits later), it’s never been more critical to know your mutual fund or prospective mutual fund. We firmly believe the big-cap leaders of today will again become the laggards after the next bear market washout. If that is the case, then you don’t want to find your portfolio indexed to under-performance at what may become one of the best buying opportunities of our lifetime.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:spacer {\"height\":38} -->\n<div style=\"height:38px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:separator -->\n<hr class=\"wp-block-separator\"/>\n<!-- /wp:separator -->\n\n<!-- wp:spacer {\"height\":38} -->\n<div style=\"height:38px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:paragraph -->\n<p>This report was originally published March 12, 1999 and is also available to read in PDF format.&nbsp;<a href=\"https://ns2020-investech.investech.com/wp-content/uploads/2020/08/InvesTech-V99I04-Indexing.pdf\" target=\"_blank\" rel=\"noreferrer noopener\">Download the PDF</a>.</p>\n<!-- /wp:paragraph -->','The Lemming Principle','Just as relevant today as in the Tech Bubble of the 1990s, this issue (originally published in March 1999) is particularly enlightening in view of today\'s infatuation with passive and index investing. Instead of falling off a cliff, these lemmings fell into the largest bear market since the 1930s!','inherit','closed','closed','','2470-revision-v1','','','2021-06-16 18:14:14','2021-06-16 18:14:14','',2470,'https://ns2020-investech.investech.com/?p=8493',0,'revision','',0);
INSERT INTO `wp_posts` VALUES (8494,3,'2021-06-16 18:14:31','2021-06-16 18:14:31','<!-- wp:heading -->\n<h2>The Indexing Craze</h2>\n<!-- /wp:heading -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:66.66%\"><!-- wp:paragraph -->\n<p>The indexing craze… it’s sure to be remembered as a hallmark of the 1990s! What has made investing in the S&amp;P 500 so popular these days? If you buy into a recent Business Week article, <em>“Index funds are cheap, easy–and they’re changing the way Americans invest.”</em> A value investor might disagree, since index funds are holding a group of stocks which are at their most overvalued levels in history.  However, in a sense, they are “cheap”… you don’t have to pay a fund manager to search for attractive stocks, and there are few transaction fees when the portfolio doesn’t change much from year to year. As for “easy,” that’s a different story. Our October 23, 1998 issue of the InvesTech Mutual Fund Advisor devoted considerable space to dispelling some of the myths of easy profits and safety that enthusiasts claim for these funds.</p>\n<!-- /wp:paragraph --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>Saving for Retirement Index Fever</p><cite>Fortune, 11/9/98</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>Who Needs a Money Manager?</p><cite>Business Week, 2/22/99</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:66.66%\"><!-- wp:paragraph -->\n<p>The popularity of investing in a large-cap index is a phenomenon of long-running bull markets, especially in the latter stages like today. There are several reasons for this. After years of positive gains in the stock market, new investors latch on to the implied idea that making money is simple. It’s also assumed that index funds are safer than other mutual funds because many S&amp;P 500 stocks have widely recognized names. And finally, index funds are the obvious choice for novice investors who tend to be drawn in during late stage bull markets.<em> [Just try to talk a non-investor into putting money into the stock market in the depths of a recession when bull markets are typically born!] </em>During the longest running bull markets, like today, index funds appear attractive even to more experienced investors, simply because that’s when they outperform other funds.</p>\n<!-- /wp:paragraph --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:heading -->\n<h2>Historical Perspective</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>They may be at the height of popularity now, but index funds aren’t just a phenomenon of the 1990’s. If you were investing in 1975 you would have seen this announcement in <em>U.S. News &amp; World Report:</em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>INVEST IN THE STOCK-MARKET AVERAGE?</p><p>A new investment vehicle -the \"index mutual fund\"- is making a big pitch for some of the billions that pension funds, college endowments and other institutions invest in the stock market.  </p><p>For most of the big institutional investors, just keeping up with the general stock-market averages would present a large improvement over their performances in past years</p><cite>U.S. News &amp; World Report, 12/29/75</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p>Index funds were a hot new concept in 1975, just in time to dramatically UNDERperform the majority of stocks. Over the next seven years, the smallest 20% of NYSE issues outperformed the S&amp;P 500 by more than 5-fold (752% versus 150%). After this less-than-spectacular start, the popularity of index funds came and went with the market cycles for the next decade. They really started to proliferate only when the current bull market turned into a large-cap bonanza beginning in 1994.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Last year, index funds attracted nearly 19% of all money invested in mutual funds. And Vanguard Index 500 with $74 billion is close to passing #1 Fidelity Magellan in net assets. But that’s just the tip of the iceberg, as the majority of mutual funds are now investing in the “big 50 ” –the 50 largest-cap stocks in the S&amp;P 500– simply to keep pace with that index’s momentum. This flow of money into a handful of large stocks affects not only the market averages, but it can have long-term repercussions for the market as well as your future investment strategy.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading -->\n<h2>The Impact</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Here’s the current, and potential, impact as we see it…<br></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Investor psychology is distorted. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Many novices view index funds as a type of variable rate CD. In Canada, one of our readers reports roadside billboards are promoting a guaranteed principle type of market index investment over GICs (the Canadian equivalent of a CD). What happens when index funds fail to return that expected 11%, or worse, when a major bear market wipes out 40-50%. Someone’s going to be left holding the bag.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3,\"className\":\"unclear\"} -->\n<h3 class=\"unclear\">More and more “non-index” funds are actually indexing a large part of their portfolios. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>As index funds have been the only ones to keep pace with market averages in recent years, the natural reaction is for fund managers to change strategy. The philosophy seems to be, <em>“If I can’t outperform the market, at least try to imitate it.”</em> The result is an increasing number of equity funds that look like mini-index fund clones as managers are dragged into the same stocks. Any fund wanting to match or beat the averages must hold at least some of the “big 50 ” of the S&amp;P 500. To make this point, we looked at the portfolios of the ten top performing “non-index” growth funds for the past 12 months. On  Average, 5 of the top 10 holdings in each portfolio are among the 20 largest stocks in the S&amp;P.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>As an example, take the Fidelity Dividend Growth fund which, by its very name, seems to imply conservative growth with a focus on dividends. But there’s nothing conservative about an annual portfolio turnover rate exceeding 105% for each of the last 5 years. And its dividend yield is only 0.4% – less than one-third the dismal yield of the S&amp;P 500.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3,\"className\":\"unclear\"} -->\n<h3 class=\"unclear\">Investments in momentum related funds are funneling into the most overvalued stocks in the market, driving them even higher. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Remember, the S&amp;P 500 is a capitalization weighted index, so money going into index funds is not evenly distributed in all 500 stocks. Only fifty stocks account for 55% of S&amp;P 500 capitalization and 55% of an index fund portfolio. That leaves the other 450 stocks to split the rest. Indexing contributes to explosive run-up and overvaluation in these top 50 stocks. Microsoft today is valued at 1.4 times the total capitalization of GE, Intel, Merck, Wal-Mart, Pfizer, Exxon, Coca-Cola, IBM, Cisco, <strong>AND </strong>Microsoft in December of 1990 at the start of this bull market. And America Online, which has yet to show any significant earnings, is now valued at more than ANY of the ten largest companies in the U.S. in 1990!</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Market volatility increases whenever interest narrows to just a few stocks. All eyes are on the same select group (the largest companies in the S&amp;P 500). Any news or earnings surprises can cause wild gyrations in price as funds scramble to dump or pile into hot movers. No wonder the intraday volatility in 1999 is running the highest for any bull market year since 1929!</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Finally, indexing amplifies the technical distortion in the markets. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>The current issue of the<em> InvesTech Market Analyst </em>takes an insightful look at what’s really happening in breadth and other technical divergences. With support from the “big-50\" stocks of the S&amp;P, the closely watched indexes like the DJIA and NASDAQ simply don’t reflect these divergences. For a broader view of the market, take a close look at the Russell 2000 Index (premier small cap index) or the Value-Line Composite Index (an equally weighted index of 1700 stocks).</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"align\":\"left\",\"id\":5403,\"width\":374,\"height\":611,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignleft size-large is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/top-20.png\" alt=\"\" class=\"wp-image-5403\" width=\"374\" height=\"611\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:heading -->\n<h2>Investment Strategy</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>First, we advise that you examine the individual stock holdings in any mutual fund you own – especially for any funds that have “performed” well over the last couple years. Ask yourself,<em> “How ‘indexed’ is this fund?”</em> We’ve listed the 20 largest cap stocks of the S&amp;P 500 in the table shown at right. If you find more than 3 or 4 of these stocks in the top 20 portfolio holdings of your fund, then take heed – your fund is nibbling on indexing.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>In addition, avoid judging a future fund by its 1997-98 performance. If a fund was near the top of the performance list for these past two years, chances are it was momentum investing. Blue chip stocks are often the last to peak in a long-running bull market, benefiting from a “flight to safety” as other stocks falter. Unfortunately, when they fall from overvalued heights, they can be the last to recover from a recession.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>This past bull market illustrates our point. Index funds have enjoyed the run up in blue chip stocks, handily beating most actively managed funds over the last few years. Since 1994, the Vanguard 500 Index Fund has more than doubled the total return of the average small stock fund, and provided 1.6 times the return of the average value fund. This performance may seem unbeatable, but it’s only part of the story. </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":5406,\"width\":514,\"height\":530,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-large is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/mutualfundperf.png\" alt=\"\" class=\"wp-image-5406\" width=\"514\" height=\"530\"/><figcaption>\"Mutual Fund Performance\" graph from 1991-93</figcaption></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>This \"Mutual Fund Performance\" graph from 1991-93 reveals the comparative performance of the Vanguard 500 during the first three years of this bull market… the safest years to be invested. Note that the average “value” fund outperformed by a factor of 1.4… and the average small company fund literally doubled the return of the Vanguard 500 Index fund. </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>From the perspective of risk management now (and future profits later), it’s never been more critical to know your mutual fund or prospective mutual fund. We firmly believe the big-cap leaders of today will again become the laggards after the next bear market washout. If that is the case, then you don’t want to find your portfolio indexed to under-performance at what may become one of the best buying opportunities of our lifetime.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:spacer {\"height\":38} -->\n<div style=\"height:38px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:separator -->\n<hr class=\"wp-block-separator\"/>\n<!-- /wp:separator -->\n\n<!-- wp:spacer {\"height\":38} -->\n<div style=\"height:38px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:paragraph -->\n<p>This report was originally published March 12, 1999 and is also available to read in PDF format.&nbsp;<a href=\"https://ns2020-investech.investech.com/wp-content/uploads/2020/08/InvesTech-V99I04-Indexing.pdf\" target=\"_blank\" rel=\"noreferrer noopener\">Download the PDF</a>.</p>\n<!-- /wp:paragraph -->','The Lemming Principle','Just as relevant today as in the Tech Bubble of the 1990s, this issue (originally published in March 1999) is particularly enlightening in view of today\'s infatuation with passive and index investing. Instead of falling off a cliff, these lemmings fell into the largest bear market since the 1930s!','inherit','closed','closed','','2470-revision-v1','','','2021-06-16 18:14:31','2021-06-16 18:14:31','',2470,'https://ns2020-investech.investech.com/?p=8494',0,'revision','',0);
INSERT INTO `wp_posts` VALUES (8496,3,'2021-06-16 18:17:27','2021-06-16 18:17:27','<!-- wp:heading -->\n<h2>The Indexing Craze</h2>\n<!-- /wp:heading -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:66.66%\"><!-- wp:paragraph -->\n<p>The indexing craze… it’s sure to be remembered as a hallmark of the 1990s! What has made investing in the S&amp;P 500 so popular these days? If you buy into a recent Business Week article, <em>“Index funds are cheap, easy–and they’re changing the way Americans invest.”</em> A value investor might disagree, since index funds are holding a group of stocks which are at their most overvalued levels in history.  However, in a sense, they are “cheap”… you don’t have to pay a fund manager to search for attractive stocks, and there are few transaction fees when the portfolio doesn’t change much from year to year. As for “easy,” that’s a different story. Our October 23, 1998 issue of the InvesTech Mutual Fund Advisor devoted considerable space to dispelling some of the myths of easy profits and safety that enthusiasts claim for these funds.</p>\n<!-- /wp:paragraph --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>Saving for Retirement Index Fever</p><cite>Fortune, 11/9/98</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>Who Needs a Money Manager?</p><cite>Business Week, 2/22/99</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:66.66%\"><!-- wp:paragraph -->\n<p>The popularity of investing in a large-cap index is a phenomenon of long-running bull markets, especially in the latter stages like today. There are several reasons for this. After years of positive gains in the stock market, new investors latch on to the implied idea that making money is simple. It’s also assumed that index funds are safer than other mutual funds because many S&amp;P 500 stocks have widely recognized names. And finally, index funds are the obvious choice for novice investors who tend to be drawn in during late stage bull markets.<em> [Just try to talk a non-investor into putting money into the stock market in the depths of a recession when bull markets are typically born!] </em>During the longest running bull markets, like today, index funds appear attractive even to more experienced investors, simply because that’s when they outperform other funds.</p>\n<!-- /wp:paragraph --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:heading -->\n<h2>Historical Perspective</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>They may be at the height of popularity now, but index funds aren’t just a phenomenon of the 1990’s. If you were investing in 1975 you would have seen this announcement in <em>U.S. News &amp; World Report:</em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>INVEST IN THE STOCK-MARKET AVERAGE?</p><p>A new investment vehicle -the \"index mutual fund\"- is making a big pitch for some of the billions that pension funds, college endowments and other institutions invest in the stock market.  </p><p>For most of the big institutional investors, just keeping up with the general stock-market averages would present a large improvement over their performances in past years</p><cite>U.S. News &amp; World Report, 12/29/75</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p>Index funds were a hot new concept in 1975, just in time to dramatically UNDERperform the majority of stocks. Over the next seven years, the smallest 20% of NYSE issues outperformed the S&amp;P 500 by more than 5-fold (752% versus 150%). After this less-than-spectacular start, the popularity of index funds came and went with the market cycles for the next decade. They really started to proliferate only when the current bull market turned into a large-cap bonanza beginning in 1994.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Last year, index funds attracted nearly 19% of all money invested in mutual funds. And Vanguard Index 500 with $74 billion is close to passing #1 Fidelity Magellan in net assets. But that’s just the tip of the iceberg, as the majority of mutual funds are now investing in the “big 50 ” –the 50 largest-cap stocks in the S&amp;P 500– simply to keep pace with that index’s momentum. This flow of money into a handful of large stocks affects not only the market averages, but it can have long-term repercussions for the market as well as your future investment strategy.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading -->\n<h2>The Impact</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Here’s the current, and potential, impact as we see it…<br></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Investor psychology is distorted. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Many novices view index funds as a type of variable rate CD. In Canada, one of our readers reports roadside billboards are promoting a guaranteed principle type of market index investment over GICs (the Canadian equivalent of a CD). What happens when index funds fail to return that expected 11%, or worse, when a major bear market wipes out 40-50%. Someone’s going to be left holding the bag.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3,\"className\":\"unclear\"} -->\n<h3 class=\"unclear\">More and more “non-index” funds are actually indexing a large part of their portfolios. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>As index funds have been the only ones to keep pace with market averages in recent years, the natural reaction is for fund managers to change strategy. The philosophy seems to be, <em>“If I can’t outperform the market, at least try to imitate it.”</em> The result is an increasing number of equity funds that look like mini-index fund clones as managers are dragged into the same stocks. Any fund wanting to match or beat the averages must hold at least some of the “big 50 ” of the S&amp;P 500. To make this point, we looked at the portfolios of the ten top performing “non-index” growth funds for the past 12 months. On  Average, 5 of the top 10 holdings in each portfolio are among the 20 largest stocks in the S&amp;P.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>As an example, take the Fidelity Dividend Growth fund which, by its very name, seems to imply conservative growth with a focus on dividends. But there’s nothing conservative about an annual portfolio turnover rate exceeding 105% for each of the last 5 years. And its dividend yield is only 0.4% – less than one-third the dismal yield of the S&amp;P 500.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3,\"className\":\"unclear\"} -->\n<h3 class=\"unclear\">Investments in momentum related funds are funneling into the most overvalued stocks in the market, driving them even higher. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Remember, the S&amp;P 500 is a capitalization weighted index, so money going into index funds is not evenly distributed in all 500 stocks. Only fifty stocks account for 55% of S&amp;P 500 capitalization and 55% of an index fund portfolio. That leaves the other 450 stocks to split the rest. Indexing contributes to explosive run-up and overvaluation in these top 50 stocks. Microsoft today is valued at 1.4 times the total capitalization of GE, Intel, Merck, Wal-Mart, Pfizer, Exxon, Coca-Cola, IBM, Cisco, <strong>AND </strong>Microsoft in December of 1990 at the start of this bull market. And America Online, which has yet to show any significant earnings, is now valued at more than ANY of the ten largest companies in the U.S. in 1990!</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Market volatility increases whenever interest narrows to just a few stocks. All eyes are on the same select group (the largest companies in the S&amp;P 500). Any news or earnings surprises can cause wild gyrations in price as funds scramble to dump or pile into hot movers. No wonder the intraday volatility in 1999 is running the highest for any bull market year since 1929!</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Finally, indexing amplifies the technical distortion in the markets. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>The current issue of the<em> InvesTech Market Analyst </em>takes an insightful look at what’s really happening in breadth and other technical divergences. With support from the “big-50\" stocks of the S&amp;P, the closely watched indexes like the DJIA and NASDAQ simply don’t reflect these divergences. For a broader view of the market, take a close look at the Russell 2000 Index (premier small cap index) or the Value-Line Composite Index (an equally weighted index of 1700 stocks).</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"align\":\"left\",\"id\":5403,\"width\":338,\"height\":552,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignleft size-large is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/top-20.png\" alt=\"\" class=\"wp-image-5403\" width=\"338\" height=\"552\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:heading -->\n<h2>Investment Strategy</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>First, we advise that you examine the individual stock holdings in any mutual fund you own – especially for any funds that have “performed” well over the last couple years. Ask yourself,<em> “How ‘indexed’ is this fund?”</em> We’ve listed the 20 largest cap stocks of the S&amp;P 500 in the table shown at right. If you find more than 3 or 4 of these stocks in the top 20 portfolio holdings of your fund, then take heed – your fund is nibbling on indexing.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>In addition, avoid judging a future fund by its 1997-98 performance. If a fund was near the top of the performance list for these past two years, chances are it was momentum investing. Blue chip stocks are often the last to peak in a long-running bull market, benefiting from a “flight to safety” as other stocks falter. Unfortunately, when they fall from overvalued heights, they can be the last to recover from a recession.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>This past bull market illustrates our point. Index funds have enjoyed the run up in blue chip stocks, handily beating most actively managed funds over the last few years. Since 1994, the Vanguard 500 Index Fund has more than doubled the total return of the average small stock fund, and provided 1.6 times the return of the average value fund. This performance may seem unbeatable, but it’s only part of the story. </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":5406,\"width\":514,\"height\":530,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-large is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/mutualfundperf.png\" alt=\"\" class=\"wp-image-5406\" width=\"514\" height=\"530\"/><figcaption>\"Mutual Fund Performance\" graph from 1991-93</figcaption></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>This \"Mutual Fund Performance\" graph from 1991-93 reveals the comparative performance of the Vanguard 500 during the first three years of this bull market… the safest years to be invested. Note that the average “value” fund outperformed by a factor of 1.4… and the average small company fund literally doubled the return of the Vanguard 500 Index fund. </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>From the perspective of risk management now (and future profits later), it’s never been more critical to know your mutual fund or prospective mutual fund. We firmly believe the big-cap leaders of today will again become the laggards after the next bear market washout. If that is the case, then you don’t want to find your portfolio indexed to under-performance at what may become one of the best buying opportunities of our lifetime.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:spacer {\"height\":38} -->\n<div style=\"height:38px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:separator -->\n<hr class=\"wp-block-separator\"/>\n<!-- /wp:separator -->\n\n<!-- wp:spacer {\"height\":38} -->\n<div style=\"height:38px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:paragraph -->\n<p>This report was originally published March 12, 1999 and is also available to read in PDF format.&nbsp;<a href=\"https://ns2020-investech.investech.com/wp-content/uploads/2020/08/InvesTech-V99I04-Indexing.pdf\" target=\"_blank\" rel=\"noreferrer noopener\">Download the PDF</a>.</p>\n<!-- /wp:paragraph -->','The Lemming Principle','Just as relevant today as in the Tech Bubble of the 1990s, this issue (originally published in March 1999) is particularly enlightening in view of today\'s infatuation with passive and index investing. Instead of falling off a cliff, these lemmings fell into the largest bear market since the 1930s!','inherit','closed','closed','','2470-revision-v1','','','2021-06-16 18:17:27','2021-06-16 18:17:27','',2470,'https://ns2020-investech.investech.com/?p=8496',0,'revision','',0);
INSERT INTO `wp_posts` VALUES (8497,3,'2021-06-16 18:18:28','2021-06-16 18:18:28','<!-- wp:heading -->\n<h2>The Indexing Craze</h2>\n<!-- /wp:heading -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:66.66%\"><!-- wp:paragraph -->\n<p>The indexing craze… it’s sure to be remembered as a hallmark of the 1990s! What has made investing in the S&amp;P 500 so popular these days? If you buy into a recent Business Week article, <em>“Index funds are cheap, easy–and they’re changing the way Americans invest.”</em> A value investor might disagree, since index funds are holding a group of stocks which are at their most overvalued levels in history.  However, in a sense, they are “cheap”… you don’t have to pay a fund manager to search for attractive stocks, and there are few transaction fees when the portfolio doesn’t change much from year to year. As for “easy,” that’s a different story. Our October 23, 1998 issue of the InvesTech Mutual Fund Advisor devoted considerable space to dispelling some of the myths of easy profits and safety that enthusiasts claim for these funds.</p>\n<!-- /wp:paragraph --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>Saving for Retirement Index Fever</p><cite>Fortune, 11/9/98</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>Who Needs a Money Manager?</p><cite>Business Week, 2/22/99</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:66.66%\"><!-- wp:paragraph -->\n<p>The popularity of investing in a large-cap index is a phenomenon of long-running bull markets, especially in the latter stages like today. There are several reasons for this. After years of positive gains in the stock market, new investors latch on to the implied idea that making money is simple. It’s also assumed that index funds are safer than other mutual funds because many S&amp;P 500 stocks have widely recognized names. And finally, index funds are the obvious choice for novice investors who tend to be drawn in during late stage bull markets.<em> [Just try to talk a non-investor into putting money into the stock market in the depths of a recession when bull markets are typically born!] </em>During the longest running bull markets, like today, index funds appear attractive even to more experienced investors, simply because that’s when they outperform other funds.</p>\n<!-- /wp:paragraph --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:heading -->\n<h2>Historical Perspective</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>They may be at the height of popularity now, but index funds aren’t just a phenomenon of the 1990’s. If you were investing in 1975 you would have seen this announcement in <em>U.S. News &amp; World Report:</em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>INVEST IN THE STOCK-MARKET AVERAGE?</p><p>A new investment vehicle -the \"index mutual fund\"- is making a big pitch for some of the billions that pension funds, college endowments and other institutions invest in the stock market.  </p><p>For most of the big institutional investors, just keeping up with the general stock-market averages would present a large improvement over their performances in past years</p><cite>U.S. News &amp; World Report, 12/29/75</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p>Index funds were a hot new concept in 1975, just in time to dramatically UNDERperform the majority of stocks. Over the next seven years, the smallest 20% of NYSE issues outperformed the S&amp;P 500 by more than 5-fold (752% versus 150%). After this less-than-spectacular start, the popularity of index funds came and went with the market cycles for the next decade. They really started to proliferate only when the current bull market turned into a large-cap bonanza beginning in 1994.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Last year, index funds attracted nearly 19% of all money invested in mutual funds. And Vanguard Index 500 with $74 billion is close to passing #1 Fidelity Magellan in net assets. But that’s just the tip of the iceberg, as the majority of mutual funds are now investing in the “big 50 ” –the 50 largest-cap stocks in the S&amp;P 500– simply to keep pace with that index’s momentum. This flow of money into a handful of large stocks affects not only the market averages, but it can have long-term repercussions for the market as well as your future investment strategy.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading -->\n<h2>The Impact</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Here’s the current, and potential, impact as we see it…<br></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Investor psychology is distorted. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Many novices view index funds as a type of variable rate CD. In Canada, one of our readers reports roadside billboards are promoting a guaranteed principle type of market index investment over GICs (the Canadian equivalent of a CD). What happens when index funds fail to return that expected 11%, or worse, when a major bear market wipes out 40-50%. Someone’s going to be left holding the bag.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3,\"className\":\"unclear\"} -->\n<h3 class=\"unclear\">More and more “non-index” funds are actually indexing a large part of their portfolios. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>As index funds have been the only ones to keep pace with market averages in recent years, the natural reaction is for fund managers to change strategy. The philosophy seems to be, <em>“If I can’t outperform the market, at least try to imitate it.”</em> The result is an increasing number of equity funds that look like mini-index fund clones as managers are dragged into the same stocks. Any fund wanting to match or beat the averages must hold at least some of the “big 50 ” of the S&amp;P 500. To make this point, we looked at the portfolios of the ten top performing “non-index” growth funds for the past 12 months. On  Average, 5 of the top 10 holdings in each portfolio are among the 20 largest stocks in the S&amp;P.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>As an example, take the Fidelity Dividend Growth fund which, by its very name, seems to imply conservative growth with a focus on dividends. But there’s nothing conservative about an annual portfolio turnover rate exceeding 105% for each of the last 5 years. And its dividend yield is only 0.4% – less than one-third the dismal yield of the S&amp;P 500.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3,\"className\":\"unclear\"} -->\n<h3 class=\"unclear\">Investments in momentum related funds are funneling into the most overvalued stocks in the market, driving them even higher. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Remember, the S&amp;P 500 is a capitalization weighted index, so money going into index funds is not evenly distributed in all 500 stocks. Only fifty stocks account for 55% of S&amp;P 500 capitalization and 55% of an index fund portfolio. That leaves the other 450 stocks to split the rest. Indexing contributes to explosive run-up and overvaluation in these top 50 stocks. Microsoft today is valued at 1.4 times the total capitalization of GE, Intel, Merck, Wal-Mart, Pfizer, Exxon, Coca-Cola, IBM, Cisco, <strong>AND </strong>Microsoft in December of 1990 at the start of this bull market. And America Online, which has yet to show any significant earnings, is now valued at more than ANY of the ten largest companies in the U.S. in 1990!</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Market volatility increases whenever interest narrows to just a few stocks. All eyes are on the same select group (the largest companies in the S&amp;P 500). Any news or earnings surprises can cause wild gyrations in price as funds scramble to dump or pile into hot movers. No wonder the intraday volatility in 1999 is running the highest for any bull market year since 1929!</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Finally, indexing amplifies the technical distortion in the markets. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>The current issue of the<em> InvesTech Market Analyst </em>takes an insightful look at what’s really happening in breadth and other technical divergences. With support from the “big-50\" stocks of the S&amp;P, the closely watched indexes like the DJIA and NASDAQ simply don’t reflect these divergences. For a broader view of the market, take a close look at the Russell 2000 Index (premier small cap index) or the Value-Line Composite Index (an equally weighted index of 1700 stocks).</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:media-text {\"mediaId\":5403,\"mediaType\":\"image\"} -->\n<div class=\"wp-block-media-text alignwide is-stacked-on-mobile\"><figure class=\"wp-block-media-text__media\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/top-20.png\" alt=\"\" class=\"wp-image-5403 size-full\"/></figure><div class=\"wp-block-media-text__content\"><!-- wp:heading -->\n<h2>Investment Strategy</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>First, we advise that you examine the individual stock holdings in any mutual fund you own – especially for any funds that have “performed” well over the last couple years. Ask yourself,<em> “How ‘indexed’ is this fund?”</em> We’ve listed the 20 largest cap stocks of the S&amp;P 500 in the table shown at right. If you find more than 3 or 4 of these stocks in the top 20 portfolio holdings of your fund, then take heed – your fund is nibbling on indexing.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>In addition, avoid judging a future fund by its 1997-98 performance. If a fund was near the top of the performance list for these past two years, chances are it was momentum investing. Blue chip stocks are often the last to peak in a long-running bull market, benefiting from a “flight to safety” as other stocks falter. Unfortunately, when they fall from overvalued heights, they can be the last to recover from a recession.</p>\n<!-- /wp:paragraph --></div></div>\n<!-- /wp:media-text -->\n\n<!-- wp:paragraph -->\n<p>This past bull market illustrates our point. Index funds have enjoyed the run up in blue chip stocks, handily beating most actively managed funds over the last few years. Since 1994, the Vanguard 500 Index Fund has more than doubled the total return of the average small stock fund, and provided 1.6 times the return of the average value fund. This performance may seem unbeatable, but it’s only part of the story. </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":5406,\"width\":514,\"height\":530,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-large is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/mutualfundperf.png\" alt=\"\" class=\"wp-image-5406\" width=\"514\" height=\"530\"/><figcaption>\"Mutual Fund Performance\" graph from 1991-93</figcaption></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>This \"Mutual Fund Performance\" graph from 1991-93 reveals the comparative performance of the Vanguard 500 during the first three years of this bull market… the safest years to be invested. Note that the average “value” fund outperformed by a factor of 1.4… and the average small company fund literally doubled the return of the Vanguard 500 Index fund. </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>From the perspective of risk management now (and future profits later), it’s never been more critical to know your mutual fund or prospective mutual fund. We firmly believe the big-cap leaders of today will again become the laggards after the next bear market washout. If that is the case, then you don’t want to find your portfolio indexed to under-performance at what may become one of the best buying opportunities of our lifetime.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:spacer {\"height\":38} -->\n<div style=\"height:38px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:separator -->\n<hr class=\"wp-block-separator\"/>\n<!-- /wp:separator -->\n\n<!-- wp:spacer {\"height\":38} -->\n<div style=\"height:38px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:paragraph -->\n<p>This report was originally published March 12, 1999 and is also available to read in PDF format.&nbsp;<a href=\"https://ns2020-investech.investech.com/wp-content/uploads/2020/08/InvesTech-V99I04-Indexing.pdf\" target=\"_blank\" rel=\"noreferrer noopener\">Download the PDF</a>.</p>\n<!-- /wp:paragraph -->','The Lemming Principle','Just as relevant today as in the Tech Bubble of the 1990s, this issue (originally published in March 1999) is particularly enlightening in view of today\'s infatuation with passive and index investing. Instead of falling off a cliff, these lemmings fell into the largest bear market since the 1930s!','inherit','closed','closed','','2470-revision-v1','','','2021-06-16 18:18:28','2021-06-16 18:18:28','',2470,'https://ns2020-investech.investech.com/?p=8497',0,'revision','',0);
INSERT INTO `wp_posts` VALUES (8498,3,'2021-06-16 18:18:53','2021-06-16 18:18:53','<!-- wp:heading -->\n<h2>The Indexing Craze</h2>\n<!-- /wp:heading -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:66.66%\"><!-- wp:paragraph -->\n<p>The indexing craze… it’s sure to be remembered as a hallmark of the 1990s! What has made investing in the S&amp;P 500 so popular these days? If you buy into a recent Business Week article, <em>“Index funds are cheap, easy–and they’re changing the way Americans invest.”</em> A value investor might disagree, since index funds are holding a group of stocks which are at their most overvalued levels in history.  However, in a sense, they are “cheap”… you don’t have to pay a fund manager to search for attractive stocks, and there are few transaction fees when the portfolio doesn’t change much from year to year. As for “easy,” that’s a different story. Our October 23, 1998 issue of the InvesTech Mutual Fund Advisor devoted considerable space to dispelling some of the myths of easy profits and safety that enthusiasts claim for these funds.</p>\n<!-- /wp:paragraph --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>Saving for Retirement Index Fever</p><cite>Fortune, 11/9/98</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>Who Needs a Money Manager?</p><cite>Business Week, 2/22/99</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:66.66%\"><!-- wp:paragraph -->\n<p>The popularity of investing in a large-cap index is a phenomenon of long-running bull markets, especially in the latter stages like today. There are several reasons for this. After years of positive gains in the stock market, new investors latch on to the implied idea that making money is simple. It’s also assumed that index funds are safer than other mutual funds because many S&amp;P 500 stocks have widely recognized names. And finally, index funds are the obvious choice for novice investors who tend to be drawn in during late stage bull markets.<em> [Just try to talk a non-investor into putting money into the stock market in the depths of a recession when bull markets are typically born!] </em>During the longest running bull markets, like today, index funds appear attractive even to more experienced investors, simply because that’s when they outperform other funds.</p>\n<!-- /wp:paragraph --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:heading -->\n<h2>Historical Perspective</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>They may be at the height of popularity now, but index funds aren’t just a phenomenon of the 1990’s. If you were investing in 1975 you would have seen this announcement in <em>U.S. News &amp; World Report:</em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>INVEST IN THE STOCK-MARKET AVERAGE?</p><p>A new investment vehicle -the \"index mutual fund\"- is making a big pitch for some of the billions that pension funds, college endowments and other institutions invest in the stock market.  </p><p>For most of the big institutional investors, just keeping up with the general stock-market averages would present a large improvement over their performances in past years</p><cite>U.S. News &amp; World Report, 12/29/75</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p>Index funds were a hot new concept in 1975, just in time to dramatically UNDERperform the majority of stocks. Over the next seven years, the smallest 20% of NYSE issues outperformed the S&amp;P 500 by more than 5-fold (752% versus 150%). After this less-than-spectacular start, the popularity of index funds came and went with the market cycles for the next decade. They really started to proliferate only when the current bull market turned into a large-cap bonanza beginning in 1994.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Last year, index funds attracted nearly 19% of all money invested in mutual funds. And Vanguard Index 500 with $74 billion is close to passing #1 Fidelity Magellan in net assets. But that’s just the tip of the iceberg, as the majority of mutual funds are now investing in the “big 50 ” –the 50 largest-cap stocks in the S&amp;P 500– simply to keep pace with that index’s momentum. This flow of money into a handful of large stocks affects not only the market averages, but it can have long-term repercussions for the market as well as your future investment strategy.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading -->\n<h2>The Impact</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Here’s the current, and potential, impact as we see it…<br></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Investor psychology is distorted. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Many novices view index funds as a type of variable rate CD. In Canada, one of our readers reports roadside billboards are promoting a guaranteed principle type of market index investment over GICs (the Canadian equivalent of a CD). What happens when index funds fail to return that expected 11%, or worse, when a major bear market wipes out 40-50%. Someone’s going to be left holding the bag.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3,\"className\":\"unclear\"} -->\n<h3 class=\"unclear\">More and more “non-index” funds are actually indexing a large part of their portfolios. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>As index funds have been the only ones to keep pace with market averages in recent years, the natural reaction is for fund managers to change strategy. The philosophy seems to be, <em>“If I can’t outperform the market, at least try to imitate it.”</em> The result is an increasing number of equity funds that look like mini-index fund clones as managers are dragged into the same stocks. Any fund wanting to match or beat the averages must hold at least some of the “big 50 ” of the S&amp;P 500. To make this point, we looked at the portfolios of the ten top performing “non-index” growth funds for the past 12 months. On  Average, 5 of the top 10 holdings in each portfolio are among the 20 largest stocks in the S&amp;P.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>As an example, take the Fidelity Dividend Growth fund which, by its very name, seems to imply conservative growth with a focus on dividends. But there’s nothing conservative about an annual portfolio turnover rate exceeding 105% for each of the last 5 years. And its dividend yield is only 0.4% – less than one-third the dismal yield of the S&amp;P 500.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3,\"className\":\"unclear\"} -->\n<h3 class=\"unclear\">Investments in momentum related funds are funneling into the most overvalued stocks in the market, driving them even higher. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Remember, the S&amp;P 500 is a capitalization weighted index, so money going into index funds is not evenly distributed in all 500 stocks. Only fifty stocks account for 55% of S&amp;P 500 capitalization and 55% of an index fund portfolio. That leaves the other 450 stocks to split the rest. Indexing contributes to explosive run-up and overvaluation in these top 50 stocks. Microsoft today is valued at 1.4 times the total capitalization of GE, Intel, Merck, Wal-Mart, Pfizer, Exxon, Coca-Cola, IBM, Cisco, <strong>AND </strong>Microsoft in December of 1990 at the start of this bull market. And America Online, which has yet to show any significant earnings, is now valued at more than ANY of the ten largest companies in the U.S. in 1990!</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Market volatility increases whenever interest narrows to just a few stocks. All eyes are on the same select group (the largest companies in the S&amp;P 500). Any news or earnings surprises can cause wild gyrations in price as funds scramble to dump or pile into hot movers. No wonder the intraday volatility in 1999 is running the highest for any bull market year since 1929!</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Finally, indexing amplifies the technical distortion in the markets. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>The current issue of the<em> InvesTech Market Analyst </em>takes an insightful look at what’s really happening in breadth and other technical divergences. With support from the “big-50\" stocks of the S&amp;P, the closely watched indexes like the DJIA and NASDAQ simply don’t reflect these divergences. For a broader view of the market, take a close look at the Russell 2000 Index (premier small cap index) or the Value-Line Composite Index (an equally weighted index of 1700 stocks).</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:media-text {\"mediaId\":5403,\"mediaType\":\"image\"} -->\n<div class=\"wp-block-media-text alignwide is-stacked-on-mobile\"><figure class=\"wp-block-media-text__media\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/top-20.png\" alt=\"\" class=\"wp-image-5403 size-full\"/></figure><div class=\"wp-block-media-text__content\"><!-- wp:heading -->\n<h2>Investment Strategy</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>First, we advise that you examine the individual stock holdings in any mutual fund you own – especially for any funds that have “performed” well over the last couple years. Ask yourself,<em> “How ‘indexed’ is this fund?”</em> We’ve listed the 20 largest cap stocks of the S&amp;P 500 in the table shown at right. If you find more than 3 or 4 of these stocks in the top 20 portfolio holdings of your fund, then take heed – your fund is nibbling on indexing.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>In addition, avoid judging a future fund by its 1997-98 performance. If a fund was near the top of the performance list for these past two years, chances are it was momentum investing. Blue chip stocks are often the last to peak in a long-running bull market, benefiting from a “flight to safety” as other stocks falter. Unfortunately, when they fall from overvalued heights, they can be the last to recover from a recession.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>This past bull market illustrates our point. Index funds have enjoyed the run up in blue chip stocks, handily beating most actively managed funds over the last few years. Since 1994, the Vanguard 500 Index Fund has more than doubled the total return of the average small stock fund, and provided 1.6 times the return of the average value fund. This performance may seem unbeatable, but it’s only part of the story. </p>\n<!-- /wp:paragraph --></div></div>\n<!-- /wp:media-text -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":5406,\"width\":514,\"height\":530,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-large is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/mutualfundperf.png\" alt=\"\" class=\"wp-image-5406\" width=\"514\" height=\"530\"/><figcaption>\"Mutual Fund Performance\" graph from 1991-93</figcaption></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>This \"Mutual Fund Performance\" graph from 1991-93 reveals the comparative performance of the Vanguard 500 during the first three years of this bull market… the safest years to be invested. Note that the average “value” fund outperformed by a factor of 1.4… and the average small company fund literally doubled the return of the Vanguard 500 Index fund. </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>From the perspective of risk management now (and future profits later), it’s never been more critical to know your mutual fund or prospective mutual fund. We firmly believe the big-cap leaders of today will again become the laggards after the next bear market washout. If that is the case, then you don’t want to find your portfolio indexed to under-performance at what may become one of the best buying opportunities of our lifetime.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:spacer {\"height\":38} -->\n<div style=\"height:38px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:separator -->\n<hr class=\"wp-block-separator\"/>\n<!-- /wp:separator -->\n\n<!-- wp:spacer {\"height\":38} -->\n<div style=\"height:38px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:paragraph -->\n<p>This report was originally published March 12, 1999 and is also available to read in PDF format.&nbsp;<a href=\"https://ns2020-investech.investech.com/wp-content/uploads/2020/08/InvesTech-V99I04-Indexing.pdf\" target=\"_blank\" rel=\"noreferrer noopener\">Download the PDF</a>.</p>\n<!-- /wp:paragraph -->','The Lemming Principle','Just as relevant today as in the Tech Bubble of the 1990s, this issue (originally published in March 1999) is particularly enlightening in view of today\'s infatuation with passive and index investing. Instead of falling off a cliff, these lemmings fell into the largest bear market since the 1930s!','inherit','closed','closed','','2470-revision-v1','','','2021-06-16 18:18:53','2021-06-16 18:18:53','',2470,'https://ns2020-investech.investech.com/?p=8498',0,'revision','',0);
INSERT INTO `wp_posts` VALUES (8499,3,'2021-06-16 18:19:07','2021-06-16 18:19:07','<!-- wp:heading -->\n<h2>The Indexing Craze</h2>\n<!-- /wp:heading -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:66.66%\"><!-- wp:paragraph -->\n<p>The indexing craze… it’s sure to be remembered as a hallmark of the 1990s! What has made investing in the S&amp;P 500 so popular these days? If you buy into a recent Business Week article, <em>“Index funds are cheap, easy–and they’re changing the way Americans invest.”</em> A value investor might disagree, since index funds are holding a group of stocks which are at their most overvalued levels in history.  However, in a sense, they are “cheap”… you don’t have to pay a fund manager to search for attractive stocks, and there are few transaction fees when the portfolio doesn’t change much from year to year. As for “easy,” that’s a different story. Our October 23, 1998 issue of the InvesTech Mutual Fund Advisor devoted considerable space to dispelling some of the myths of easy profits and safety that enthusiasts claim for these funds.</p>\n<!-- /wp:paragraph --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>Saving for Retirement Index Fever</p><cite>Fortune, 11/9/98</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>Who Needs a Money Manager?</p><cite>Business Week, 2/22/99</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:66.66%\"><!-- wp:paragraph -->\n<p>The popularity of investing in a large-cap index is a phenomenon of long-running bull markets, especially in the latter stages like today. There are several reasons for this. After years of positive gains in the stock market, new investors latch on to the implied idea that making money is simple. It’s also assumed that index funds are safer than other mutual funds because many S&amp;P 500 stocks have widely recognized names. And finally, index funds are the obvious choice for novice investors who tend to be drawn in during late stage bull markets.<em> [Just try to talk a non-investor into putting money into the stock market in the depths of a recession when bull markets are typically born!] </em>During the longest running bull markets, like today, index funds appear attractive even to more experienced investors, simply because that’s when they outperform other funds.</p>\n<!-- /wp:paragraph --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:heading -->\n<h2>Historical Perspective</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>They may be at the height of popularity now, but index funds aren’t just a phenomenon of the 1990’s. If you were investing in 1975 you would have seen this announcement in <em>U.S. News &amp; World Report:</em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>INVEST IN THE STOCK-MARKET AVERAGE?</p><p>A new investment vehicle -the \"index mutual fund\"- is making a big pitch for some of the billions that pension funds, college endowments and other institutions invest in the stock market.  </p><p>For most of the big institutional investors, just keeping up with the general stock-market averages would present a large improvement over their performances in past years</p><cite>U.S. News &amp; World Report, 12/29/75</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p>Index funds were a hot new concept in 1975, just in time to dramatically UNDERperform the majority of stocks. Over the next seven years, the smallest 20% of NYSE issues outperformed the S&amp;P 500 by more than 5-fold (752% versus 150%). After this less-than-spectacular start, the popularity of index funds came and went with the market cycles for the next decade. They really started to proliferate only when the current bull market turned into a large-cap bonanza beginning in 1994.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Last year, index funds attracted nearly 19% of all money invested in mutual funds. And Vanguard Index 500 with $74 billion is close to passing #1 Fidelity Magellan in net assets. But that’s just the tip of the iceberg, as the majority of mutual funds are now investing in the “big 50 ” –the 50 largest-cap stocks in the S&amp;P 500– simply to keep pace with that index’s momentum. This flow of money into a handful of large stocks affects not only the market averages, but it can have long-term repercussions for the market as well as your future investment strategy.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading -->\n<h2>The Impact</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Here’s the current, and potential, impact as we see it…<br></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Investor psychology is distorted. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Many novices view index funds as a type of variable rate CD. In Canada, one of our readers reports roadside billboards are promoting a guaranteed principle type of market index investment over GICs (the Canadian equivalent of a CD). What happens when index funds fail to return that expected 11%, or worse, when a major bear market wipes out 40-50%. Someone’s going to be left holding the bag.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3,\"className\":\"unclear\"} -->\n<h3 class=\"unclear\">More and more “non-index” funds are actually indexing a large part of their portfolios. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>As index funds have been the only ones to keep pace with market averages in recent years, the natural reaction is for fund managers to change strategy. The philosophy seems to be, <em>“If I can’t outperform the market, at least try to imitate it.”</em> The result is an increasing number of equity funds that look like mini-index fund clones as managers are dragged into the same stocks. Any fund wanting to match or beat the averages must hold at least some of the “big 50 ” of the S&amp;P 500. To make this point, we looked at the portfolios of the ten top performing “non-index” growth funds for the past 12 months. On  Average, 5 of the top 10 holdings in each portfolio are among the 20 largest stocks in the S&amp;P.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>As an example, take the Fidelity Dividend Growth fund which, by its very name, seems to imply conservative growth with a focus on dividends. But there’s nothing conservative about an annual portfolio turnover rate exceeding 105% for each of the last 5 years. And its dividend yield is only 0.4% – less than one-third the dismal yield of the S&amp;P 500.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3,\"className\":\"unclear\"} -->\n<h3 class=\"unclear\">Investments in momentum related funds are funneling into the most overvalued stocks in the market, driving them even higher. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Remember, the S&amp;P 500 is a capitalization weighted index, so money going into index funds is not evenly distributed in all 500 stocks. Only fifty stocks account for 55% of S&amp;P 500 capitalization and 55% of an index fund portfolio. That leaves the other 450 stocks to split the rest. Indexing contributes to explosive run-up and overvaluation in these top 50 stocks. Microsoft today is valued at 1.4 times the total capitalization of GE, Intel, Merck, Wal-Mart, Pfizer, Exxon, Coca-Cola, IBM, Cisco, <strong>AND </strong>Microsoft in December of 1990 at the start of this bull market. And America Online, which has yet to show any significant earnings, is now valued at more than ANY of the ten largest companies in the U.S. in 1990!</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Market volatility increases whenever interest narrows to just a few stocks. All eyes are on the same select group (the largest companies in the S&amp;P 500). Any news or earnings surprises can cause wild gyrations in price as funds scramble to dump or pile into hot movers. No wonder the intraday volatility in 1999 is running the highest for any bull market year since 1929!</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Finally, indexing amplifies the technical distortion in the markets. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>The current issue of the<em> InvesTech Market Analyst </em>takes an insightful look at what’s really happening in breadth and other technical divergences. With support from the “big-50\" stocks of the S&amp;P, the closely watched indexes like the DJIA and NASDAQ simply don’t reflect these divergences. For a broader view of the market, take a close look at the Russell 2000 Index (premier small cap index) or the Value-Line Composite Index (an equally weighted index of 1700 stocks).</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:media-text {\"mediaId\":5403,\"mediaType\":\"image\",\"mediaWidth\":46} -->\n<div class=\"wp-block-media-text alignwide is-stacked-on-mobile\" style=\"grid-template-columns:46% auto\"><figure class=\"wp-block-media-text__media\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/top-20.png\" alt=\"\" class=\"wp-image-5403 size-full\"/></figure><div class=\"wp-block-media-text__content\"><!-- wp:heading -->\n<h2>Investment Strategy</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>First, we advise that you examine the individual stock holdings in any mutual fund you own – especially for any funds that have “performed” well over the last couple years. Ask yourself,<em> “How ‘indexed’ is this fund?”</em> We’ve listed the 20 largest cap stocks of the S&amp;P 500 in the table shown at right. If you find more than 3 or 4 of these stocks in the top 20 portfolio holdings of your fund, then take heed – your fund is nibbling on indexing.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>In addition, avoid judging a future fund by its 1997-98 performance. If a fund was near the top of the performance list for these past two years, chances are it was momentum investing. Blue chip stocks are often the last to peak in a long-running bull market, benefiting from a “flight to safety” as other stocks falter. Unfortunately, when they fall from overvalued heights, they can be the last to recover from a recession.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>This past bull market illustrates our point. Index funds have enjoyed the run up in blue chip stocks, handily beating most actively managed funds over the last few years. Since 1994, the Vanguard 500 Index Fund has more than doubled the total return of the average small stock fund, and provided 1.6 times the return of the average value fund. This performance may seem unbeatable, but it’s only part of the story. </p>\n<!-- /wp:paragraph --></div></div>\n<!-- /wp:media-text -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":5406,\"width\":514,\"height\":530,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-large is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/mutualfundperf.png\" alt=\"\" class=\"wp-image-5406\" width=\"514\" height=\"530\"/><figcaption>\"Mutual Fund Performance\" graph from 1991-93</figcaption></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>This \"Mutual Fund Performance\" graph from 1991-93 reveals the comparative performance of the Vanguard 500 during the first three years of this bull market… the safest years to be invested. Note that the average “value” fund outperformed by a factor of 1.4… and the average small company fund literally doubled the return of the Vanguard 500 Index fund. </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>From the perspective of risk management now (and future profits later), it’s never been more critical to know your mutual fund or prospective mutual fund. We firmly believe the big-cap leaders of today will again become the laggards after the next bear market washout. If that is the case, then you don’t want to find your portfolio indexed to under-performance at what may become one of the best buying opportunities of our lifetime.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:spacer {\"height\":38} -->\n<div style=\"height:38px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:separator -->\n<hr class=\"wp-block-separator\"/>\n<!-- /wp:separator -->\n\n<!-- wp:spacer {\"height\":38} -->\n<div style=\"height:38px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:paragraph -->\n<p>This report was originally published March 12, 1999 and is also available to read in PDF format.&nbsp;<a href=\"https://ns2020-investech.investech.com/wp-content/uploads/2020/08/InvesTech-V99I04-Indexing.pdf\" target=\"_blank\" rel=\"noreferrer noopener\">Download the PDF</a>.</p>\n<!-- /wp:paragraph -->','The Lemming Principle','Just as relevant today as in the Tech Bubble of the 1990s, this issue (originally published in March 1999) is particularly enlightening in view of today\'s infatuation with passive and index investing. Instead of falling off a cliff, these lemmings fell into the largest bear market since the 1930s!','inherit','closed','closed','','2470-revision-v1','','','2021-06-16 18:19:07','2021-06-16 18:19:07','',2470,'https://ns2020-investech.investech.com/?p=8499',0,'revision','',0);
INSERT INTO `wp_posts` VALUES (8500,3,'2021-06-16 18:19:20','2021-06-16 18:19:20','<!-- wp:heading -->\n<h2>The Indexing Craze</h2>\n<!-- /wp:heading -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:66.66%\"><!-- wp:paragraph -->\n<p>The indexing craze… it’s sure to be remembered as a hallmark of the 1990s! What has made investing in the S&amp;P 500 so popular these days? If you buy into a recent Business Week article, <em>“Index funds are cheap, easy–and they’re changing the way Americans invest.”</em> A value investor might disagree, since index funds are holding a group of stocks which are at their most overvalued levels in history.  However, in a sense, they are “cheap”… you don’t have to pay a fund manager to search for attractive stocks, and there are few transaction fees when the portfolio doesn’t change much from year to year. As for “easy,” that’s a different story. Our October 23, 1998 issue of the InvesTech Mutual Fund Advisor devoted considerable space to dispelling some of the myths of easy profits and safety that enthusiasts claim for these funds.</p>\n<!-- /wp:paragraph --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>Saving for Retirement Index Fever</p><cite>Fortune, 11/9/98</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>Who Needs a Money Manager?</p><cite>Business Week, 2/22/99</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:66.66%\"><!-- wp:paragraph -->\n<p>The popularity of investing in a large-cap index is a phenomenon of long-running bull markets, especially in the latter stages like today. There are several reasons for this. After years of positive gains in the stock market, new investors latch on to the implied idea that making money is simple. It’s also assumed that index funds are safer than other mutual funds because many S&amp;P 500 stocks have widely recognized names. And finally, index funds are the obvious choice for novice investors who tend to be drawn in during late stage bull markets.<em> [Just try to talk a non-investor into putting money into the stock market in the depths of a recession when bull markets are typically born!] </em>During the longest running bull markets, like today, index funds appear attractive even to more experienced investors, simply because that’s when they outperform other funds.</p>\n<!-- /wp:paragraph --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:heading -->\n<h2>Historical Perspective</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>They may be at the height of popularity now, but index funds aren’t just a phenomenon of the 1990’s. If you were investing in 1975 you would have seen this announcement in <em>U.S. News &amp; World Report:</em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>INVEST IN THE STOCK-MARKET AVERAGE?</p><p>A new investment vehicle -the \"index mutual fund\"- is making a big pitch for some of the billions that pension funds, college endowments and other institutions invest in the stock market.  </p><p>For most of the big institutional investors, just keeping up with the general stock-market averages would present a large improvement over their performances in past years</p><cite>U.S. News &amp; World Report, 12/29/75</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p>Index funds were a hot new concept in 1975, just in time to dramatically UNDERperform the majority of stocks. Over the next seven years, the smallest 20% of NYSE issues outperformed the S&amp;P 500 by more than 5-fold (752% versus 150%). After this less-than-spectacular start, the popularity of index funds came and went with the market cycles for the next decade. They really started to proliferate only when the current bull market turned into a large-cap bonanza beginning in 1994.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Last year, index funds attracted nearly 19% of all money invested in mutual funds. And Vanguard Index 500 with $74 billion is close to passing #1 Fidelity Magellan in net assets. But that’s just the tip of the iceberg, as the majority of mutual funds are now investing in the “big 50 ” –the 50 largest-cap stocks in the S&amp;P 500– simply to keep pace with that index’s momentum. This flow of money into a handful of large stocks affects not only the market averages, but it can have long-term repercussions for the market as well as your future investment strategy.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading -->\n<h2>The Impact</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Here’s the current, and potential, impact as we see it…<br></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Investor psychology is distorted. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Many novices view index funds as a type of variable rate CD. In Canada, one of our readers reports roadside billboards are promoting a guaranteed principle type of market index investment over GICs (the Canadian equivalent of a CD). What happens when index funds fail to return that expected 11%, or worse, when a major bear market wipes out 40-50%. Someone’s going to be left holding the bag.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3,\"className\":\"unclear\"} -->\n<h3 class=\"unclear\">More and more “non-index” funds are actually indexing a large part of their portfolios. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>As index funds have been the only ones to keep pace with market averages in recent years, the natural reaction is for fund managers to change strategy. The philosophy seems to be, <em>“If I can’t outperform the market, at least try to imitate it.”</em> The result is an increasing number of equity funds that look like mini-index fund clones as managers are dragged into the same stocks. Any fund wanting to match or beat the averages must hold at least some of the “big 50 ” of the S&amp;P 500. To make this point, we looked at the portfolios of the ten top performing “non-index” growth funds for the past 12 months. On  Average, 5 of the top 10 holdings in each portfolio are among the 20 largest stocks in the S&amp;P.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>As an example, take the Fidelity Dividend Growth fund which, by its very name, seems to imply conservative growth with a focus on dividends. But there’s nothing conservative about an annual portfolio turnover rate exceeding 105% for each of the last 5 years. And its dividend yield is only 0.4% – less than one-third the dismal yield of the S&amp;P 500.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3,\"className\":\"unclear\"} -->\n<h3 class=\"unclear\">Investments in momentum related funds are funneling into the most overvalued stocks in the market, driving them even higher. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Remember, the S&amp;P 500 is a capitalization weighted index, so money going into index funds is not evenly distributed in all 500 stocks. Only fifty stocks account for 55% of S&amp;P 500 capitalization and 55% of an index fund portfolio. That leaves the other 450 stocks to split the rest. Indexing contributes to explosive run-up and overvaluation in these top 50 stocks. Microsoft today is valued at 1.4 times the total capitalization of GE, Intel, Merck, Wal-Mart, Pfizer, Exxon, Coca-Cola, IBM, Cisco, <strong>AND </strong>Microsoft in December of 1990 at the start of this bull market. And America Online, which has yet to show any significant earnings, is now valued at more than ANY of the ten largest companies in the U.S. in 1990!</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Market volatility increases whenever interest narrows to just a few stocks. All eyes are on the same select group (the largest companies in the S&amp;P 500). Any news or earnings surprises can cause wild gyrations in price as funds scramble to dump or pile into hot movers. No wonder the intraday volatility in 1999 is running the highest for any bull market year since 1929!</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Finally, indexing amplifies the technical distortion in the markets. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>The current issue of the<em> InvesTech Market Analyst </em>takes an insightful look at what’s really happening in breadth and other technical divergences. With support from the “big-50\" stocks of the S&amp;P, the closely watched indexes like the DJIA and NASDAQ simply don’t reflect these divergences. For a broader view of the market, take a close look at the Russell 2000 Index (premier small cap index) or the Value-Line Composite Index (an equally weighted index of 1700 stocks).</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:media-text {\"mediaId\":5403,\"mediaType\":\"image\",\"mediaWidth\":43} -->\n<div class=\"wp-block-media-text alignwide is-stacked-on-mobile\" style=\"grid-template-columns:43% auto\"><figure class=\"wp-block-media-text__media\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/top-20.png\" alt=\"\" class=\"wp-image-5403 size-full\"/></figure><div class=\"wp-block-media-text__content\"><!-- wp:heading -->\n<h2>Investment Strategy</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>First, we advise that you examine the individual stock holdings in any mutual fund you own – especially for any funds that have “performed” well over the last couple years. Ask yourself,<em> “How ‘indexed’ is this fund?”</em> We’ve listed the 20 largest cap stocks of the S&amp;P 500 in the table shown at right. If you find more than 3 or 4 of these stocks in the top 20 portfolio holdings of your fund, then take heed – your fund is nibbling on indexing.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>In addition, avoid judging a future fund by its 1997-98 performance. If a fund was near the top of the performance list for these past two years, chances are it was momentum investing. Blue chip stocks are often the last to peak in a long-running bull market, benefiting from a “flight to safety” as other stocks falter. Unfortunately, when they fall from overvalued heights, they can be the last to recover from a recession.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>This past bull market illustrates our point. Index funds have enjoyed the run up in blue chip stocks, handily beating most actively managed funds over the last few years. Since 1994, the Vanguard 500 Index Fund has more than doubled the total return of the average small stock fund, and provided 1.6 times the return of the average value fund. This performance may seem unbeatable, but it’s only part of the story. </p>\n<!-- /wp:paragraph --></div></div>\n<!-- /wp:media-text -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":5406,\"width\":514,\"height\":530,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-large is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/mutualfundperf.png\" alt=\"\" class=\"wp-image-5406\" width=\"514\" height=\"530\"/><figcaption>\"Mutual Fund Performance\" graph from 1991-93</figcaption></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>This \"Mutual Fund Performance\" graph from 1991-93 reveals the comparative performance of the Vanguard 500 during the first three years of this bull market… the safest years to be invested. Note that the average “value” fund outperformed by a factor of 1.4… and the average small company fund literally doubled the return of the Vanguard 500 Index fund. </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>From the perspective of risk management now (and future profits later), it’s never been more critical to know your mutual fund or prospective mutual fund. We firmly believe the big-cap leaders of today will again become the laggards after the next bear market washout. If that is the case, then you don’t want to find your portfolio indexed to under-performance at what may become one of the best buying opportunities of our lifetime.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:spacer {\"height\":38} -->\n<div style=\"height:38px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:separator -->\n<hr class=\"wp-block-separator\"/>\n<!-- /wp:separator -->\n\n<!-- wp:spacer {\"height\":38} -->\n<div style=\"height:38px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:paragraph -->\n<p>This report was originally published March 12, 1999 and is also available to read in PDF format.&nbsp;<a href=\"https://ns2020-investech.investech.com/wp-content/uploads/2020/08/InvesTech-V99I04-Indexing.pdf\" target=\"_blank\" rel=\"noreferrer noopener\">Download the PDF</a>.</p>\n<!-- /wp:paragraph -->','The Lemming Principle','Just as relevant today as in the Tech Bubble of the 1990s, this issue (originally published in March 1999) is particularly enlightening in view of today\'s infatuation with passive and index investing. Instead of falling off a cliff, these lemmings fell into the largest bear market since the 1930s!','inherit','closed','closed','','2470-revision-v1','','','2021-06-16 18:19:20','2021-06-16 18:19:20','',2470,'https://ns2020-investech.investech.com/?p=8500',0,'revision','',0);
INSERT INTO `wp_posts` VALUES (8502,3,'2021-06-16 18:19:52','2021-06-16 18:19:52','<!-- wp:heading -->\n<h2>The Indexing Craze</h2>\n<!-- /wp:heading -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:66.66%\"><!-- wp:paragraph -->\n<p>The indexing craze… it’s sure to be remembered as a hallmark of the 1990s! What has made investing in the S&amp;P 500 so popular these days? If you buy into a recent Business Week article, <em>“Index funds are cheap, easy–and they’re changing the way Americans invest.”</em> A value investor might disagree, since index funds are holding a group of stocks which are at their most overvalued levels in history.  However, in a sense, they are “cheap”… you don’t have to pay a fund manager to search for attractive stocks, and there are few transaction fees when the portfolio doesn’t change much from year to year. As for “easy,” that’s a different story. Our October 23, 1998 issue of the InvesTech Mutual Fund Advisor devoted considerable space to dispelling some of the myths of easy profits and safety that enthusiasts claim for these funds.</p>\n<!-- /wp:paragraph --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>Saving for Retirement Index Fever</p><cite>Fortune, 11/9/98</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>Who Needs a Money Manager?</p><cite>Business Week, 2/22/99</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:66.66%\"><!-- wp:paragraph -->\n<p>The popularity of investing in a large-cap index is a phenomenon of long-running bull markets, especially in the latter stages like today. There are several reasons for this. After years of positive gains in the stock market, new investors latch on to the implied idea that making money is simple. It’s also assumed that index funds are safer than other mutual funds because many S&amp;P 500 stocks have widely recognized names. And finally, index funds are the obvious choice for novice investors who tend to be drawn in during late stage bull markets.<em> [Just try to talk a non-investor into putting money into the stock market in the depths of a recession when bull markets are typically born!] </em>During the longest running bull markets, like today, index funds appear attractive even to more experienced investors, simply because that’s when they outperform other funds.</p>\n<!-- /wp:paragraph --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:heading -->\n<h2>Historical Perspective</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>They may be at the height of popularity now, but index funds aren’t just a phenomenon of the 1990’s. If you were investing in 1975 you would have seen this announcement in <em>U.S. News &amp; World Report:</em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>INVEST IN THE STOCK-MARKET AVERAGE?</p><p>A new investment vehicle -the \"index mutual fund\"- is making a big pitch for some of the billions that pension funds, college endowments and other institutions invest in the stock market.  </p><p>For most of the big institutional investors, just keeping up with the general stock-market averages would present a large improvement over their performances in past years</p><cite>U.S. News &amp; World Report, 12/29/75</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p>Index funds were a hot new concept in 1975, just in time to dramatically UNDERperform the majority of stocks. Over the next seven years, the smallest 20% of NYSE issues outperformed the S&amp;P 500 by more than 5-fold (752% versus 150%). After this less-than-spectacular start, the popularity of index funds came and went with the market cycles for the next decade. They really started to proliferate only when the current bull market turned into a large-cap bonanza beginning in 1994.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Last year, index funds attracted nearly 19% of all money invested in mutual funds. And Vanguard Index 500 with $74 billion is close to passing #1 Fidelity Magellan in net assets. But that’s just the tip of the iceberg, as the majority of mutual funds are now investing in the “big 50 ” –the 50 largest-cap stocks in the S&amp;P 500– simply to keep pace with that index’s momentum. This flow of money into a handful of large stocks affects not only the market averages, but it can have long-term repercussions for the market as well as your future investment strategy.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading -->\n<h2>The Impact</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Here’s the current, and potential, impact as we see it…<br></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Investor psychology is distorted. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Many novices view index funds as a type of variable rate CD. In Canada, one of our readers reports roadside billboards are promoting a guaranteed principle type of market index investment over GICs (the Canadian equivalent of a CD). What happens when index funds fail to return that expected 11%, or worse, when a major bear market wipes out 40-50%. Someone’s going to be left holding the bag.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3,\"className\":\"unclear\"} -->\n<h3 class=\"unclear\">More and more “non-index” funds are actually indexing a large part of their portfolios. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>As index funds have been the only ones to keep pace with market averages in recent years, the natural reaction is for fund managers to change strategy. The philosophy seems to be, <em>“If I can’t outperform the market, at least try to imitate it.”</em> The result is an increasing number of equity funds that look like mini-index fund clones as managers are dragged into the same stocks. Any fund wanting to match or beat the averages must hold at least some of the “big 50 ” of the S&amp;P 500. To make this point, we looked at the portfolios of the ten top performing “non-index” growth funds for the past 12 months. On  Average, 5 of the top 10 holdings in each portfolio are among the 20 largest stocks in the S&amp;P.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>As an example, take the Fidelity Dividend Growth fund which, by its very name, seems to imply conservative growth with a focus on dividends. But there’s nothing conservative about an annual portfolio turnover rate exceeding 105% for each of the last 5 years. And its dividend yield is only 0.4% – less than one-third the dismal yield of the S&amp;P 500.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3,\"className\":\"unclear\"} -->\n<h3 class=\"unclear\">Investments in momentum related funds are funneling into the most overvalued stocks in the market, driving them even higher. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Remember, the S&amp;P 500 is a capitalization weighted index, so money going into index funds is not evenly distributed in all 500 stocks. Only fifty stocks account for 55% of S&amp;P 500 capitalization and 55% of an index fund portfolio. That leaves the other 450 stocks to split the rest. Indexing contributes to explosive run-up and overvaluation in these top 50 stocks. Microsoft today is valued at 1.4 times the total capitalization of GE, Intel, Merck, Wal-Mart, Pfizer, Exxon, Coca-Cola, IBM, Cisco, <strong>AND </strong>Microsoft in December of 1990 at the start of this bull market. And America Online, which has yet to show any significant earnings, is now valued at more than ANY of the ten largest companies in the U.S. in 1990!</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Market volatility increases whenever interest narrows to just a few stocks. All eyes are on the same select group (the largest companies in the S&amp;P 500). Any news or earnings surprises can cause wild gyrations in price as funds scramble to dump or pile into hot movers. No wonder the intraday volatility in 1999 is running the highest for any bull market year since 1929!</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Finally, indexing amplifies the technical distortion in the markets. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>The current issue of the<em> InvesTech Market Analyst </em>takes an insightful look at what’s really happening in breadth and other technical divergences. With support from the “big-50\" stocks of the S&amp;P, the closely watched indexes like the DJIA and NASDAQ simply don’t reflect these divergences. For a broader view of the market, take a close look at the Russell 2000 Index (premier small cap index) or the Value-Line Composite Index (an equally weighted index of 1700 stocks).</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:media-text {\"mediaId\":5403,\"mediaType\":\"image\",\"mediaWidth\":40} -->\n<div class=\"wp-block-media-text alignwide is-stacked-on-mobile\" style=\"grid-template-columns:40% auto\"><figure class=\"wp-block-media-text__media\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/top-20.png\" alt=\"Top 20 stocks in the S&amp;P 500 Index as of 1999\" class=\"wp-image-5403 size-full\"/></figure><div class=\"wp-block-media-text__content\"><!-- wp:heading -->\n<h2>Investment Strategy</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>First, we advise that you examine the individual stock holdings in any mutual fund you own – especially for any funds that have “performed” well over the last couple years. Ask yourself,<em> “How ‘indexed’ is this fund?”</em> We’ve listed the 20 largest cap stocks of the S&amp;P 500 in the table shown at right. If you find more than 3 or 4 of these stocks in the top 20 portfolio holdings of your fund, then take heed – your fund is nibbling on indexing.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>In addition, avoid judging a future fund by its 1997-98 performance. If a fund was near the top of the performance list for these past two years, chances are it was momentum investing. Blue chip stocks are often the last to peak in a long-running bull market, benefiting from a “flight to safety” as other stocks falter. Unfortunately, when they fall from overvalued heights, they can be the last to recover from a recession.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>This past bull market illustrates our point. Index funds have enjoyed the run up in blue chip stocks, handily beating most actively managed funds over the last few years. Since 1994, the Vanguard 500 Index Fund has more than doubled the total return of the average small stock fund, and provided 1.6 times the return of the average value fund. This performance may seem unbeatable, but it’s only part of the story. </p>\n<!-- /wp:paragraph --></div></div>\n<!-- /wp:media-text -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":5406,\"width\":514,\"height\":530,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-large is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/mutualfundperf.png\" alt=\"\" class=\"wp-image-5406\" width=\"514\" height=\"530\"/><figcaption>\"Mutual Fund Performance\" graph from 1991-93</figcaption></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>This \"Mutual Fund Performance\" graph from 1991-93 reveals the comparative performance of the Vanguard 500 during the first three years of this bull market… the safest years to be invested. Note that the average “value” fund outperformed by a factor of 1.4… and the average small company fund literally doubled the return of the Vanguard 500 Index fund. </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>From the perspective of risk management now (and future profits later), it’s never been more critical to know your mutual fund or prospective mutual fund. We firmly believe the big-cap leaders of today will again become the laggards after the next bear market washout. If that is the case, then you don’t want to find your portfolio indexed to under-performance at what may become one of the best buying opportunities of our lifetime.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:spacer {\"height\":38} -->\n<div style=\"height:38px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:separator -->\n<hr class=\"wp-block-separator\"/>\n<!-- /wp:separator -->\n\n<!-- wp:spacer {\"height\":38} -->\n<div style=\"height:38px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:paragraph -->\n<p>This report was originally published March 12, 1999 and is also available to read in PDF format.&nbsp;<a href=\"https://ns2020-investech.investech.com/wp-content/uploads/2020/08/InvesTech-V99I04-Indexing.pdf\" target=\"_blank\" rel=\"noreferrer noopener\">Download the PDF</a>.</p>\n<!-- /wp:paragraph -->','The Lemming Principle','Just as relevant today as in the Tech Bubble of the 1990s, this issue (originally published in March 1999) is particularly enlightening in view of today\'s infatuation with passive and index investing. Instead of falling off a cliff, these lemmings fell into the largest bear market since the 1930s!','inherit','closed','closed','','2470-revision-v1','','','2021-06-16 18:19:52','2021-06-16 18:19:52','',2470,'https://ns2020-investech.investech.com/?p=8502',0,'revision','',0);
INSERT INTO `wp_posts` VALUES (8504,3,'2021-06-16 18:20:24','2021-06-16 18:20:24','<!-- wp:heading -->\n<h2>The Indexing Craze</h2>\n<!-- /wp:heading -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:66.66%\"><!-- wp:paragraph -->\n<p>The indexing craze… it’s sure to be remembered as a hallmark of the 1990s! What has made investing in the S&amp;P 500 so popular these days? If you buy into a recent Business Week article, <em>“Index funds are cheap, easy–and they’re changing the way Americans invest.”</em> A value investor might disagree, since index funds are holding a group of stocks which are at their most overvalued levels in history.  However, in a sense, they are “cheap”… you don’t have to pay a fund manager to search for attractive stocks, and there are few transaction fees when the portfolio doesn’t change much from year to year. As for “easy,” that’s a different story. Our October 23, 1998 issue of the InvesTech Mutual Fund Advisor devoted considerable space to dispelling some of the myths of easy profits and safety that enthusiasts claim for these funds.</p>\n<!-- /wp:paragraph --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>Saving for Retirement Index Fever</p><cite>Fortune, 11/9/98</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>Who Needs a Money Manager?</p><cite>Business Week, 2/22/99</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:66.66%\"><!-- wp:paragraph -->\n<p>The popularity of investing in a large-cap index is a phenomenon of long-running bull markets, especially in the latter stages like today. There are several reasons for this. After years of positive gains in the stock market, new investors latch on to the implied idea that making money is simple. It’s also assumed that index funds are safer than other mutual funds because many S&amp;P 500 stocks have widely recognized names. And finally, index funds are the obvious choice for novice investors who tend to be drawn in during late stage bull markets.<em> [Just try to talk a non-investor into putting money into the stock market in the depths of a recession when bull markets are typically born!] </em>During the longest running bull markets, like today, index funds appear attractive even to more experienced investors, simply because that’s when they outperform other funds.</p>\n<!-- /wp:paragraph --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:heading -->\n<h2>Historical Perspective</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>They may be at the height of popularity now, but index funds aren’t just a phenomenon of the 1990’s. If you were investing in 1975 you would have seen this announcement in <em>U.S. News &amp; World Report:</em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>INVEST IN THE STOCK-MARKET AVERAGE?</p><p>A new investment vehicle -the \"index mutual fund\"- is making a big pitch for some of the billions that pension funds, college endowments and other institutions invest in the stock market.  </p><p>For most of the big institutional investors, just keeping up with the general stock-market averages would present a large improvement over their performances in past years</p><cite>U.S. News &amp; World Report, 12/29/75</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p>Index funds were a hot new concept in 1975, just in time to dramatically UNDERperform the majority of stocks. Over the next seven years, the smallest 20% of NYSE issues outperformed the S&amp;P 500 by more than 5-fold (752% versus 150%). After this less-than-spectacular start, the popularity of index funds came and went with the market cycles for the next decade. They really started to proliferate only when the current bull market turned into a large-cap bonanza beginning in 1994.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Last year, index funds attracted nearly 19% of all money invested in mutual funds. And Vanguard Index 500 with $74 billion is close to passing #1 Fidelity Magellan in net assets. But that’s just the tip of the iceberg, as the majority of mutual funds are now investing in the “big 50 ” –the 50 largest-cap stocks in the S&amp;P 500– simply to keep pace with that index’s momentum. This flow of money into a handful of large stocks affects not only the market averages, but it can have long-term repercussions for the market as well as your future investment strategy.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading -->\n<h2>The Impact</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Here’s the current, and potential, impact as we see it…<br></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Investor psychology is distorted. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Many novices view index funds as a type of variable rate CD. In Canada, one of our readers reports roadside billboards are promoting a guaranteed principle type of market index investment over GICs (the Canadian equivalent of a CD). What happens when index funds fail to return that expected 11%, or worse, when a major bear market wipes out 40-50%. Someone’s going to be left holding the bag.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3,\"className\":\"unclear\"} -->\n<h3 class=\"unclear\">More and more “non-index” funds are actually indexing a large part of their portfolios. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>As index funds have been the only ones to keep pace with market averages in recent years, the natural reaction is for fund managers to change strategy. The philosophy seems to be, <em>“If I can’t outperform the market, at least try to imitate it.”</em> The result is an increasing number of equity funds that look like mini-index fund clones as managers are dragged into the same stocks. Any fund wanting to match or beat the averages must hold at least some of the “big 50 ” of the S&amp;P 500. To make this point, we looked at the portfolios of the ten top performing “non-index” growth funds for the past 12 months. On  Average, 5 of the top 10 holdings in each portfolio are among the 20 largest stocks in the S&amp;P.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>As an example, take the Fidelity Dividend Growth fund which, by its very name, seems to imply conservative growth with a focus on dividends. But there’s nothing conservative about an annual portfolio turnover rate exceeding 105% for each of the last 5 years. And its dividend yield is only 0.4% – less than one-third the dismal yield of the S&amp;P 500.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3,\"className\":\"unclear\"} -->\n<h3 class=\"unclear\">Investments in momentum related funds are funneling into the most overvalued stocks in the market, driving them even higher. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Remember, the S&amp;P 500 is a capitalization weighted index, so money going into index funds is not evenly distributed in all 500 stocks. Only fifty stocks account for 55% of S&amp;P 500 capitalization and 55% of an index fund portfolio. That leaves the other 450 stocks to split the rest. Indexing contributes to explosive run-up and overvaluation in these top 50 stocks. Microsoft today is valued at 1.4 times the total capitalization of GE, Intel, Merck, Wal-Mart, Pfizer, Exxon, Coca-Cola, IBM, Cisco, <strong>AND </strong>Microsoft in December of 1990 at the start of this bull market. And America Online, which has yet to show any significant earnings, is now valued at more than ANY of the ten largest companies in the U.S. in 1990!</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Market volatility increases whenever interest narrows to just a few stocks. All eyes are on the same select group (the largest companies in the S&amp;P 500). Any news or earnings surprises can cause wild gyrations in price as funds scramble to dump or pile into hot movers. No wonder the intraday volatility in 1999 is running the highest for any bull market year since 1929!</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Finally, indexing amplifies the technical distortion in the markets. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>The current issue of the<em> InvesTech Market Analyst </em>takes an insightful look at what’s really happening in breadth and other technical divergences. With support from the “big-50\" stocks of the S&amp;P, the closely watched indexes like the DJIA and NASDAQ simply don’t reflect these divergences. For a broader view of the market, take a close look at the Russell 2000 Index (premier small cap index) or the Value-Line Composite Index (an equally weighted index of 1700 stocks).</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:media-text {\"mediaId\":5403,\"mediaType\":\"image\",\"mediaWidth\":40} -->\n<div class=\"wp-block-media-text alignwide is-stacked-on-mobile\" style=\"grid-template-columns:40% auto\"><figure class=\"wp-block-media-text__media\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/top-20.png\" alt=\"Top 20 stocks in the S&amp;P 500 Index as of 1999\" class=\"wp-image-5403 size-full\"/></figure><div class=\"wp-block-media-text__content\"><!-- wp:heading -->\n<h2>Investment Strategy</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>First, we advise that you examine the individual stock holdings in any mutual fund you own – especially for any funds that have “performed” well over the last couple years. Ask yourself,<em> “How ‘indexed’ is this fund?”</em> We’ve listed the 20 largest cap stocks of the S&amp;P 500 in the table shown at right. If you find more than 3 or 4 of these stocks in the top 20 portfolio holdings of your fund, then take heed – your fund is nibbling on indexing.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>In addition, avoid judging a future fund by its 1997-98 performance. If a fund was near the top of the performance list for these past two years, chances are it was momentum investing. Blue chip stocks are often the last to peak in a long-running bull market, benefiting from a “flight to safety” as other stocks falter. Unfortunately, when they fall from overvalued heights, they can be the last to recover from a recession.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>This past bull market illustrates our point. Index funds have enjoyed the run up in blue chip stocks, handily beating most actively managed funds over the last few years. Since 1994, the Vanguard 500 Index Fund has more than doubled the total return of the average small stock fund, and provided 1.6 times the return of the average value fund. This performance may seem unbeatable, but it’s only part of the story. </p>\n<!-- /wp:paragraph --></div></div>\n<!-- /wp:media-text -->\n\n<!-- wp:spacer {\"height\":1} -->\n<div style=\"height:1px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":5406,\"width\":514,\"height\":530,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-large is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/mutualfundperf.png\" alt=\"\" class=\"wp-image-5406\" width=\"514\" height=\"530\"/><figcaption>\"Mutual Fund Performance\" graph from 1991-93</figcaption></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>This \"Mutual Fund Performance\" graph from 1991-93 reveals the comparative performance of the Vanguard 500 during the first three years of this bull market… the safest years to be invested. Note that the average “value” fund outperformed by a factor of 1.4… and the average small company fund literally doubled the return of the Vanguard 500 Index fund. </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>From the perspective of risk management now (and future profits later), it’s never been more critical to know your mutual fund or prospective mutual fund. We firmly believe the big-cap leaders of today will again become the laggards after the next bear market washout. If that is the case, then you don’t want to find your portfolio indexed to under-performance at what may become one of the best buying opportunities of our lifetime.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:spacer {\"height\":38} -->\n<div style=\"height:38px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:separator -->\n<hr class=\"wp-block-separator\"/>\n<!-- /wp:separator -->\n\n<!-- wp:spacer {\"height\":38} -->\n<div style=\"height:38px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:paragraph -->\n<p>This report was originally published March 12, 1999 and is also available to read in PDF format.&nbsp;<a href=\"https://ns2020-investech.investech.com/wp-content/uploads/2020/08/InvesTech-V99I04-Indexing.pdf\" target=\"_blank\" rel=\"noreferrer noopener\">Download the PDF</a>.</p>\n<!-- /wp:paragraph -->','The Lemming Principle','Just as relevant today as in the Tech Bubble of the 1990s, this issue (originally published in March 1999) is particularly enlightening in view of today\'s infatuation with passive and index investing. Instead of falling off a cliff, these lemmings fell into the largest bear market since the 1930s!','inherit','closed','closed','','2470-revision-v1','','','2021-06-16 18:20:24','2021-06-16 18:20:24','',2470,'https://ns2020-investech.investech.com/?p=8504',0,'revision','',0);
INSERT INTO `wp_posts` VALUES (8505,3,'2021-06-16 18:20:47','2021-06-16 18:20:47','<!-- wp:heading -->\n<h2>The Indexing Craze</h2>\n<!-- /wp:heading -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:66.66%\"><!-- wp:paragraph -->\n<p>The indexing craze… it’s sure to be remembered as a hallmark of the 1990s! What has made investing in the S&amp;P 500 so popular these days? If you buy into a recent Business Week article, <em>“Index funds are cheap, easy–and they’re changing the way Americans invest.”</em> A value investor might disagree, since index funds are holding a group of stocks which are at their most overvalued levels in history.  However, in a sense, they are “cheap”… you don’t have to pay a fund manager to search for attractive stocks, and there are few transaction fees when the portfolio doesn’t change much from year to year. As for “easy,” that’s a different story. Our October 23, 1998 issue of the InvesTech Mutual Fund Advisor devoted considerable space to dispelling some of the myths of easy profits and safety that enthusiasts claim for these funds.</p>\n<!-- /wp:paragraph --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>Saving for Retirement Index Fever</p><cite>Fortune, 11/9/98</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>Who Needs a Money Manager?</p><cite>Business Week, 2/22/99</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:66.66%\"><!-- wp:paragraph -->\n<p>The popularity of investing in a large-cap index is a phenomenon of long-running bull markets, especially in the latter stages like today. There are several reasons for this. After years of positive gains in the stock market, new investors latch on to the implied idea that making money is simple. It’s also assumed that index funds are safer than other mutual funds because many S&amp;P 500 stocks have widely recognized names. And finally, index funds are the obvious choice for novice investors who tend to be drawn in during late stage bull markets.<em> [Just try to talk a non-investor into putting money into the stock market in the depths of a recession when bull markets are typically born!] </em>During the longest running bull markets, like today, index funds appear attractive even to more experienced investors, simply because that’s when they outperform other funds.</p>\n<!-- /wp:paragraph --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:heading -->\n<h2>Historical Perspective</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>They may be at the height of popularity now, but index funds aren’t just a phenomenon of the 1990’s. If you were investing in 1975 you would have seen this announcement in <em>U.S. News &amp; World Report:</em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>INVEST IN THE STOCK-MARKET AVERAGE?</p><p>A new investment vehicle -the \"index mutual fund\"- is making a big pitch for some of the billions that pension funds, college endowments and other institutions invest in the stock market.  </p><p>For most of the big institutional investors, just keeping up with the general stock-market averages would present a large improvement over their performances in past years</p><cite>U.S. News &amp; World Report, 12/29/75</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p>Index funds were a hot new concept in 1975, just in time to dramatically UNDERperform the majority of stocks. Over the next seven years, the smallest 20% of NYSE issues outperformed the S&amp;P 500 by more than 5-fold (752% versus 150%). After this less-than-spectacular start, the popularity of index funds came and went with the market cycles for the next decade. They really started to proliferate only when the current bull market turned into a large-cap bonanza beginning in 1994.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Last year, index funds attracted nearly 19% of all money invested in mutual funds. And Vanguard Index 500 with $74 billion is close to passing #1 Fidelity Magellan in net assets. But that’s just the tip of the iceberg, as the majority of mutual funds are now investing in the “big 50 ” –the 50 largest-cap stocks in the S&amp;P 500– simply to keep pace with that index’s momentum. This flow of money into a handful of large stocks affects not only the market averages, but it can have long-term repercussions for the market as well as your future investment strategy.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading -->\n<h2>The Impact</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Here’s the current, and potential, impact as we see it…<br></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Investor psychology is distorted. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Many novices view index funds as a type of variable rate CD. In Canada, one of our readers reports roadside billboards are promoting a guaranteed principle type of market index investment over GICs (the Canadian equivalent of a CD). What happens when index funds fail to return that expected 11%, or worse, when a major bear market wipes out 40-50%. Someone’s going to be left holding the bag.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3,\"className\":\"unclear\"} -->\n<h3 class=\"unclear\">More and more “non-index” funds are actually indexing a large part of their portfolios. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>As index funds have been the only ones to keep pace with market averages in recent years, the natural reaction is for fund managers to change strategy. The philosophy seems to be, <em>“If I can’t outperform the market, at least try to imitate it.”</em> The result is an increasing number of equity funds that look like mini-index fund clones as managers are dragged into the same stocks. Any fund wanting to match or beat the averages must hold at least some of the “big 50 ” of the S&amp;P 500. To make this point, we looked at the portfolios of the ten top performing “non-index” growth funds for the past 12 months. On  Average, 5 of the top 10 holdings in each portfolio are among the 20 largest stocks in the S&amp;P.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>As an example, take the Fidelity Dividend Growth fund which, by its very name, seems to imply conservative growth with a focus on dividends. But there’s nothing conservative about an annual portfolio turnover rate exceeding 105% for each of the last 5 years. And its dividend yield is only 0.4% – less than one-third the dismal yield of the S&amp;P 500.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3,\"className\":\"unclear\"} -->\n<h3 class=\"unclear\">Investments in momentum related funds are funneling into the most overvalued stocks in the market, driving them even higher. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Remember, the S&amp;P 500 is a capitalization weighted index, so money going into index funds is not evenly distributed in all 500 stocks. Only fifty stocks account for 55% of S&amp;P 500 capitalization and 55% of an index fund portfolio. That leaves the other 450 stocks to split the rest. Indexing contributes to explosive run-up and overvaluation in these top 50 stocks. Microsoft today is valued at 1.4 times the total capitalization of GE, Intel, Merck, Wal-Mart, Pfizer, Exxon, Coca-Cola, IBM, Cisco, <strong>AND </strong>Microsoft in December of 1990 at the start of this bull market. And America Online, which has yet to show any significant earnings, is now valued at more than ANY of the ten largest companies in the U.S. in 1990!</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Market volatility increases whenever interest narrows to just a few stocks. All eyes are on the same select group (the largest companies in the S&amp;P 500). Any news or earnings surprises can cause wild gyrations in price as funds scramble to dump or pile into hot movers. No wonder the intraday volatility in 1999 is running the highest for any bull market year since 1929!</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Finally, indexing amplifies the technical distortion in the markets. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>The current issue of the<em> InvesTech Market Analyst </em>takes an insightful look at what’s really happening in breadth and other technical divergences. With support from the “big-50\" stocks of the S&amp;P, the closely watched indexes like the DJIA and NASDAQ simply don’t reflect these divergences. For a broader view of the market, take a close look at the Russell 2000 Index (premier small cap index) or the Value-Line Composite Index (an equally weighted index of 1700 stocks).</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:media-text {\"mediaId\":5403,\"mediaType\":\"image\",\"mediaWidth\":40} -->\n<div class=\"wp-block-media-text alignwide is-stacked-on-mobile\" style=\"grid-template-columns:40% auto\"><figure class=\"wp-block-media-text__media\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/top-20.png\" alt=\"Top 20 stocks in the S&amp;P 500 Index as of 1999\" class=\"wp-image-5403 size-full\"/></figure><div class=\"wp-block-media-text__content\"><!-- wp:heading -->\n<h2>Investment Strategy</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>First, we advise that you examine the individual stock holdings in any mutual fund you own – especially for any funds that have “performed” well over the last couple years. Ask yourself,<em> “How ‘indexed’ is this fund?”</em> We’ve listed the 20 largest cap stocks of the S&amp;P 500 in the table shown at right. If you find more than 3 or 4 of these stocks in the top 20 portfolio holdings of your fund, then take heed – your fund is nibbling on indexing.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>In addition, avoid judging a future fund by its 1997-98 performance. If a fund was near the top of the performance list for these past two years, chances are it was momentum investing. Blue chip stocks are often the last to peak in a long-running bull market, benefiting from a “flight to safety” as other stocks falter. Unfortunately, when they fall from overvalued heights, they can be the last to recover from a recession.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>This past bull market illustrates our point. Index funds have enjoyed the run up in blue chip stocks, handily beating most actively managed funds over the last few years. Since 1994, the Vanguard 500 Index Fund has more than doubled the total return of the average small stock fund, and provided 1.6 times the return of the average value fund. This performance may seem unbeatable, but it’s only part of the story. </p>\n<!-- /wp:paragraph --></div></div>\n<!-- /wp:media-text -->\n\n<!-- wp:spacer {\"height\":10} -->\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":5406,\"width\":514,\"height\":530,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-large is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/mutualfundperf.png\" alt=\"\" class=\"wp-image-5406\" width=\"514\" height=\"530\"/><figcaption>\"Mutual Fund Performance\" graph from 1991-93</figcaption></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>This \"Mutual Fund Performance\" graph from 1991-93 reveals the comparative performance of the Vanguard 500 during the first three years of this bull market… the safest years to be invested. Note that the average “value” fund outperformed by a factor of 1.4… and the average small company fund literally doubled the return of the Vanguard 500 Index fund. </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>From the perspective of risk management now (and future profits later), it’s never been more critical to know your mutual fund or prospective mutual fund. We firmly believe the big-cap leaders of today will again become the laggards after the next bear market washout. If that is the case, then you don’t want to find your portfolio indexed to under-performance at what may become one of the best buying opportunities of our lifetime.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:spacer {\"height\":38} -->\n<div style=\"height:38px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:separator -->\n<hr class=\"wp-block-separator\"/>\n<!-- /wp:separator -->\n\n<!-- wp:spacer {\"height\":38} -->\n<div style=\"height:38px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:paragraph -->\n<p>This report was originally published March 12, 1999 and is also available to read in PDF format.&nbsp;<a href=\"https://ns2020-investech.investech.com/wp-content/uploads/2020/08/InvesTech-V99I04-Indexing.pdf\" target=\"_blank\" rel=\"noreferrer noopener\">Download the PDF</a>.</p>\n<!-- /wp:paragraph -->','The Lemming Principle','Just as relevant today as in the Tech Bubble of the 1990s, this issue (originally published in March 1999) is particularly enlightening in view of today\'s infatuation with passive and index investing. Instead of falling off a cliff, these lemmings fell into the largest bear market since the 1930s!','inherit','closed','closed','','2470-revision-v1','','','2021-06-16 18:20:47','2021-06-16 18:20:47','',2470,'https://ns2020-investech.investech.com/?p=8505',0,'revision','',0);
INSERT INTO `wp_posts` VALUES (8507,3,'2021-06-16 18:22:59','2021-06-16 18:22:59','<!-- wp:heading -->\n<h2>The Indexing Craze</h2>\n<!-- /wp:heading -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:66.66%\"><!-- wp:paragraph -->\n<p>The indexing craze… it’s sure to be remembered as a hallmark of the 1990s! What has made investing in the S&amp;P 500 so popular these days? If you buy into a recent Business Week article, <em>“Index funds are cheap, easy–and they’re changing the way Americans invest.”</em> A value investor might disagree, since index funds are holding a group of stocks which are at their most overvalued levels in history.  However, in a sense, they are “cheap”… you don’t have to pay a fund manager to search for attractive stocks, and there are few transaction fees when the portfolio doesn’t change much from year to year. As for “easy,” that’s a different story. Our October 23, 1998 issue of the InvesTech Mutual Fund Advisor devoted considerable space to dispelling some of the myths of easy profits and safety that enthusiasts claim for these funds.</p>\n<!-- /wp:paragraph --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>Saving for Retirement Index Fever</p><cite>Fortune, 11/9/98</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>Who Needs a Money Manager?</p><cite>Business Week, 2/22/99</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:66.66%\"><!-- wp:paragraph -->\n<p>The popularity of investing in a large-cap index is a phenomenon of long-running bull markets, especially in the latter stages like today. There are several reasons for this. After years of positive gains in the stock market, new investors latch on to the implied idea that making money is simple. It’s also assumed that index funds are safer than other mutual funds because many S&amp;P 500 stocks have widely recognized names. And finally, index funds are the obvious choice for novice investors who tend to be drawn in during late stage bull markets.<em> [Just try to talk a non-investor into putting money into the stock market in the depths of a recession when bull markets are typically born!] </em>During the longest running bull markets, like today, index funds appear attractive even to more experienced investors, simply because that’s when they outperform other funds.</p>\n<!-- /wp:paragraph --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:heading -->\n<h2>Historical Perspective</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>They may be at the height of popularity now, but index funds aren’t just a phenomenon of the 1990’s. If you were investing in 1975 you would have seen this announcement in <em>U.S. News &amp; World Report:</em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>INVEST IN THE STOCK-MARKET AVERAGE?</p><p>A new investment vehicle -the \"index mutual fund\"- is making a big pitch for some of the billions that pension funds, college endowments and other institutions invest in the stock market.  </p><p>For most of the big institutional investors, just keeping up with the general stock-market averages would present a large improvement over their performances in past years</p><cite>U.S. News &amp; World Report, 12/29/75</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p>Index funds were a hot new concept in 1975, just in time to dramatically UNDERperform the majority of stocks. Over the next seven years, the smallest 20% of NYSE issues outperformed the S&amp;P 500 by more than 5-fold (752% versus 150%). After this less-than-spectacular start, the popularity of index funds came and went with the market cycles for the next decade. They really started to proliferate only when the current bull market turned into a large-cap bonanza beginning in 1994.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Last year, index funds attracted nearly 19% of all money invested in mutual funds. And Vanguard Index 500 with $74 billion is close to passing #1 Fidelity Magellan in net assets. But that’s just the tip of the iceberg, as the majority of mutual funds are now investing in the “big 50 ” –the 50 largest-cap stocks in the S&amp;P 500– simply to keep pace with that index’s momentum. This flow of money into a handful of large stocks affects not only the market averages, but it can have long-term repercussions for the market as well as your future investment strategy.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading -->\n<h2>The Impact</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Here’s the current, and potential, impact as we see it…<br></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Investor psychology is distorted. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Many novices view index funds as a type of variable rate CD. In Canada, one of our readers reports roadside billboards are promoting a guaranteed principle type of market index investment over GICs (the Canadian equivalent of a CD). What happens when index funds fail to return that expected 11%, or worse, when a major bear market wipes out 40-50%. Someone’s going to be left holding the bag.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3,\"className\":\"unclear\"} -->\n<h3 class=\"unclear\">More and more “non-index” funds are actually indexing a large part of their portfolios. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>As index funds have been the only ones to keep pace with market averages in recent years, the natural reaction is for fund managers to change strategy. The philosophy seems to be, <em>“If I can’t outperform the market, at least try to imitate it.”</em> The result is an increasing number of equity funds that look like mini-index fund clones as managers are dragged into the same stocks. Any fund wanting to match or beat the averages must hold at least some of the “big 50 ” of the S&amp;P 500. To make this point, we looked at the portfolios of the ten top performing “non-index” growth funds for the past 12 months. On  Average, 5 of the top 10 holdings in each portfolio are among the 20 largest stocks in the S&amp;P.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>As an example, take the Fidelity Dividend Growth fund which, by its very name, seems to imply conservative growth with a focus on dividends. But there’s nothing conservative about an annual portfolio turnover rate exceeding 105% for each of the last 5 years. And its dividend yield is only 0.4% – less than one-third the dismal yield of the S&amp;P 500.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3,\"className\":\"unclear\"} -->\n<h3 class=\"unclear\">Investments in momentum related funds are funneling into the most overvalued stocks in the market, driving them even higher. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Remember, the S&amp;P 500 is a capitalization weighted index, so money going into index funds is not evenly distributed in all 500 stocks. Only fifty stocks account for 55% of S&amp;P 500 capitalization and 55% of an index fund portfolio. That leaves the other 450 stocks to split the rest. Indexing contributes to explosive run-up and overvaluation in these top 50 stocks. Microsoft today is valued at 1.4 times the total capitalization of GE, Intel, Merck, Wal-Mart, Pfizer, Exxon, Coca-Cola, IBM, Cisco, <strong>AND </strong>Microsoft in December of 1990 at the start of this bull market. And America Online, which has yet to show any significant earnings, is now valued at more than ANY of the ten largest companies in the U.S. in 1990!</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Market volatility increases whenever interest narrows to just a few stocks. All eyes are on the same select group (the largest companies in the S&amp;P 500). Any news or earnings surprises can cause wild gyrations in price as funds scramble to dump or pile into hot movers. No wonder the intraday volatility in 1999 is running the highest for any bull market year since 1929!</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Finally, indexing amplifies the technical distortion in the markets. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>The current issue of the<em> InvesTech Market Analyst </em>takes an insightful look at what’s really happening in breadth and other technical divergences. With support from the “big-50\" stocks of the S&amp;P, the closely watched indexes like the DJIA and NASDAQ simply don’t reflect these divergences. For a broader view of the market, take a close look at the Russell 2000 Index (premier small cap index) or the Value-Line Composite Index (an equally weighted index of 1700 stocks).</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:media-text {\"mediaId\":5403,\"mediaType\":\"image\",\"mediaWidth\":40} -->\n<div class=\"wp-block-media-text alignwide is-stacked-on-mobile\" style=\"grid-template-columns:40% auto\"><figure class=\"wp-block-media-text__media\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/top-20.png\" alt=\"Top 20 stocks in the S&amp;P 500 Index as of 1999\" class=\"wp-image-5403 size-full\"/></figure><div class=\"wp-block-media-text__content\"><!-- wp:heading -->\n<h2>Investment Strategy</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>First, we advise that you examine the individual stock holdings in any mutual fund you own – especially for any funds that have “performed” well over the last couple years. Ask yourself,<em> “How ‘indexed’ is this fund?”</em> We’ve listed the 20 largest cap stocks of the S&amp;P 500 in the table shown at right. If you find more than 3 or 4 of these stocks in the top 20 portfolio holdings of your fund, then take heed – your fund is nibbling on indexing.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>In addition, avoid judging a future fund by its 1997-98 performance. If a fund was near the top of the performance list for these past two years, chances are it was momentum investing. Blue chip stocks are often the last to peak in a long-running bull market, benefiting from a “flight to safety” as other stocks falter. Unfortunately, when they fall from overvalued heights, they can be the last to recover from a recession.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>This past bull market illustrates our point. Index funds have enjoyed the run up in blue chip stocks, handily beating most actively managed funds over the last few years. Since 1994, the Vanguard 500 Index Fund has more than doubled the total return of the average small stock fund, and provided 1.6 times the return of the average value fund. This performance may seem unbeatable, but it’s only part of the story. </p>\n<!-- /wp:paragraph --></div></div>\n<!-- /wp:media-text -->\n\n<!-- wp:spacer {\"height\":10} -->\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":5406,\"width\":514,\"height\":530,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-large is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/mutualfundperf.png\" alt=\"\" class=\"wp-image-5406\" width=\"514\" height=\"530\"/><figcaption>\"Mutual Fund Performance\" graph from 1991-93</figcaption></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>This \"Mutual Fund Performance\" graph from 1991-93 reveals the comparative performance of the Vanguard 500 during the first three years of this bull market… the safest years to be invested. Note that the average “value” fund outperformed by a factor of 1.4… and the average small company fund literally doubled the return of the Vanguard 500 Index fund. </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>From the perspective of risk management now (and future profits later), it’s never been more critical to know your mutual fund or prospective mutual fund. We firmly believe the big-cap leaders of today will again become the laggards after the next bear market washout. If that is the case, then you don’t want to find your portfolio indexed to under-performance at what may become one of the best buying opportunities of our lifetime.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:spacer {\"height\":38} -->\n<div style=\"height:38px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:separator -->\n<hr class=\"wp-block-separator\"/>\n<!-- /wp:separator -->\n\n<!-- wp:spacer {\"height\":38} -->\n<div style=\"height:38px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:heading {\"level\":4} -->\n<h4><em>InvesTech Research</em> newsletter originally published March 12, 1999</h4>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>This newsletter is also available to read in PDF format. <a href=\"https://ns2020-investech.investech.com/wp-content/uploads/2020/08/InvesTech-V99I04-Indexing.pdf\" target=\"_blank\" rel=\"noreferrer noopener\">Download the PDF</a>.</p>\n<!-- /wp:paragraph -->','The Lemming Principle','Just as relevant today as in the Tech Bubble of the 1990s, this issue (originally published in March 1999) is particularly enlightening in view of today\'s infatuation with passive and index investing. Instead of falling off a cliff, these lemmings fell into the largest bear market since the 1930s!','inherit','closed','closed','','2470-revision-v1','','','2021-06-16 18:22:59','2021-06-16 18:22:59','',2470,'https://ns2020-investech.investech.com/?p=8507',0,'revision','',0);
INSERT INTO `wp_posts` VALUES (8509,3,'2021-06-16 18:23:17','2021-06-16 18:23:17','<!-- wp:heading -->\n<h2>The Indexing Craze</h2>\n<!-- /wp:heading -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:66.66%\"><!-- wp:paragraph -->\n<p>The indexing craze… it’s sure to be remembered as a hallmark of the 1990s! What has made investing in the S&amp;P 500 so popular these days? If you buy into a recent Business Week article, <em>“Index funds are cheap, easy–and they’re changing the way Americans invest.”</em> A value investor might disagree, since index funds are holding a group of stocks which are at their most overvalued levels in history.  However, in a sense, they are “cheap”… you don’t have to pay a fund manager to search for attractive stocks, and there are few transaction fees when the portfolio doesn’t change much from year to year. As for “easy,” that’s a different story. Our October 23, 1998 issue of the InvesTech Mutual Fund Advisor devoted considerable space to dispelling some of the myths of easy profits and safety that enthusiasts claim for these funds.</p>\n<!-- /wp:paragraph --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>Saving for Retirement Index Fever</p><cite>Fortune, 11/9/98</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>Who Needs a Money Manager?</p><cite>Business Week, 2/22/99</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:66.66%\"><!-- wp:paragraph -->\n<p>The popularity of investing in a large-cap index is a phenomenon of long-running bull markets, especially in the latter stages like today. There are several reasons for this. After years of positive gains in the stock market, new investors latch on to the implied idea that making money is simple. It’s also assumed that index funds are safer than other mutual funds because many S&amp;P 500 stocks have widely recognized names. And finally, index funds are the obvious choice for novice investors who tend to be drawn in during late stage bull markets.<em> [Just try to talk a non-investor into putting money into the stock market in the depths of a recession when bull markets are typically born!] </em>During the longest running bull markets, like today, index funds appear attractive even to more experienced investors, simply because that’s when they outperform other funds.</p>\n<!-- /wp:paragraph --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:heading -->\n<h2>Historical Perspective</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>They may be at the height of popularity now, but index funds aren’t just a phenomenon of the 1990’s. If you were investing in 1975 you would have seen this announcement in <em>U.S. News &amp; World Report:</em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>INVEST IN THE STOCK-MARKET AVERAGE?</p><p>A new investment vehicle -the \"index mutual fund\"- is making a big pitch for some of the billions that pension funds, college endowments and other institutions invest in the stock market.  </p><p>For most of the big institutional investors, just keeping up with the general stock-market averages would present a large improvement over their performances in past years</p><cite>U.S. News &amp; World Report, 12/29/75</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p>Index funds were a hot new concept in 1975, just in time to dramatically UNDERperform the majority of stocks. Over the next seven years, the smallest 20% of NYSE issues outperformed the S&amp;P 500 by more than 5-fold (752% versus 150%). After this less-than-spectacular start, the popularity of index funds came and went with the market cycles for the next decade. They really started to proliferate only when the current bull market turned into a large-cap bonanza beginning in 1994.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Last year, index funds attracted nearly 19% of all money invested in mutual funds. And Vanguard Index 500 with $74 billion is close to passing #1 Fidelity Magellan in net assets. But that’s just the tip of the iceberg, as the majority of mutual funds are now investing in the “big 50 ” –the 50 largest-cap stocks in the S&amp;P 500– simply to keep pace with that index’s momentum. This flow of money into a handful of large stocks affects not only the market averages, but it can have long-term repercussions for the market as well as your future investment strategy.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading -->\n<h2>The Impact</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Here’s the current, and potential, impact as we see it…<br></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Investor psychology is distorted. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Many novices view index funds as a type of variable rate CD. In Canada, one of our readers reports roadside billboards are promoting a guaranteed principle type of market index investment over GICs (the Canadian equivalent of a CD). What happens when index funds fail to return that expected 11%, or worse, when a major bear market wipes out 40-50%. Someone’s going to be left holding the bag.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3,\"className\":\"unclear\"} -->\n<h3 class=\"unclear\">More and more “non-index” funds are actually indexing a large part of their portfolios. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>As index funds have been the only ones to keep pace with market averages in recent years, the natural reaction is for fund managers to change strategy. The philosophy seems to be, <em>“If I can’t outperform the market, at least try to imitate it.”</em> The result is an increasing number of equity funds that look like mini-index fund clones as managers are dragged into the same stocks. Any fund wanting to match or beat the averages must hold at least some of the “big 50 ” of the S&amp;P 500. To make this point, we looked at the portfolios of the ten top performing “non-index” growth funds for the past 12 months. On  Average, 5 of the top 10 holdings in each portfolio are among the 20 largest stocks in the S&amp;P.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>As an example, take the Fidelity Dividend Growth fund which, by its very name, seems to imply conservative growth with a focus on dividends. But there’s nothing conservative about an annual portfolio turnover rate exceeding 105% for each of the last 5 years. And its dividend yield is only 0.4% – less than one-third the dismal yield of the S&amp;P 500.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3,\"className\":\"unclear\"} -->\n<h3 class=\"unclear\">Investments in momentum related funds are funneling into the most overvalued stocks in the market, driving them even higher. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Remember, the S&amp;P 500 is a capitalization weighted index, so money going into index funds is not evenly distributed in all 500 stocks. Only fifty stocks account for 55% of S&amp;P 500 capitalization and 55% of an index fund portfolio. That leaves the other 450 stocks to split the rest. Indexing contributes to explosive run-up and overvaluation in these top 50 stocks. Microsoft today is valued at 1.4 times the total capitalization of GE, Intel, Merck, Wal-Mart, Pfizer, Exxon, Coca-Cola, IBM, Cisco, <strong>AND </strong>Microsoft in December of 1990 at the start of this bull market. And America Online, which has yet to show any significant earnings, is now valued at more than ANY of the ten largest companies in the U.S. in 1990!</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Market volatility increases whenever interest narrows to just a few stocks. All eyes are on the same select group (the largest companies in the S&amp;P 500). Any news or earnings surprises can cause wild gyrations in price as funds scramble to dump or pile into hot movers. No wonder the intraday volatility in 1999 is running the highest for any bull market year since 1929!</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Finally, indexing amplifies the technical distortion in the markets. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>The current issue of the<em> InvesTech Market Analyst </em>takes an insightful look at what’s really happening in breadth and other technical divergences. With support from the “big-50\" stocks of the S&amp;P, the closely watched indexes like the DJIA and NASDAQ simply don’t reflect these divergences. For a broader view of the market, take a close look at the Russell 2000 Index (premier small cap index) or the Value-Line Composite Index (an equally weighted index of 1700 stocks).</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:media-text {\"mediaId\":5403,\"mediaType\":\"image\",\"mediaWidth\":40} -->\n<div class=\"wp-block-media-text alignwide is-stacked-on-mobile\" style=\"grid-template-columns:40% auto\"><figure class=\"wp-block-media-text__media\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/top-20.png\" alt=\"Top 20 stocks in the S&amp;P 500 Index as of 1999\" class=\"wp-image-5403 size-full\"/></figure><div class=\"wp-block-media-text__content\"><!-- wp:heading -->\n<h2>Investment Strategy</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>First, we advise that you examine the individual stock holdings in any mutual fund you own – especially for any funds that have “performed” well over the last couple years. Ask yourself,<em> “How ‘indexed’ is this fund?”</em> We’ve listed the 20 largest cap stocks of the S&amp;P 500 in the table shown at right. If you find more than 3 or 4 of these stocks in the top 20 portfolio holdings of your fund, then take heed – your fund is nibbling on indexing.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>In addition, avoid judging a future fund by its 1997-98 performance. If a fund was near the top of the performance list for these past two years, chances are it was momentum investing. Blue chip stocks are often the last to peak in a long-running bull market, benefiting from a “flight to safety” as other stocks falter. Unfortunately, when they fall from overvalued heights, they can be the last to recover from a recession.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>This past bull market illustrates our point. Index funds have enjoyed the run up in blue chip stocks, handily beating most actively managed funds over the last few years. Since 1994, the Vanguard 500 Index Fund has more than doubled the total return of the average small stock fund, and provided 1.6 times the return of the average value fund. This performance may seem unbeatable, but it’s only part of the story. </p>\n<!-- /wp:paragraph --></div></div>\n<!-- /wp:media-text -->\n\n<!-- wp:spacer {\"height\":10} -->\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":5406,\"width\":514,\"height\":530,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-large is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/mutualfundperf.png\" alt=\"\" class=\"wp-image-5406\" width=\"514\" height=\"530\"/><figcaption>\"Mutual Fund Performance\" graph from 1991-93</figcaption></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>This \"Mutual Fund Performance\" graph from 1991-93 reveals the comparative performance of the Vanguard 500 during the first three years of this bull market… the safest years to be invested. Note that the average “value” fund outperformed by a factor of 1.4… and the average small company fund literally doubled the return of the Vanguard 500 Index fund. </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>From the perspective of risk management now (and future profits later), it’s never been more critical to know your mutual fund or prospective mutual fund. We firmly believe the big-cap leaders of today will again become the laggards after the next bear market washout. If that is the case, then you don’t want to find your portfolio indexed to under-performance at what may become one of the best buying opportunities of our lifetime.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:spacer {\"height\":38} -->\n<div style=\"height:38px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:separator -->\n<hr class=\"wp-block-separator\"/>\n<!-- /wp:separator -->\n\n<!-- wp:spacer {\"height\":3} -->\n<div style=\"height:3px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:heading {\"level\":4} -->\n<h4><em>InvesTech Research</em> newsletter originally published March 12, 1999</h4>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>This newsletter is also available to read in PDF format. <a href=\"https://ns2020-investech.investech.com/wp-content/uploads/2020/08/InvesTech-V99I04-Indexing.pdf\" target=\"_blank\" rel=\"noreferrer noopener\">Download the PDF</a>.</p>\n<!-- /wp:paragraph -->','The Lemming Principle','Just as relevant today as in the Tech Bubble of the 1990s, this issue (originally published in March 1999) is particularly enlightening in view of today\'s infatuation with passive and index investing. Instead of falling off a cliff, these lemmings fell into the largest bear market since the 1930s!','inherit','closed','closed','','2470-revision-v1','','','2021-06-16 18:23:17','2021-06-16 18:23:17','',2470,'https://ns2020-investech.investech.com/?p=8509',0,'revision','',0);
INSERT INTO `wp_posts` VALUES (8514,3,'2021-06-16 18:27:13','2021-06-16 18:27:13','<!-- wp:heading -->\n<h2>\"How do I hate thee?  Let me count the ways...\"</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Without a doubt, this is already one of the most hated bull markets in history! Both analysts and the media are finding countless things wrong with the rally, the U.S. economy, and –it seems– the outlook for the entire world:</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>Global Recession Deepens, Adding to U.S. Woes</p><cite>The Kiplinger Letter – 5/4/09</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p>From the swine flu outbreak, to soaring bankruptcies and foreclosures, to weak trading volume and ominous selling by corporate insiders, Wall Street investors have no shortage of worries on their minds. So why does the market continue to move relentlessly higher?</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Inside this issue, we provide the historical answer to that question – which our more seasoned subscribers know already. Just eight weeks ago, our March 13 issue laid out the technical arguments for an important market bottom…</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>…and thus far, the low that week (at DJIA 6547) has proven to be the bear market low.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3><br><strong>The ultimate question: What now?</strong></h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Are we in a new bull market or is it a bear market rally? If it is a new bull market, will it be a cyclical bull that is destined to a short life span or fail to reach old highs? And is it too late to buy, with the market already rebounding over 25%? All of these worries simply add to headlines now weighing on investors’ shoulders.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p><br>So let’s tackle some of these major concerns…</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading -->\n<h2>Climbing a Wall of Worry</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Every seasoned investor knows that bull markets climb a proverbial “wall of worry” during their early months of existence. Yet each and every time, it doesn’t get any easier. There is always an emotional tug-of-war between gloomy media headlines, and the slow methodical improvement in the technical outlook…</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"id\":5380,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/V09I05pg2-1024x752.png\" alt=\"DJIA with worrisome media headlines or a wall of worry\" class=\"wp-image-5380\"/></figure>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>But with all the blocks in place for a potential “best buy” opportunity in stocks [see table below], we need to pay close attention to the technical outlook – which is dramatically changing!</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"id\":5381,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/V09I05pg2table.png\" alt=\"Bearish conditions that precede the &quot;best buy&quot; opportunities in stocks\" class=\"wp-image-5381\"/></figure>\n<!-- /wp:image -->\n\n<!-- wp:heading -->\n<h2>NLC: Now Bullish</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>The most dramatic technical change since our last issue has been a strong and steady increase in the bullish “SELLING VACUUM” [[1] from our  Negative Leadership Composite. Designed to measure the absence of downside or bear market leadership, this kind of +50 reading is  synonymous with past bull market launching pads (see dashed arrows). Note there have been only 2 false signals (greater than +20) from our NLC Selling Vacuum in the past 42 years – and both occurred at significantly lower levels. We also want to point out that the lingering “DISTRIBUTION” [[2 –lower half] is not a problem from a technical viewpoint. Internal calculations show that bear market Distribution ended on the March 9 low, and has not been “added to” since then. On climactic V-shaped bottoms, it is not unusual to see a lag in this component. For example, at the end of the 1973-74 bear market, there was a 14-week residual lag between the market bottom and when Distribution left its -100 reading. In 1987, there was an 11- week lag. Currently, we’re only 8 weeks past the March 9 bottom.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"id\":5420,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/nlcV09I05-1024x736.png\" alt=\"InvesTech\'s negative leadership composite selling vacuum reaching +50 while the distribution component hit -100.\" class=\"wp-image-5420\"/></figure>\n<!-- /wp:image -->\n\n<!-- wp:heading -->\n<h2>BREADTH: Positive Divergence</h2>\n<!-- /wp:heading -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":5421,\"width\":375,\"height\":402,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-large is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/advdecv09i05.png\" alt=\"Advance-decline breaking to a new high\" class=\"wp-image-5421\" width=\"375\" height=\"402\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p><br>Throughout the lengthy 1929-32 bear market, as well as the 1973-74 bear market, there was never a “positive divergence” in market breadth. In other words, the advance-decline line [cumulative sum of daily advancing issues minus declining issues] led the bear market path every step of the way down. So to see a positive divergence today is yet another confirmation this bear market may be over. The A-D Line has broken well above its January rally high, thus leading the S&amp;P 500 upward since the March bottom. Some will argue this breadth gauge is less reliable since more ETFs and closed-end bond funds are traded on the NYSE. Perhaps. But we’ll simply let history speak for itself and give this technical tool our benefit of doubt until proven wrong.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading -->\n<h2>COPPOCK GUIDE: Is a Buy Signal Imminent?</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p><strong><em>If recent market gains hold, then a “Buy Signal” appears imminent in the Coppock Guide this month.</em></strong> </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>The Coppock Guide was developed over 50 years ago by Edwin S. Coppock. Its historical value lies in signaling or confirming the best, low-risk buying opportunities in history – and it is one of the few technical tools that would have kept anxious investors from stepping  prematurely into the middle of the record 1929-32 debacle or the 1973-74 bear market. </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>This index is actually the 10-month weighted moving total of a 14-month rate of change plus an 11-month rate of change of a market index. In mathematical terms, it’s really just a momentum oscillator. Because of  this, it reverses direction when the long-term momentum or velocity in the market peaks. After dropping to ‘0’ or below, a mere 1-point upturn in this index can usually be treated as an excellent buying opportunity. </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Some of the best (most important) buying opportunities have appeared when the Coppock Guide bottomed at a negative extreme below -20, including 1921, 1932, 1970, 1974 and 2003. And often, the more negative the Coppock Guide is when it turns upward, the more impressive the profits ahead. Under this guideline, only two false signals in 88 years have been recorded – once in 1941 and again in November 2001. </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Today, the Coppock Guide is at its most oversold level since the bear markets of the 1930s – over 70 years ago. As a monthly indicator, we won’t know for certain whether a formal buy signal has been triggered until the end of the month. However, forward testing –based on current data– reveals the Coppock will turn upward from below ‘0’ if the market stabilizes near present levels or continues rising.  <em>Remember – this is a projection, not necessarily a certainty. <strong>So stay tuned…</strong></em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"id\":5427,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/coppockV09I05-1024x784.png\" alt=\"Coppock guide over the S&amp;P 500 Index just starting to turn upward\" class=\"wp-image-5427\"/></figure>\n<!-- /wp:image -->\n\n<!-- wp:heading -->\n<h2>TWO MORE important shifts underway…</h2>\n<!-- /wp:heading -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Consumer Confidence:</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p> After hitting a record 42-year low in February, Consumer Confidence just registered its largest monthly rebound in almost four years. While no guarantee of an economic recovery ahead, this is clearly a move in the right direction. More importantly, the majority of that confidence rebound came in the “future expectations” component of this gauge – representing consumers’ outlook six months ahead. And our tracking of the “future minus present” surveys now shows a clear uptrend … strikingly similar to the path that has typically led out of past recessions.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>RSI (Relative Strength Index):</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Here is what we said in our March 13 issue…</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote -->\n<blockquote class=\"wp-block-quote\"><p>One of the technical gauges of oversold (or overbought) extremes in the stock market is the Relative Strength Index (RSI), developed by Welles Wilder. A long-term (18-month) version of this RSI has proven a valuable<br>tool in helping to identify potential market bottoms –or the best buying opportunities for investors. Basically, the Relative Strength Index compares the cumulative upward price changes over a defined period relative to the cumulative downward price changes. Here, once again, extremes in oversold conditions on Wall Street inevitably create the best buying opportunities. And the most oversold conditions can sometimes create a buying opportunity of a lifetime – at market levels that are never seen again!</p><cite>InvesTech Market Analyst – March 13, 2009</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p>Since then, this Relative Strength Index has turned decisively upward in response to the latest rally. Notice that no upturn of this magnitude from this level has proven to be a false signal in the past 109 years! It’s just one more cumulative piece of evidence that the stock market low eight weeks ago may have been an important bottom.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"id\":5429,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/rsiv09i05-1024x627.png\" alt=\"Relative Strength Index over DJIA just turning from being oversold.  \" class=\"wp-image-5429\"/></figure>\n<!-- /wp:image -->\n\n<!-- wp:heading -->\n<h2>PERSONAL PERSPECTIVE</h2>\n<!-- /wp:heading -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Housing – Light at the end of the tunnel</h3>\n<!-- /wp:heading -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":5432,\"width\":402,\"height\":377,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-large is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/bubblev09i05.png\" alt=\"InvesTech\'s housing bubble bellwether index overlaid on the internet index.  They appear to be mirror images.\" class=\"wp-image-5432\" width=\"402\" height=\"377\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>Don’t count us among the raging bulls. If anything, we might be called a “cautious bull with some residual concerns about systemic mortgage risk.” But there, too, the outlook seems to be improving… </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>First, our Housing Bubble Bellwether Index –which forewarned us in 2005 of the housing debacle ahead– is coming off a double-bottom, in which the March 9 low was not significantly lower than the low late last year. Even to this day, the parallel path of these housing-related stocks to the bursting of the 1990s Internet Bubble has been amazing!</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>In addition, much of the excess price inflation in housing appears to have been resolved. Nationally, the median family home price has fallen an unprecedented -29% since mid-2005, as shown in this graphic:</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"id\":5433,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/pricingv09i05.png\" alt=\"Housing prices versus inflation showing median family homes dropping almost as low as the consumer price index\" class=\"wp-image-5433\"/></figure>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>That does not mean that home prices won’t continue lower or overshoot the long-term inflation trend before hitting bottom in 2010. However, it suggests to us that the majority of damage is over. [And we reserve judgment on those areas of the country that peaked late, like Whitefish, Montana.]</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>It is also encouraging to see an upturn in the NAHB (National Association of Home Builders) surveys on both Builder Confidence and the traffic of prospective buyers. With inventories now down to pre-bubble levels, we believe this upturn will have more staying ability than the temporary rebound in 2006.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":5435,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/nahbv09i05.png\" alt=\"NAHB Builder Confidence Survey, reading of 14\" class=\"wp-image-5435\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:heading {\"textAlign\":\"center\"} -->\n<h2 class=\"has-text-align-center\">Battling the Bears</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Frankly, we can come up with all sorts of reasons to remain a bit cautious about the market. Yet our objectivity compels us to gradually move our allocation in the direction of the evidence – and right now that is to the bullish side. Here’s what is not influencing our decisions, and why…</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Volume is too light for this to be a new bull market!</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>This is an argument that we’ve heard more than once, and has some historical validity. Volume on this rally, and particularly on big “up” days has been disappointingly average. But one of the reasons for this is that most bear market bottoms are accompanied by a dramatic shift in Fed policy, accompanied by interest rate cuts. This time around, the Fed has no interest rate cards left to play. So regardless of when this bear market bottom occurs (or if it has already occurred), we expect volume to lag.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Sentiment never shifts bullish this fast – except on bear market rallies.</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>We’re heard this statement from several noted analysts, however, we don’t see any factual basis for it. In fact, we continue to see a lot of skepticism and doubt (see “Wall of Worry” headlines on page 2). And currently at 8 weeks after the March bottom, the AAII survey shows only 36% of individual investors are bullish – compared to 49% bullish at the same time after the last bear market’s double-bottom in March 2003.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p><br>Meanwhile, the Investors Intelligence survey shows only 40% of advisory services have turned bullish. That compares to 48% bullish at 8 weeks after the March 2003 low, 37% bullish at 8 weeks after the 1982 bottom, and 53% bullish at 8 weeks after the December 1974 bottom. Bottom line: there  seems to be more doubt than bullishness today.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Insiders are already selling – so it must be a bear market rally.</h3>\n<!-- /wp:heading -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>Insider Selling Hits Highest Levels Since Crisis Began</p><cite>Reuters - 4/27/09</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column -->\n\n<!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>As stocks rebound, corporate insiders ramp up selling</p><cite>Los Angeles - 4/27/09</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column -->\n\n<!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>Insider Selling Jumps to Highest Level Since 2007</p><cite>Bloomberg - 4/24/09</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p></p>\n<!-- /wp:paragraph --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":5441,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/insider-trading.png\" alt=\"Chart of Insider Trading sales versus buys over the DJIA\" class=\"wp-image-5441\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>To us, this is the worst argument to make, and history clearly supports us! As a group, corporate insiders usually make the worst investors. They often want to buy their stock when the market is falling (before a recession is recognized): i.e., 1973-74, and 1999-2000 at the dot-com peak. And even worse – their heaviest selling in history has occurred after early bull market run-ups in 1982 [1], 1985 [2], and 2003 [3]. <em>So if insiders are heavy sellers today, it’s not on our worry list.</em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>This is only a cyclical bull within a long-term secular bear.</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Secular? Cyclical? Forget the semantics. And let’s just focus on the technical facts!</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:spacer {\"height\":24} -->\n<div style=\"height:24px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":6180,\"width\":381,\"height\":44,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/JBS.png\" alt=\"\" class=\"wp-image-6180\" width=\"381\" height=\"44\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:spacer {\"height\":39} -->\n<div style=\"height:39px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:separator -->\n<hr class=\"wp-block-separator\"/>\n<!-- /wp:separator -->\n\n<!-- wp:heading {\"level\":4} -->\n<h4><em>InvesTech Research</em> newsletter published May 8, 2009.</h4>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>  This newsletter is also available to read in PDF format.  <a href=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/06/V09I05-Unloved-Bull.pdf\" target=\"_blank\" rel=\"noreferrer noopener\">Download the PDF.</a></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p></p>\n<!-- /wp:paragraph -->','The Unloved Bull','Archived Issue from May 8, 2009 - Are we in a new bull market or is it a bear market rally? If it is a new bull market, will it be a cyclical bull that is destined to a short life span or fail to reach old highs? And is it too late to buy, with the market already rebounding over 25%. In this issue, we provide the historical answers to these questions... more.','inherit','closed','closed','','2478-revision-v1','','','2021-06-16 18:27:13','2021-06-16 18:27:13','',2478,'https://ns2020-investech.investech.com/?p=8514',0,'revision','',0);
INSERT INTO `wp_posts` VALUES (8519,3,'2021-06-16 19:15:44','2021-06-16 19:15:44','<!-- wp:heading -->\n<h2>\"How do I hate thee?  Let me count the ways...\"</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Without a doubt, this is already one of the most hated bull markets in history! Both analysts and the media are finding countless things wrong with the rally, the U.S. economy, and –it seems– the outlook for the entire world:</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>Global Recession Deepens, Adding to U.S. Woes</p><cite>The Kiplinger Letter, 5/4/09</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p>From the swine flu outbreak, to soaring bankruptcies and foreclosures, to weak trading volume and ominous selling by corporate insiders, Wall Street investors have no shortage of worries on their minds. <em>So why does the market continue to move relentlessly higher?</em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Inside this issue, we provide the historical answer to that question – which our more seasoned subscribers know already. Just eight weeks ago, our March 13 issue laid out the technical arguments for an important market bottom…</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>A Buying Opportunity of a Lifetime?</p><p>... it is a historically indisputable fact that <em>we are heading toward a buying opportunity of a lifetime.</em></p><cite>InvesTech Research, 3/13/09</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p>…and thus far, the low that week (at DJIA 6547) has proven to be the bear market low.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3><br><strong>The ultimate question: What now?</strong></h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Are we in a new bull market or is it a bear market rally? If it is a new bull market, will it be a cyclical bull that is destined to a short life span or fail to reach old highs? And is it too late to buy, with the market already rebounding over 25%? All of these worries simply add to headlines now weighing on investors’ shoulders.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p><br>So let’s tackle some of these major concerns…</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading -->\n<h2>Climbing a Wall of Worry</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Every seasoned investor knows that bull markets climb a proverbial “wall of worry” during their early months of existence. Yet each and every time, it doesn’t get any easier. There is always an emotional tug-of-war between gloomy media headlines, and the slow methodical improvement in the technical outlook…</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"id\":5380,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/V09I05pg2-1024x752.png\" alt=\"DJIA with worrisome media headlines or a wall of worry\" class=\"wp-image-5380\"/></figure>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p><strong>But with all the blocks in place for a potential “best buy” opportunity in stocks [see table below], we need to pay close attention to the technical outlook <em>– which is dramatically changing!</em></strong></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"id\":5381,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/V09I05pg2table.png\" alt=\"Bearish conditions that precede the &quot;best buy&quot; opportunities in stocks\" class=\"wp-image-5381\"/></figure>\n<!-- /wp:image -->\n\n<!-- wp:heading -->\n<h2>NLC: Now Bullish</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>The most dramatic technical change since our last issue has been a strong and steady increase in the bullish “SELLING VACUUM” [[1] from our  Negative Leadership Composite. Designed to measure the absence of downside or bear market leadership, this kind of +50 reading is  synonymous with past bull market launching pads (see dashed arrows). Note there have been only 2 false signals (greater than +20) from our NLC Selling Vacuum in the past 42 years – and both occurred at significantly lower levels. We also want to point out that the lingering “DISTRIBUTION” [[2 –lower half] is not a problem from a technical viewpoint. Internal calculations show that bear market Distribution ended on the March 9 low, and has not been “added to” since then. On climactic V-shaped bottoms, it is not unusual to see a lag in this component. For example, at the end of the 1973-74 bear market, there was a 14-week residual lag between the market bottom and when Distribution left its -100 reading. In 1987, there was an 11- week lag. Currently, we’re only 8 weeks past the March 9 bottom.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"id\":5420,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/nlcV09I05-1024x736.png\" alt=\"InvesTech\'s negative leadership composite selling vacuum reaching +50 while the distribution component hit -100.\" class=\"wp-image-5420\"/></figure>\n<!-- /wp:image -->\n\n<!-- wp:heading -->\n<h2>BREADTH: Positive Divergence</h2>\n<!-- /wp:heading -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":5421,\"width\":375,\"height\":402,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-large is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/advdecv09i05.png\" alt=\"Advance-decline breaking to a new high\" class=\"wp-image-5421\" width=\"375\" height=\"402\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p><br>Throughout the lengthy 1929-32 bear market, as well as the 1973-74 bear market, there was never a “positive divergence” in market breadth. In other words, the advance-decline line [cumulative sum of daily advancing issues minus declining issues] led the bear market path every step of the way down. So to see a positive divergence today is yet another confirmation this bear market may be over. The A-D Line has broken well above its January rally high, thus leading the S&amp;P 500 upward since the March bottom. Some will argue this breadth gauge is less reliable since more ETFs and closed-end bond funds are traded on the NYSE. Perhaps. But we’ll simply let history speak for itself and give this technical tool our benefit of doubt until proven wrong.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading -->\n<h2>COPPOCK GUIDE: Is a Buy Signal Imminent?</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p><strong><em>If recent market gains hold, then a “Buy Signal” appears imminent in the Coppock Guide this month.</em></strong> </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>The Coppock Guide was developed over 50 years ago by Edwin S. Coppock. Its historical value lies in signaling or confirming the best, low-risk buying opportunities in history – and it is one of the few technical tools that would have kept anxious investors from stepping  prematurely into the middle of the record 1929-32 debacle or the 1973-74 bear market. </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>This index is actually the 10-month weighted moving total of a 14-month rate of change plus an 11-month rate of change of a market index. In mathematical terms, it’s really just a momentum oscillator. Because of  this, it reverses direction when the long-term momentum or velocity in the market peaks. After dropping to ‘0’ or below, a mere 1-point upturn in this index can usually be treated as an excellent buying opportunity. </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Some of the best (most important) buying opportunities have appeared when the Coppock Guide bottomed at a negative extreme below -20, including 1921, 1932, 1970, 1974 and 2003. And often, the more negative the Coppock Guide is when it turns upward, the more impressive the profits ahead. Under this guideline, only two false signals in 88 years have been recorded – once in 1941 and again in November 2001. </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Today, the Coppock Guide is at its most oversold level since the bear markets of the 1930s – over 70 years ago. As a monthly indicator, we won’t know for certain whether a formal buy signal has been triggered until the end of the month. However, forward testing –based on current data– reveals the Coppock will turn upward from below ‘0’ if the market stabilizes near present levels or continues rising.  <em>Remember – this is a projection, not necessarily a certainty. <strong>So stay tuned…</strong></em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"id\":5427,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/coppockV09I05-1024x784.png\" alt=\"Coppock guide over the S&amp;P 500 Index just starting to turn upward\" class=\"wp-image-5427\"/></figure>\n<!-- /wp:image -->\n\n<!-- wp:heading -->\n<h2>TWO MORE important shifts underway…</h2>\n<!-- /wp:heading -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Consumer Confidence:</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p> After hitting a record 42-year low in February, Consumer Confidence just registered its largest monthly rebound in almost four years. While no guarantee of an economic recovery ahead, this is clearly a move in the right direction. More importantly, the majority of that confidence rebound came in the “future expectations” component of this gauge – representing consumers’ outlook six months ahead. And our tracking of the “future minus present” surveys now shows a clear uptrend … strikingly similar to the path that has typically led out of past recessions.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>RSI (Relative Strength Index):</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Here is what we said in our March 13 issue…</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote -->\n<blockquote class=\"wp-block-quote\"><p>One of the technical gauges of oversold (or overbought) extremes in the stock market is the Relative Strength Index (RSI), developed by Welles Wilder. A long-term (18-month) version of this RSI has proven a valuable<br>tool in helping to identify potential market bottoms –or the best buying opportunities for investors. Basically, the Relative Strength Index compares the cumulative upward price changes over a defined period relative to the cumulative downward price changes. Here, once again, extremes in oversold conditions on Wall Street inevitably create the best buying opportunities. And the most oversold conditions can sometimes create a buying opportunity of a lifetime – at market levels that are never seen again!</p><cite>InvesTech Market Analyst – March 13, 2009</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p>Since then, this Relative Strength Index has turned decisively upward in response to the latest rally. Notice that no upturn of this magnitude from this level has proven to be a false signal in the past 109 years! It’s just one more cumulative piece of evidence that the stock market low eight weeks ago may have been an important bottom.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"id\":5429,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/rsiv09i05-1024x627.png\" alt=\"Relative Strength Index over DJIA just turning from being oversold.  \" class=\"wp-image-5429\"/></figure>\n<!-- /wp:image -->\n\n<!-- wp:heading -->\n<h2>PERSONAL PERSPECTIVE</h2>\n<!-- /wp:heading -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Housing – Light at the end of the tunnel</h3>\n<!-- /wp:heading -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":5432,\"width\":402,\"height\":377,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-large is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/bubblev09i05.png\" alt=\"InvesTech\'s housing bubble bellwether index overlaid on the internet index.  They appear to be mirror images.\" class=\"wp-image-5432\" width=\"402\" height=\"377\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>Don’t count us among the raging bulls. If anything, we might be called a “cautious bull with some residual concerns about systemic mortgage risk.” But there, too, the outlook seems to be improving… </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>First, our Housing Bubble Bellwether Index –which forewarned us in 2005 of the housing debacle ahead– is coming off a double-bottom, in which the March 9 low was not significantly lower than the low late last year. Even to this day, the parallel path of these housing-related stocks to the bursting of the 1990s Internet Bubble has been amazing!</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>In addition, much of the excess price inflation in housing appears to have been resolved. Nationally, the median family home price has fallen an unprecedented -29% since mid-2005, as shown in this graphic:</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"id\":5433,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/pricingv09i05.png\" alt=\"Housing prices versus inflation showing median family homes dropping almost as low as the consumer price index\" class=\"wp-image-5433\"/></figure>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>That does not mean that home prices won’t continue lower or overshoot the long-term inflation trend before hitting bottom in 2010. However, it suggests to us that the majority of damage is over. [And we reserve judgment on those areas of the country that peaked late, like Whitefish, Montana.]</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>It is also encouraging to see an upturn in the NAHB (National Association of Home Builders) surveys on both Builder Confidence and the traffic of prospective buyers. With inventories now down to pre-bubble levels, we believe this upturn will have more staying ability than the temporary rebound in 2006.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":5435,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/nahbv09i05.png\" alt=\"NAHB Builder Confidence Survey, reading of 14\" class=\"wp-image-5435\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:heading {\"textAlign\":\"center\"} -->\n<h2 class=\"has-text-align-center\">Battling the Bears</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Frankly, we can come up with all sorts of reasons to remain a bit cautious about the market. Yet our objectivity compels us to gradually move our allocation in the direction of the evidence – and right now that is to the bullish side. Here’s what is not influencing our decisions, and why…</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Volume is too light for this to be a new bull market!</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>This is an argument that we’ve heard more than once, and has some historical validity. Volume on this rally, and particularly on big “up” days has been disappointingly average. But one of the reasons for this is that most bear market bottoms are accompanied by a dramatic shift in Fed policy, accompanied by interest rate cuts. This time around, the Fed has no interest rate cards left to play. So regardless of when this bear market bottom occurs (or if it has already occurred), we expect volume to lag.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Sentiment never shifts bullish this fast – except on bear market rallies.</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>We’re heard this statement from several noted analysts, however, we don’t see any factual basis for it. In fact, we continue to see a lot of skepticism and doubt (see “Wall of Worry” headlines on page 2). And currently at 8 weeks after the March bottom, the AAII survey shows only 36% of individual investors are bullish – compared to 49% bullish at the same time after the last bear market’s double-bottom in March 2003.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p><br>Meanwhile, the Investors Intelligence survey shows only 40% of advisory services have turned bullish. That compares to 48% bullish at 8 weeks after the March 2003 low, 37% bullish at 8 weeks after the 1982 bottom, and 53% bullish at 8 weeks after the December 1974 bottom. Bottom line: there  seems to be more doubt than bullishness today.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Insiders are already selling – so it must be a bear market rally.</h3>\n<!-- /wp:heading -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>Insider Selling Hits Highest Levels Since Crisis Began</p><cite>Reuters - 4/27/09</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column -->\n\n<!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>As stocks rebound, corporate insiders ramp up selling</p><cite>Los Angeles - 4/27/09</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column -->\n\n<!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>Insider Selling Jumps to Highest Level Since 2007</p><cite>Bloomberg - 4/24/09</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p></p>\n<!-- /wp:paragraph --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":5441,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/insider-trading.png\" alt=\"Chart of Insider Trading sales versus buys over the DJIA\" class=\"wp-image-5441\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>To us, this is the worst argument to make, and history clearly supports us! As a group, corporate insiders usually make the worst investors. They often want to buy their stock when the market is falling (before a recession is recognized): i.e., 1973-74, and 1999-2000 at the dot-com peak. And even worse – their heaviest selling in history has occurred after early bull market run-ups in 1982 [1], 1985 [2], and 2003 [3]. <em>So if insiders are heavy sellers today, it’s not on our worry list.</em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>This is only a cyclical bull within a long-term secular bear.</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Secular? Cyclical? Forget the semantics. And let’s just focus on the technical facts!</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:spacer {\"height\":24} -->\n<div style=\"height:24px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":6180,\"width\":381,\"height\":44,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/JBS.png\" alt=\"\" class=\"wp-image-6180\" width=\"381\" height=\"44\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:spacer {\"height\":39} -->\n<div style=\"height:39px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:separator -->\n<hr class=\"wp-block-separator\"/>\n<!-- /wp:separator -->\n\n<!-- wp:heading {\"level\":4} -->\n<h4><em>InvesTech Research</em> newsletter published May 8, 2009.</h4>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>  This newsletter is also available to read in PDF format.  <a href=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/06/V09I05-Unloved-Bull.pdf\" target=\"_blank\" rel=\"noreferrer noopener\">Download the PDF.</a></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p></p>\n<!-- /wp:paragraph -->','The Unloved Bull','Archived Issue from May 8, 2009 - Are we in a new bull market or is it a bear market rally? If it is a new bull market, will it be a cyclical bull that is destined to a short life span or fail to reach old highs? And is it too late to buy, with the market already rebounding over 25%. In this issue, we provide the historical answers to these questions... more.','inherit','closed','closed','','2478-revision-v1','','','2021-06-16 19:15:44','2021-06-16 19:15:44','',2478,'https://ns2020-investech.investech.com/?p=8519',0,'revision','',0);
INSERT INTO `wp_posts` VALUES (8521,3,'2021-06-16 19:18:49','2021-06-16 19:18:49','<!-- wp:heading -->\n<h2>\"How do I hate thee?  Let me count the ways...\"</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Without a doubt, this is already one of the most hated bull markets in history! Both analysts and the media are finding countless things wrong with the rally, the U.S. economy, and –it seems– the outlook for the entire world:</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>Global Recession Deepens, Adding to U.S. Woes</p><cite>The Kiplinger Letter, 5/4/09</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p>From the swine flu outbreak, to soaring bankruptcies and foreclosures, to weak trading volume and ominous selling by corporate insiders, Wall Street investors have no shortage of worries on their minds. <em>So why does the market continue to move relentlessly higher?</em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Inside this issue, we provide the historical answer to that question – which our more seasoned subscribers know already. Just eight weeks ago, our March 13 issue laid out the technical arguments for an important market bottom…</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>A Buying Opportunity of a Lifetime?</p><p>... it is a historically indisputable fact that <em>we are heading toward a buying opportunity of a lifetime.</em></p><cite>InvesTech Research, 3/13/09</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p>…and thus far, the low that week (at DJIA 6547) has proven to be the bear market low.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3><br><strong>The ultimate question: What now?</strong></h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Are we in a new bull market or is it a bear market rally? If it is a new bull market, will it be a cyclical bull that is destined to a short life span or fail to reach old highs? And is it too late to buy, with the market already rebounding over 25%? All of these worries simply add to headlines now weighing on investors’ shoulders.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p><br>So let’s tackle some of these major concerns…</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading -->\n<h2>Climbing a Wall of Worry</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Every seasoned investor knows that bull markets climb a proverbial “wall of worry” during their early months of existence. Yet each and every time, it doesn’t get any easier. There is always an emotional tug-of-war between gloomy media headlines, and the slow methodical improvement in the technical outlook…</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"id\":5380,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/V09I05pg2-1024x752.png\" alt=\"DJIA with worrisome media headlines or a wall of worry\" class=\"wp-image-5380\"/></figure>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p><strong>But with all the blocks in place for a potential “best buy” opportunity in stocks [see table below], we need to pay close attention to the technical outlook <em>– which is dramatically changing!</em></strong></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"id\":5381,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/V09I05pg2table.png\" alt=\"Bearish conditions that precede the &quot;best buy&quot; opportunities in stocks\" class=\"wp-image-5381\"/></figure>\n<!-- /wp:image -->\n\n<!-- wp:heading -->\n<h2>NLC: Now Bullish</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p><strong>The most dramatic technical change since our last issue has been a strong and steady increase in the bullish “SELLING VACUUM” [*1] from our  Negative Leadership Composite.</strong> Designed to measure the absence of downside or bear market leadership, this kind of +50 reading is  synonymous with past bull market launching pads (see dashed arrows). Note there have been only 2 false signals (greater than +20) from our NLC Selling Vacuum in the past 42 years – and both occurred at significantly lower levels. </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>We also want to point out that the lingering “DISTRIBUTION” [*2 –lower half] is not a problem from a technical viewpoint. Internal calculations show that bear market Distribution ended on the March 9 low, and has not been “added to” since then. On climactic V-shaped bottoms, it is not unusual to see a lag in this component. For example, at the end of the 1973-74 bear market, there was a 14-week residual lag between the market bottom and when Distribution left its -100 reading. In 1987, there was an 11- week lag. Currently, we’re only 8 weeks past the March 9 bottom.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"id\":5420,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/nlcV09I05-1024x736.png\" alt=\"InvesTech\'s negative leadership composite selling vacuum reaching +50 while the distribution component hit -100.\" class=\"wp-image-5420\"/></figure>\n<!-- /wp:image -->\n\n<!-- wp:heading -->\n<h2>BREADTH: Positive Divergence</h2>\n<!-- /wp:heading -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":5421,\"width\":375,\"height\":402,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-large is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/advdecv09i05.png\" alt=\"Advance-decline breaking to a new high\" class=\"wp-image-5421\" width=\"375\" height=\"402\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p><br>Throughout the lengthy 1929-32 bear market, as well as the 1973-74 bear market, there was never a “positive divergence” in market breadth. In other words, the advance-decline line <em>[cumulative sum of daily advancing issues minus declining issues] </em>led the bear market path every step of the way down. </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>So to see a positive divergence today is yet another confirmation this bear market may be over. The A-D Line has broken well above its January rally high, thus leading the S&amp;P 500 upward since the March bottom. Some will argue this breadth gauge is less reliable since more ETFs and closed-end bond funds are traded on the NYSE. Perhaps. But we’ll simply let history speak for itself and give this technical tool our benefit of doubt until proven wrong.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading -->\n<h2>COPPOCK GUIDE: Is a Buy Signal Imminent?</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p><strong><em>If recent market gains hold, then a “Buy Signal” appears imminent in the Coppock Guide this month.</em></strong> </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>The Coppock Guide was developed over 50 years ago by Edwin S. Coppock. Its historical value lies in signaling or confirming the best, low-risk buying opportunities in history <em>– and it is one of the few technical tools that would have kept anxious investors from stepping  prematurely into the middle of the record 1929-32 debacle or the 1973-74 bear market. </em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>This index is actually the 10-month weighted moving total of a 14-month rate of change plus an 11-month rate of change of a market index. In mathematical terms, it’s really just a momentum oscillator. Because of  this, it reverses direction when the long-term momentum or velocity in the market peaks. After dropping to ‘0’ or below, a mere 1-point upturn in this index can usually be treated as an excellent buying opportunity. </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p><em>Some of the best (most important) buying opportunities have appeared when the Coppock Guide bottomed at a negative extreme below -20, including 1921, 1932, 1970, 1974 and 2003.</em> And often, the more negative the Coppock Guide is when it turns upward, the more impressive the profits ahead. <em>Under this guideline, only two false signals in 88 years have been recorded – once in 1941 and again in November 2001. </em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Today, the Coppock Guide is at its most oversold level since the bear markets of the 1930s – over 70 years ago. As a monthly indicator, we won’t know for certain whether a formal buy signal has been triggered until the end of the month. However, forward testing<em> –based on current data– </em>reveals the Coppock will turn upward from below ‘0’ if the market stabilizes near present levels or continues rising.  <em>Remember – this is a <strong>projection</strong>, not necessarily a certainty. <strong>So stay tuned…</strong></em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"id\":5427,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/coppockV09I05-1024x784.png\" alt=\"Coppock guide over the S&amp;P 500 Index just starting to turn upward\" class=\"wp-image-5427\"/></figure>\n<!-- /wp:image -->\n\n<!-- wp:heading -->\n<h2>TWO MORE important shifts underway…</h2>\n<!-- /wp:heading -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Consumer Confidence:</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p> After hitting a record 42-year low in February, Consumer Confidence just registered its largest monthly rebound in almost four years. While no guarantee of an economic recovery ahead, this is clearly a move in the right direction. More importantly, the majority of that confidence rebound came in the “future expectations” component of this gauge – representing consumers’ outlook six months ahead. And our tracking of the “future minus present” surveys now shows a clear uptrend … strikingly similar to the path that has typically led out of past recessions.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>RSI (Relative Strength Index):</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Here is what we said in our March 13 issue…</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote -->\n<blockquote class=\"wp-block-quote\"><p>One of the technical gauges of oversold (or overbought) extremes in the stock market is the Relative Strength Index (RSI), developed by Welles Wilder. A long-term (18-month) version of this RSI has proven a valuable<br>tool in helping to identify potential market bottoms –or the best buying opportunities for investors. Basically, the Relative Strength Index compares the cumulative upward price changes over a defined period relative to the cumulative downward price changes. Here, once again, extremes in oversold conditions on Wall Street inevitably create the best buying opportunities. And the most oversold conditions can sometimes create a buying opportunity of a lifetime – at market levels that are never seen again!</p><cite>InvesTech Market Analyst – March 13, 2009</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p>Since then, this Relative Strength Index has turned decisively upward in response to the latest rally. Notice that no upturn of this magnitude from this level has proven to be a false signal in the past 109 years! It’s just one more cumulative piece of evidence that the stock market low eight weeks ago may have been an important bottom.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"id\":5429,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/rsiv09i05-1024x627.png\" alt=\"Relative Strength Index over DJIA just turning from being oversold.  \" class=\"wp-image-5429\"/></figure>\n<!-- /wp:image -->\n\n<!-- wp:heading -->\n<h2>PERSONAL PERSPECTIVE</h2>\n<!-- /wp:heading -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Housing – Light at the end of the tunnel</h3>\n<!-- /wp:heading -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":5432,\"width\":402,\"height\":377,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-large is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/bubblev09i05.png\" alt=\"InvesTech\'s housing bubble bellwether index overlaid on the internet index.  They appear to be mirror images.\" class=\"wp-image-5432\" width=\"402\" height=\"377\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>Don’t count us among the raging bulls. If anything, we might be called a “cautious bull with some residual concerns about systemic mortgage risk.” But there, too, the outlook seems to be improving… </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>First, our Housing Bubble Bellwether Index –which forewarned us in 2005 of the housing debacle ahead– is coming off a double-bottom, in which the March 9 low was not significantly lower than the low late last year. Even to this day, the parallel path of these housing-related stocks to the bursting of the 1990s Internet Bubble has been amazing!</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>In addition, much of the excess price inflation in housing appears to have been resolved. Nationally, the median family home price has fallen an unprecedented -29% since mid-2005, as shown in this graphic:</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"id\":5433,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/pricingv09i05.png\" alt=\"Housing prices versus inflation showing median family homes dropping almost as low as the consumer price index\" class=\"wp-image-5433\"/></figure>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>That does not mean that home prices won’t continue lower or overshoot the long-term inflation trend before hitting bottom in 2010. However, it suggests to us that the majority of damage is over. [And we reserve judgment on those areas of the country that peaked late, like Whitefish, Montana.]</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>It is also encouraging to see an upturn in the NAHB (National Association of Home Builders) surveys on both Builder Confidence and the traffic of prospective buyers. With inventories now down to pre-bubble levels, we believe this upturn will have more staying ability than the temporary rebound in 2006.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":5435,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/nahbv09i05.png\" alt=\"NAHB Builder Confidence Survey, reading of 14\" class=\"wp-image-5435\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:heading {\"textAlign\":\"center\"} -->\n<h2 class=\"has-text-align-center\">Battling the Bears</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Frankly, we can come up with all sorts of reasons to remain a bit cautious about the market. Yet our objectivity compels us to gradually move our allocation in the direction of the evidence – and right now that is to the bullish side. Here’s what is not influencing our decisions, and why…</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Volume is too light for this to be a new bull market!</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>This is an argument that we’ve heard more than once, and has some historical validity. Volume on this rally, and particularly on big “up” days has been disappointingly average. But one of the reasons for this is that most bear market bottoms are accompanied by a dramatic shift in Fed policy, accompanied by interest rate cuts. This time around, the Fed has no interest rate cards left to play. So regardless of when this bear market bottom occurs (or if it has already occurred), we expect volume to lag.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Sentiment never shifts bullish this fast – except on bear market rallies.</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>We’re heard this statement from several noted analysts, however, we don’t see any factual basis for it. In fact, we continue to see a lot of skepticism and doubt (see “Wall of Worry” headlines on page 2). And currently at 8 weeks after the March bottom, the AAII survey shows only 36% of individual investors are bullish – compared to 49% bullish at the same time after the last bear market’s double-bottom in March 2003.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p><br>Meanwhile, the Investors Intelligence survey shows only 40% of advisory services have turned bullish. That compares to 48% bullish at 8 weeks after the March 2003 low, 37% bullish at 8 weeks after the 1982 bottom, and 53% bullish at 8 weeks after the December 1974 bottom. Bottom line: there  seems to be more doubt than bullishness today.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Insiders are already selling – so it must be a bear market rally.</h3>\n<!-- /wp:heading -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>Insider Selling Hits Highest Levels Since Crisis Began</p><cite>Reuters - 4/27/09</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column -->\n\n<!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>As stocks rebound, corporate insiders ramp up selling</p><cite>Los Angeles - 4/27/09</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column -->\n\n<!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>Insider Selling Jumps to Highest Level Since 2007</p><cite>Bloomberg - 4/24/09</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p></p>\n<!-- /wp:paragraph --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":5441,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/insider-trading.png\" alt=\"Chart of Insider Trading sales versus buys over the DJIA\" class=\"wp-image-5441\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>To us, this is the worst argument to make, and history clearly supports us! As a group, corporate insiders usually make the worst investors. They often want to buy their stock when the market is falling (before a recession is recognized): i.e., 1973-74, and 1999-2000 at the dot-com peak. And even worse – their heaviest selling in history has occurred after early bull market run-ups in 1982 [1], 1985 [2], and 2003 [3]. <em>So if insiders are heavy sellers today, it’s not on our worry list.</em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>This is only a cyclical bull within a long-term secular bear.</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Secular? Cyclical? Forget the semantics. And let’s just focus on the technical facts!</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:spacer {\"height\":24} -->\n<div style=\"height:24px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":6180,\"width\":381,\"height\":44,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/JBS.png\" alt=\"\" class=\"wp-image-6180\" width=\"381\" height=\"44\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:spacer {\"height\":39} -->\n<div style=\"height:39px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:separator -->\n<hr class=\"wp-block-separator\"/>\n<!-- /wp:separator -->\n\n<!-- wp:heading {\"level\":4} -->\n<h4><em>InvesTech Research</em> newsletter published May 8, 2009.</h4>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>  This newsletter is also available to read in PDF format.  <a href=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/06/V09I05-Unloved-Bull.pdf\" target=\"_blank\" rel=\"noreferrer noopener\">Download the PDF.</a></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p></p>\n<!-- /wp:paragraph -->','The Unloved Bull','Archived Issue from May 8, 2009 - Are we in a new bull market or is it a bear market rally? If it is a new bull market, will it be a cyclical bull that is destined to a short life span or fail to reach old highs? And is it too late to buy, with the market already rebounding over 25%. In this issue, we provide the historical answers to these questions... more.','inherit','closed','closed','','2478-revision-v1','','','2021-06-16 19:18:49','2021-06-16 19:18:49','',2478,'https://ns2020-investech.investech.com/?p=8521',0,'revision','',0);
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INSERT INTO `wp_posts` VALUES (8524,3,'2021-06-16 19:24:33','2021-06-16 19:24:33','<!-- wp:heading -->\n<h2>\"How do I hate thee?  Let me count the ways...\"</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Without a doubt, this is already one of the most hated bull markets in history! Both analysts and the media are finding countless things wrong with the rally, the U.S. economy, and –it seems– the outlook for the entire world:</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>Global Recession Deepens, Adding to U.S. Woes</p><cite>The Kiplinger Letter, 5/4/09</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p>From the swine flu outbreak, to soaring bankruptcies and foreclosures, to weak trading volume and ominous selling by corporate insiders, Wall Street investors have no shortage of worries on their minds. <em>So why does the market continue to move relentlessly higher?</em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Inside this issue, we provide the historical answer to that question – which our more seasoned subscribers know already. Just eight weeks ago, our March 13 issue laid out the technical arguments for an important market bottom…</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>A Buying Opportunity of a Lifetime?</p><p>... it is a historically indisputable fact that <em>we are heading toward a buying opportunity of a lifetime.</em></p><cite>InvesTech Research, 3/13/09</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p>…and thus far, the low that week (at DJIA 6547) has proven to be the bear market low.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3><br><strong>The ultimate question: What now?</strong></h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Are we in a new bull market or is it a bear market rally? If it is a new bull market, will it be a cyclical bull that is destined to a short life span or fail to reach old highs? And is it too late to buy, with the market already rebounding over 25%? All of these worries simply add to headlines now weighing on investors’ shoulders.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p><br>So let’s tackle some of these major concerns…</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading -->\n<h2>Climbing a Wall of Worry</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Every seasoned investor knows that bull markets climb a proverbial “wall of worry” during their early months of existence. Yet each and every time, it doesn’t get any easier. There is always an emotional tug-of-war between gloomy media headlines, and the slow methodical improvement in the technical outlook…</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"id\":5380,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/V09I05pg2-1024x752.png\" alt=\"DJIA with worrisome media headlines or a wall of worry\" class=\"wp-image-5380\"/></figure>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p><strong>But with all the blocks in place for a potential “best buy” opportunity in stocks [see table below], we need to pay close attention to the technical outlook <em>– which is dramatically changing!</em></strong></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"id\":5381,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/V09I05pg2table.png\" alt=\"Bearish conditions that precede the &quot;best buy&quot; opportunities in stocks\" class=\"wp-image-5381\"/></figure>\n<!-- /wp:image -->\n\n<!-- wp:heading -->\n<h2>NLC: Now Bullish</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p><strong>The most dramatic technical change since our last issue has been a strong and steady increase in the bullish “SELLING VACUUM” [*1] from our  Negative Leadership Composite.</strong> Designed to measure the absence of downside or bear market leadership, this kind of +50 reading is  synonymous with past bull market launching pads (see dashed arrows). Note there have been only 2 false signals (greater than +20) from our NLC Selling Vacuum in the past 42 years – and both occurred at significantly lower levels. </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>We also want to point out that the lingering “DISTRIBUTION” [*2 –lower half] is not a problem from a technical viewpoint. Internal calculations show that bear market Distribution ended on the March 9 low, and has not been “added to” since then. On climactic V-shaped bottoms, it is not unusual to see a lag in this component. For example, at the end of the 1973-74 bear market, there was a 14-week residual lag between the market bottom and when Distribution left its -100 reading. In 1987, there was an 11- week lag. Currently, we’re only 8 weeks past the March 9 bottom.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"id\":5420,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/nlcV09I05-1024x736.png\" alt=\"InvesTech\'s negative leadership composite selling vacuum reaching +50 while the distribution component hit -100.\" class=\"wp-image-5420\"/></figure>\n<!-- /wp:image -->\n\n<!-- wp:heading -->\n<h2>BREADTH: Positive Divergence</h2>\n<!-- /wp:heading -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":5421,\"width\":375,\"height\":402,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-large is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/advdecv09i05.png\" alt=\"Advance-decline breaking to a new high\" class=\"wp-image-5421\" width=\"375\" height=\"402\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p><br>Throughout the lengthy 1929-32 bear market, as well as the 1973-74 bear market, there was never a “positive divergence” in market breadth. In other words, the advance-decline line <em>[cumulative sum of daily advancing issues minus declining issues] </em>led the bear market path every step of the way down. </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>So to see a positive divergence today is yet another confirmation this bear market may be over. The A-D Line has broken well above its January rally high, thus leading the S&amp;P 500 upward since the March bottom. Some will argue this breadth gauge is less reliable since more ETFs and closed-end bond funds are traded on the NYSE. Perhaps. But we’ll simply let history speak for itself and give this technical tool our benefit of doubt until proven wrong.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading -->\n<h2>COPPOCK GUIDE: Is a Buy Signal Imminent?</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p><strong><em>If recent market gains hold, then a “Buy Signal” appears imminent in the Coppock Guide this month.</em></strong> </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>The Coppock Guide was developed over 50 years ago by Edwin S. Coppock. Its historical value lies in signaling or confirming the best, low-risk buying opportunities in history <em>– and it is one of the few technical tools that would have kept anxious investors from stepping  prematurely into the middle of the record 1929-32 debacle or the 1973-74 bear market. </em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>This index is actually the 10-month weighted moving total of a 14-month rate of change plus an 11-month rate of change of a market index. In mathematical terms, it’s really just a momentum oscillator. Because of  this, it reverses direction when the long-term momentum or velocity in the market peaks. After dropping to ‘0’ or below, a mere 1-point upturn in this index can usually be treated as an excellent buying opportunity. </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p><em>Some of the best (most important) buying opportunities have appeared when the Coppock Guide bottomed at a negative extreme below -20, including 1921, 1932, 1970, 1974 and 2003.</em> And often, the more negative the Coppock Guide is when it turns upward, the more impressive the profits ahead. <em>Under this guideline, only two false signals in 88 years have been recorded – once in 1941 and again in November 2001. </em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Today, the Coppock Guide is at its most oversold level since the bear markets of the 1930s – over 70 years ago. As a monthly indicator, we won’t know for certain whether a formal buy signal has been triggered until the end of the month. However, forward testing<em> –based on current data– </em>reveals the Coppock will turn upward from below ‘0’ if the market stabilizes near present levels or continues rising.  <em>Remember – this is a <strong>projection</strong>, not necessarily a certainty. <strong>So stay tuned…</strong></em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"id\":5427,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/coppockV09I05-1024x784.png\" alt=\"Coppock guide over the S&amp;P 500 Index just starting to turn upward\" class=\"wp-image-5427\"/></figure>\n<!-- /wp:image -->\n\n<!-- wp:heading -->\n<h2>TWO MORE important shifts underway…</h2>\n<!-- /wp:heading -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Consumer Confidence:</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p> After hitting a record 42-year low in February, Consumer Confidence just registered its largest monthly rebound in almost four years [ 1]. While no guarantee of an economic recovery ahead, this is clearly a move in the right direction. More importantly, the majority of that confidence rebound came in the “future expectations” component of this gauge – representing consumers’ outlook six months ahead. And our tracking of the “future minus present” surveys now shows a clear uptrend [2] … strikingly similar to the path that has typically led out of past recessions.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"id\":8523,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/06/cons-conf-09-1024x443.png\" alt=\"\" class=\"wp-image-8523\"/></figure>\n<!-- /wp:image -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>RSI (Relative Strength Index):</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Here is what we said in our March 13 issue…</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote -->\n<blockquote class=\"wp-block-quote\"><p>One of the technical gauges of oversold (or overbought) extremes in the stock market is the Relative Strength Index (RSI), developed by Welles Wilder. A long-term (18-month) version of this RSI has proven a valuable tool in helping to identify potential market bottoms –or the best buying opportunities for investors. </p><p>Basically, the Relative Strength Index compares the cumulative <strong>upward </strong>price changes over a defined period relative to the cumulative <strong>downward </strong>price changes. Here, once again, extremes in oversold conditions on Wall Street inevitably create the best buying opportunities. <strong>And the most oversold conditions can sometimes create a buying opportunity of a lifetime – at market levels that are never seen again!</strong></p><cite>InvesTech Market Analyst – March 13, 2009</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p>Since then, this Relative Strength Index has turned decisively upward in response to the latest rally. <em>Notice that no upturn of this magnitude from this level has proven to be a false signal in the past 109 years!</em> It’s just one more cumulative piece of evidence that the stock market low eight weeks ago may have been an important bottom.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"id\":5429,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/rsiv09i05-1024x627.png\" alt=\"Relative Strength Index over DJIA just turning from being oversold.  \" class=\"wp-image-5429\"/></figure>\n<!-- /wp:image -->\n\n<!-- wp:heading -->\n<h2>PERSONAL PERSPECTIVE</h2>\n<!-- /wp:heading -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Housing – Light at the end of the tunnel</h3>\n<!-- /wp:heading -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":5432,\"width\":402,\"height\":377,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-large is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/bubblev09i05.png\" alt=\"InvesTech\'s housing bubble bellwether index overlaid on the internet index.  They appear to be mirror images.\" class=\"wp-image-5432\" width=\"402\" height=\"377\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>Don’t count us among the raging bulls. If anything, we might be called a “cautious bull with some residual concerns about systemic mortgage risk.” But there, too, the outlook seems to be improving… </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>First, our Housing Bubble Bellwether Index –which forewarned us in 2005 of the housing debacle ahead– is coming off a double-bottom, in which the March 9 low was not significantly lower than the low late last year. Even to this day, the parallel path of these housing-related stocks to the bursting of the 1990s Internet Bubble has been amazing!</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>In addition, much of the excess price inflation in housing appears to have been resolved. Nationally, the median family home price has fallen an unprecedented -29% since mid-2005, as shown in this graphic:</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"id\":5433,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/pricingv09i05.png\" alt=\"Housing prices versus inflation showing median family homes dropping almost as low as the consumer price index\" class=\"wp-image-5433\"/></figure>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>That does not mean that home prices won’t continue lower or overshoot the long-term inflation trend before hitting bottom in 2010. However, it suggests to us that the majority of damage is over. [And we reserve judgment on those areas of the country that peaked late, like Whitefish, Montana.]</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>It is also encouraging to see an upturn in the NAHB (National Association of Home Builders) surveys on both Builder Confidence and the traffic of prospective buyers. With inventories now down to pre-bubble levels, we believe this upturn will have more staying ability than the temporary rebound in 2006.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":5435,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/nahbv09i05.png\" alt=\"NAHB Builder Confidence Survey, reading of 14\" class=\"wp-image-5435\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:heading {\"textAlign\":\"center\"} -->\n<h2 class=\"has-text-align-center\">Battling the Bears</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Frankly, we can come up with all sorts of reasons to remain a bit cautious about the market. Yet our objectivity compels us to gradually move our allocation in the direction of the evidence – and right now that is to the bullish side. Here’s what is not influencing our decisions, and why…</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Volume is too light for this to be a new bull market!</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>This is an argument that we’ve heard more than once, and has some historical validity. Volume on this rally, and particularly on big “up” days has been disappointingly average. But one of the reasons for this is that most bear market bottoms are accompanied by a dramatic shift in Fed policy, accompanied by interest rate cuts. This time around, the Fed has no interest rate cards left to play. So regardless of when this bear market bottom occurs (or if it has already occurred), we expect volume to lag.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Sentiment never shifts bullish this fast – except on bear market rallies.</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>We’re heard this statement from several noted analysts, however, we don’t see any factual basis for it. In fact, we continue to see a lot of skepticism and doubt (see “Wall of Worry” headlines on page 2). And currently at 8 weeks after the March bottom, the AAII survey shows only 36% of individual investors are bullish – compared to 49% bullish at the same time after the last bear market’s double-bottom in March 2003.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p><br>Meanwhile, the Investors Intelligence survey shows only 40% of advisory services have turned bullish. That compares to 48% bullish at 8 weeks after the March 2003 low, 37% bullish at 8 weeks after the 1982 bottom, and 53% bullish at 8 weeks after the December 1974 bottom. Bottom line: there  seems to be more doubt than bullishness today.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Insiders are already selling – so it must be a bear market rally.</h3>\n<!-- /wp:heading -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>Insider Selling Hits Highest Levels Since Crisis Began</p><cite>Reuters - 4/27/09</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column -->\n\n<!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>As stocks rebound, corporate insiders ramp up selling</p><cite>Los Angeles - 4/27/09</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column -->\n\n<!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>Insider Selling Jumps to Highest Level Since 2007</p><cite>Bloomberg - 4/24/09</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p></p>\n<!-- /wp:paragraph --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":5441,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/insider-trading.png\" alt=\"Chart of Insider Trading sales versus buys over the DJIA\" class=\"wp-image-5441\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>To us, this is the worst argument to make, and history clearly supports us! As a group, corporate insiders usually make the worst investors. They often want to buy their stock when the market is falling (before a recession is recognized): i.e., 1973-74, and 1999-2000 at the dot-com peak. And even worse – their heaviest selling in history has occurred after early bull market run-ups in 1982 [1], 1985 [2], and 2003 [3]. <em>So if insiders are heavy sellers today, it’s not on our worry list.</em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>This is only a cyclical bull within a long-term secular bear.</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Secular? Cyclical? Forget the semantics. And let’s just focus on the technical facts!</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:spacer {\"height\":24} -->\n<div style=\"height:24px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":6180,\"width\":381,\"height\":44,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/JBS.png\" alt=\"\" class=\"wp-image-6180\" width=\"381\" height=\"44\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:spacer {\"height\":39} -->\n<div style=\"height:39px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:separator -->\n<hr class=\"wp-block-separator\"/>\n<!-- /wp:separator -->\n\n<!-- wp:heading {\"level\":4} -->\n<h4><em>InvesTech Research</em> newsletter published May 8, 2009.</h4>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>  This newsletter is also available to read in PDF format.  <a href=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/06/V09I05-Unloved-Bull.pdf\" target=\"_blank\" rel=\"noreferrer noopener\">Download the PDF.</a></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p></p>\n<!-- /wp:paragraph -->','The Unloved Bull','Archived Issue from May 8, 2009 - Are we in a new bull market or is it a bear market rally? If it is a new bull market, will it be a cyclical bull that is destined to a short life span or fail to reach old highs? And is it too late to buy, with the market already rebounding over 25%. In this issue, we provide the historical answers to these questions... more.','inherit','closed','closed','','2478-revision-v1','','','2021-06-16 19:24:33','2021-06-16 19:24:33','',2478,'https://ns2020-investech.investech.com/?p=8524',0,'revision','',0);
INSERT INTO `wp_posts` VALUES (8526,3,'2021-06-16 19:39:24','2021-06-16 19:39:24','<!-- wp:heading -->\n<h2>\"How do I hate thee?  Let me count the ways...\"</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Without a doubt, this is already one of the most hated bull markets in history! Both analysts and the media are finding countless things wrong with the rally, the U.S. economy, and –it seems– the outlook for the entire world:</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>Global Recession Deepens, Adding to U.S. Woes</p><cite>The Kiplinger Letter, 5/4/09</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p>From the swine flu outbreak, to soaring bankruptcies and foreclosures, to weak trading volume and ominous selling by corporate insiders, Wall Street investors have no shortage of worries on their minds. <em>So why does the market continue to move relentlessly higher?</em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Inside this issue, we provide the historical answer to that question – which our more seasoned subscribers know already. Just eight weeks ago, our March 13 issue laid out the technical arguments for an important market bottom…</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>A Buying Opportunity of a Lifetime?</p><p>... it is a historically indisputable fact that <em>we are heading toward a buying opportunity of a lifetime.</em></p><cite>InvesTech Research, 3/13/09</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p>…and thus far, the low that week (at DJIA 6547) has proven to be the bear market low.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3><br><strong>The ultimate question: What now?</strong></h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Are we in a new bull market or is it a bear market rally? If it is a new bull market, will it be a cyclical bull that is destined to a short life span or fail to reach old highs? And is it too late to buy, with the market already rebounding over 25%? All of these worries simply add to headlines now weighing on investors’ shoulders.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p><br>So let’s tackle some of these major concerns…</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading -->\n<h2>Climbing a Wall of Worry</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Every seasoned investor knows that bull markets climb a proverbial “wall of worry” during their early months of existence. Yet each and every time, it doesn’t get any easier. There is always an emotional tug-of-war between gloomy media headlines, and the slow methodical improvement in the technical outlook…</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"id\":5380,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/V09I05pg2-1024x752.png\" alt=\"DJIA with worrisome media headlines or a wall of worry\" class=\"wp-image-5380\"/></figure>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p><strong>But with all the blocks in place for a potential “best buy” opportunity in stocks [see table below], we need to pay close attention to the technical outlook <em>– which is dramatically changing!</em></strong></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"id\":5381,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/V09I05pg2table.png\" alt=\"Bearish conditions that precede the &quot;best buy&quot; opportunities in stocks\" class=\"wp-image-5381\"/></figure>\n<!-- /wp:image -->\n\n<!-- wp:heading -->\n<h2>NLC: Now Bullish</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p><strong>The most dramatic technical change since our last issue has been a strong and steady increase in the bullish “SELLING VACUUM” [*1] from our  Negative Leadership Composite.</strong> Designed to measure the absence of downside or bear market leadership, this kind of +50 reading is  synonymous with past bull market launching pads (see dashed arrows). Note there have been only 2 false signals (greater than +20) from our NLC Selling Vacuum in the past 42 years – and both occurred at significantly lower levels. </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>We also want to point out that the lingering “DISTRIBUTION” [*2 –lower half] is not a problem from a technical viewpoint. Internal calculations show that bear market Distribution ended on the March 9 low, and has not been “added to” since then. On climactic V-shaped bottoms, it is not unusual to see a lag in this component. For example, at the end of the 1973-74 bear market, there was a 14-week residual lag between the market bottom and when Distribution left its -100 reading. In 1987, there was an 11- week lag. Currently, we’re only 8 weeks past the March 9 bottom.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"id\":5420,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/nlcV09I05-1024x736.png\" alt=\"InvesTech\'s negative leadership composite selling vacuum reaching +50 while the distribution component hit -100.\" class=\"wp-image-5420\"/></figure>\n<!-- /wp:image -->\n\n<!-- wp:heading -->\n<h2>BREADTH: Positive Divergence</h2>\n<!-- /wp:heading -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":5421,\"width\":375,\"height\":402,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-large is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/advdecv09i05.png\" alt=\"Advance-decline breaking to a new high\" class=\"wp-image-5421\" width=\"375\" height=\"402\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p><br>Throughout the lengthy 1929-32 bear market, as well as the 1973-74 bear market, there was never a “positive divergence” in market breadth. In other words, the advance-decline line <em>[cumulative sum of daily advancing issues minus declining issues] </em>led the bear market path every step of the way down. </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>So to see a positive divergence today is yet another confirmation this bear market may be over. The A-D Line has broken well above its January rally high, thus leading the S&amp;P 500 upward since the March bottom. Some will argue this breadth gauge is less reliable since more ETFs and closed-end bond funds are traded on the NYSE. Perhaps. But we’ll simply let history speak for itself and give this technical tool our benefit of doubt until proven wrong.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading -->\n<h2>COPPOCK GUIDE: Is a Buy Signal Imminent?</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p><strong><em>If recent market gains hold, then a “Buy Signal” appears imminent in the Coppock Guide this month.</em></strong> </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>The Coppock Guide was developed over 50 years ago by Edwin S. Coppock. Its historical value lies in signaling or confirming the best, low-risk buying opportunities in history <em>– and it is one of the few technical tools that would have kept anxious investors from stepping  prematurely into the middle of the record 1929-32 debacle or the 1973-74 bear market. </em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>This index is actually the 10-month weighted moving total of a 14-month rate of change plus an 11-month rate of change of a market index. In mathematical terms, it’s really just a momentum oscillator. Because of  this, it reverses direction when the long-term momentum or velocity in the market peaks. After dropping to ‘0’ or below, a mere 1-point upturn in this index can usually be treated as an excellent buying opportunity. </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p><em>Some of the best (most important) buying opportunities have appeared when the Coppock Guide bottomed at a negative extreme below -20, including 1921, 1932, 1970, 1974 and 2003.</em> And often, the more negative the Coppock Guide is when it turns upward, the more impressive the profits ahead. <em>Under this guideline, only two false signals in 88 years have been recorded – once in 1941 and again in November 2001. </em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Today, the Coppock Guide is at its most oversold level since the bear markets of the 1930s – over 70 years ago. As a monthly indicator, we won’t know for certain whether a formal buy signal has been triggered until the end of the month. However, forward testing<em> –based on current data– </em>reveals the Coppock will turn upward from below ‘0’ if the market stabilizes near present levels or continues rising.  <em>Remember – this is a <strong>projection</strong>, not necessarily a certainty. <strong>So stay tuned…</strong></em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"id\":5427,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/coppockV09I05-1024x784.png\" alt=\"Coppock guide over the S&amp;P 500 Index just starting to turn upward\" class=\"wp-image-5427\"/></figure>\n<!-- /wp:image -->\n\n<!-- wp:heading -->\n<h2>TWO MORE important shifts underway…</h2>\n<!-- /wp:heading -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Consumer Confidence:</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p> After hitting a record 42-year low in February, Consumer Confidence just registered its largest monthly rebound in almost four years [ 1]. While no guarantee of an economic recovery ahead, this is clearly a move in the right direction. More importantly, the majority of that confidence rebound came in the “future expectations” component of this gauge – representing consumers’ outlook six months ahead. And our tracking of the “future minus present” surveys now shows a clear uptrend [2] … strikingly similar to the path that has typically led out of past recessions.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"id\":8523,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/06/cons-conf-09-1024x443.png\" alt=\"Consumer Confidence registers largest monthly rebound in almost four years.\" class=\"wp-image-8523\"/></figure>\n<!-- /wp:image -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>RSI (Relative Strength Index):</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Here is what we said in our March 13 issue…</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote -->\n<blockquote class=\"wp-block-quote\"><p>One of the technical gauges of oversold (or overbought) extremes in the stock market is the Relative Strength Index (RSI), developed by Welles Wilder. A long-term (18-month) version of this RSI has proven a valuable tool in helping to identify potential market bottoms –or the best buying opportunities for investors. </p><p>Basically, the Relative Strength Index compares the cumulative <strong>upward </strong>price changes over a defined period relative to the cumulative <strong>downward </strong>price changes. Here, once again, extremes in oversold conditions on Wall Street inevitably create the best buying opportunities. <strong>And the most oversold conditions can sometimes create a buying opportunity of a lifetime – at market levels that are never seen again!</strong></p><cite>InvesTech Market Analyst – March 13, 2009</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p>Since then, this Relative Strength Index has turned decisively upward in response to the latest rally. <em>Notice that no upturn of this magnitude from this level has proven to be a false signal in the past 109 years!</em> It’s just one more cumulative piece of evidence that the stock market low eight weeks ago may have been an important bottom.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"id\":5429,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/rsiv09i05-1024x627.png\" alt=\"Relative Strength Index turns decisively upward\" class=\"wp-image-5429\"/></figure>\n<!-- /wp:image -->\n\n<!-- wp:heading -->\n<h2>PERSONAL PERSPECTIVE</h2>\n<!-- /wp:heading -->\n\n<!-- wp:heading {\"textAlign\":\"center\"} -->\n<h2 class=\"has-text-align-center\">Housing – Light at the end of the tunnel</h2>\n<!-- /wp:heading -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":5432,\"width\":402,\"height\":377,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-large is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/bubblev09i05.png\" alt=\"InvesTech\'s housing bubble bellwether index overlaid on the internet index.  They appear to be mirror images.\" class=\"wp-image-5432\" width=\"402\" height=\"377\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>Don’t count us among the raging bulls. If anything, we might be called a<em> “cautious bull with some residual concerns about systemic mortgage risk.” </em>But there, too, the outlook seems to be improving… </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>First, our Housing Bubble Bellwether Index –which forewarned us in 2005 of the housing debacle ahead– is coming off a double-bottom, in which the March 9 low was <strong>not significantly lower</strong> than the low late last year. Even to this day, the parallel path of these housing-related stocks to the bursting of the 1990s Internet Bubble has been amazing!</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>In addition, much of the excess price inflation in housing appears to have been resolved. Nationally, the median family home price has fallen an unprecedented -29% since mid-2005, as shown in this graphic:</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"id\":5433,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/pricingv09i05.png\" alt=\"Housing prices versus inflation showing median family homes dropping almost as low as the consumer price index\" class=\"wp-image-5433\"/></figure>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>That does not mean that home prices won’t continue lower or overshoot the long-term inflation trend before hitting bottom in 2010. However, it suggests to us that the majority of damage is over. [And we reserve judgment on those areas of the country that peaked late, like Whitefish, Montana : )]</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>It is also encouraging to see an upturn in the NAHB (National Association of Home Builders) surveys on both Builder Confidence and the traffic of prospective buyers. With inventories now down to pre-bubble levels, we believe this upturn will have more staying ability than the temporary rebound in 2006.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":5435,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/nahbv09i05.png\" alt=\"NAHB Builder Confidence Survey, reading of 14\" class=\"wp-image-5435\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:heading {\"textAlign\":\"center\"} -->\n<h2 class=\"has-text-align-center\">Battling the Bears</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Frankly, we can come up with all sorts of reasons to remain a bit cautious about the market. Yet our objectivity compels us to gradually move our allocation in the direction of the evidence – and right now that is to the bullish side. Here’s what is <strong>not influencing our decisions,</strong> and why…</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Volume is too light for this to be a new bull market!</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>This is an argument that we’ve heard more than once, and has some historical validity. Volume on this rally, and particularly on big “up” days has been disappointingly average. But one of the reasons for this is that most bear market bottoms are accompanied by a dramatic shift in Fed policy, accompanied by interest rate cuts. This time around, the Fed has no interest rate cards left to play. So regardless of when this bear market bottom occurs (or if it has already occurred), we expect volume to lag.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Sentiment never shifts bullish this fast – except on bear market rallies.</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>We’re heard this statement from several noted analysts, however, we don’t see any factual basis for it. In fact, we continue to see a lot of skepticism and doubt (see “Wall of Worry” headlines on page 2). And currently at 8 weeks after the March bottom, the AAII survey shows only 36% of individual investors are bullish – compared to 49% bullish at the same time after the last bear market’s double-bottom in March 2003.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p><br>Meanwhile, the Investors Intelligence survey shows only 40% of advisory services have turned bullish. That compares to 48% bullish at 8 weeks after the March 2003 low, 37% bullish at 8 weeks after the 1982 bottom, and 53% bullish at 8 weeks after the December 1974 bottom. Bottom line: there  seems to be more doubt than bullishness today.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Insiders are already selling – so it must be a bear market rally.</h3>\n<!-- /wp:heading -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>Insider Selling Hits Highest Levels Since Crisis Began</p><cite>Reuters - 4/27/09</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column -->\n\n<!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>As stocks rebound, corporate insiders ramp up selling</p><cite>Los Angeles - 4/27/09</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column -->\n\n<!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>Insider Selling Jumps to Highest Level Since 2007</p><cite>Bloomberg - 4/24/09</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p></p>\n<!-- /wp:paragraph --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:paragraph -->\n<p>To us, this is the <strong>worst argument </strong>to make, and history clearly supports us! As a group, corporate insiders usually make the worst investors. They often want to buy their stock when the market is falling (before a recession is recognized): i.e., 1973-74, and 1999-2000 at the dot-com peak. And even worse – their heaviest selling in history has occurred after early bull market run-ups in 1982 [1], 1985 [2], and 2003 [3]. <em>So if insiders are heavy sellers today, it’s not on our worry list.</em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":5441,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/insider-trading.png\" alt=\"Chart of Insider Trading sales versus buys over the DJIA\" class=\"wp-image-5441\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>This is only a cyclical bull within a long-term secular bear.</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Secular? Cyclical? Forget the semantics. And let’s just focus on the technical facts!</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:spacer {\"height\":24} -->\n<div style=\"height:24px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":6180,\"width\":381,\"height\":44,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/JBS.png\" alt=\"\" class=\"wp-image-6180\" width=\"381\" height=\"44\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:spacer {\"height\":39} -->\n<div style=\"height:39px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:separator -->\n<hr class=\"wp-block-separator\"/>\n<!-- /wp:separator -->\n\n<!-- wp:heading {\"level\":4} -->\n<h4><em>InvesTech Research</em> newsletter published May 8, 2009.</h4>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>  This newsletter is also available to read in PDF format.  <a href=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/06/V09I05-Unloved-Bull.pdf\" target=\"_blank\" rel=\"noreferrer noopener\">Download the PDF.</a></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p></p>\n<!-- /wp:paragraph -->','The Unloved Bull','Archived Issue from May 8, 2009 - Are we in a new bull market or is it a bear market rally? If it is a new bull market, will it be a cyclical bull that is destined to a short life span or fail to reach old highs? And is it too late to buy, with the market already rebounding over 25%. In this issue, we provide the historical answers to these questions... more.','inherit','closed','closed','','2478-revision-v1','','','2021-06-16 19:39:24','2021-06-16 19:39:24','',2478,'https://ns2020-investech.investech.com/?p=8526',0,'revision','',0);
INSERT INTO `wp_posts` VALUES (8527,3,'2021-06-16 19:40:34','2021-06-16 19:40:34','<!-- wp:heading -->\n<h2>\"How do I hate thee?  Let me count the ways...\"</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Without a doubt, this is already one of the most hated bull markets in history! Both analysts and the media are finding countless things wrong with the rally, the U.S. economy, and –it seems– the outlook for the entire world:</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>Global Recession Deepens, Adding to U.S. Woes</p><cite>The Kiplinger Letter, 5/4/09</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p>From the swine flu outbreak, to soaring bankruptcies and foreclosures, to weak trading volume and ominous selling by corporate insiders, Wall Street investors have no shortage of worries on their minds. <em>So why does the market continue to move relentlessly higher?</em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Inside this issue, we provide the historical answer to that question – which our more seasoned subscribers know already. Just eight weeks ago, our March 13 issue laid out the technical arguments for an important market bottom…</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>A Buying Opportunity of a Lifetime?</p><p>... it is a historically indisputable fact that <em>we are heading toward a buying opportunity of a lifetime.</em></p><cite>InvesTech Research, 3/13/09</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p>…and thus far, the low that week (at DJIA 6547) has proven to be the bear market low.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3><br><strong>The ultimate question: What now?</strong></h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Are we in a new bull market or is it a bear market rally? If it is a new bull market, will it be a cyclical bull that is destined to a short life span or fail to reach old highs? And is it too late to buy, with the market already rebounding over 25%? All of these worries simply add to headlines now weighing on investors’ shoulders.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p><br>So let’s tackle some of these major concerns…</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading -->\n<h2>Climbing a Wall of Worry</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Every seasoned investor knows that bull markets climb a proverbial “wall of worry” during their early months of existence. Yet each and every time, it doesn’t get any easier. There is always an emotional tug-of-war between gloomy media headlines, and the slow methodical improvement in the technical outlook…</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"id\":5380,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/V09I05pg2-1024x752.png\" alt=\"DJIA with worrisome media headlines or a wall of worry\" class=\"wp-image-5380\"/></figure>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p><strong>But with all the blocks in place for a potential “best buy” opportunity in stocks [see table below], we need to pay close attention to the technical outlook <em>– which is dramatically changing!</em></strong></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"id\":5381,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/V09I05pg2table.png\" alt=\"Bearish conditions that precede the &quot;best buy&quot; opportunities in stocks\" class=\"wp-image-5381\"/></figure>\n<!-- /wp:image -->\n\n<!-- wp:heading -->\n<h2>NLC: Now Bullish</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p><strong>The most dramatic technical change since our last issue has been a strong and steady increase in the bullish “SELLING VACUUM” [*1] from our  Negative Leadership Composite.</strong> Designed to measure the absence of downside or bear market leadership, this kind of +50 reading is  synonymous with past bull market launching pads (see dashed arrows). Note there have been only 2 false signals (greater than +20) from our NLC Selling Vacuum in the past 42 years – and both occurred at significantly lower levels. </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>We also want to point out that the lingering “DISTRIBUTION” [*2 –lower half] is not a problem from a technical viewpoint. Internal calculations show that bear market Distribution ended on the March 9 low, and has not been “added to” since then. On climactic V-shaped bottoms, it is not unusual to see a lag in this component. For example, at the end of the 1973-74 bear market, there was a 14-week residual lag between the market bottom and when Distribution left its -100 reading. In 1987, there was an 11- week lag. Currently, we’re only 8 weeks past the March 9 bottom.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"id\":5420,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/nlcV09I05-1024x736.png\" alt=\"InvesTech\'s negative leadership composite selling vacuum reaching +50 while the distribution component hit -100.\" class=\"wp-image-5420\"/></figure>\n<!-- /wp:image -->\n\n<!-- wp:heading -->\n<h2>BREADTH: Positive Divergence</h2>\n<!-- /wp:heading -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":5421,\"width\":375,\"height\":402,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-large is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/advdecv09i05.png\" alt=\"Advance-decline breaking to a new high\" class=\"wp-image-5421\" width=\"375\" height=\"402\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p><br>Throughout the lengthy 1929-32 bear market, as well as the 1973-74 bear market, there was never a “positive divergence” in market breadth. In other words, the advance-decline line <em>[cumulative sum of daily advancing issues minus declining issues] </em>led the bear market path every step of the way down. </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>So to see a positive divergence today is yet another confirmation this bear market may be over. The A-D Line has broken well above its January rally high, thus leading the S&amp;P 500 upward since the March bottom. Some will argue this breadth gauge is less reliable since more ETFs and closed-end bond funds are traded on the NYSE. Perhaps. But we’ll simply let history speak for itself and give this technical tool our benefit of doubt until proven wrong.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading -->\n<h2>COPPOCK GUIDE: Is a Buy Signal Imminent?</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p><strong><em>If recent market gains hold, then a “Buy Signal” appears imminent in the Coppock Guide this month.</em></strong> </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>The Coppock Guide was developed over 50 years ago by Edwin S. Coppock. Its historical value lies in signaling or confirming the best, low-risk buying opportunities in history <em>– and it is one of the few technical tools that would have kept anxious investors from stepping  prematurely into the middle of the record 1929-32 debacle or the 1973-74 bear market. </em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>This index is actually the 10-month weighted moving total of a 14-month rate of change plus an 11-month rate of change of a market index. In mathematical terms, it’s really just a momentum oscillator. Because of  this, it reverses direction when the long-term momentum or velocity in the market peaks. After dropping to ‘0’ or below, a mere 1-point upturn in this index can usually be treated as an excellent buying opportunity. </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p><em>Some of the best (most important) buying opportunities have appeared when the Coppock Guide bottomed at a negative extreme below -20, including 1921, 1932, 1970, 1974 and 2003.</em> And often, the more negative the Coppock Guide is when it turns upward, the more impressive the profits ahead. <em>Under this guideline, only two false signals in 88 years have been recorded – once in 1941 and again in November 2001. </em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Today, the Coppock Guide is at its most oversold level since the bear markets of the 1930s – over 70 years ago. As a monthly indicator, we won’t know for certain whether a formal buy signal has been triggered until the end of the month. However, forward testing<em> –based on current data– </em>reveals the Coppock will turn upward from below ‘0’ if the market stabilizes near present levels or continues rising.  <em>Remember – this is a <strong>projection</strong>, not necessarily a certainty. <strong>So stay tuned…</strong></em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"id\":5427,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/coppockV09I05-1024x784.png\" alt=\"Coppock guide over the S&amp;P 500 Index just starting to turn upward\" class=\"wp-image-5427\"/></figure>\n<!-- /wp:image -->\n\n<!-- wp:heading -->\n<h2>TWO MORE important shifts underway…</h2>\n<!-- /wp:heading -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Consumer Confidence:</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p> After hitting a record 42-year low in February, Consumer Confidence just registered its largest monthly rebound in almost four years [ 1]. While no guarantee of an economic recovery ahead, this is clearly a move in the right direction. More importantly, the majority of that confidence rebound came in the “future expectations” component of this gauge – representing consumers’ outlook six months ahead. And our tracking of the “future minus present” surveys now shows a clear uptrend [2] … strikingly similar to the path that has typically led out of past recessions.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"id\":8523,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/06/cons-conf-09-1024x443.png\" alt=\"Consumer Confidence registers largest monthly rebound in almost four years.\" class=\"wp-image-8523\"/></figure>\n<!-- /wp:image -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>RSI (Relative Strength Index):</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Here is what we said in our March 13 issue…</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote -->\n<blockquote class=\"wp-block-quote\"><p>One of the technical gauges of oversold (or overbought) extremes in the stock market is the Relative Strength Index (RSI), developed by Welles Wilder. A long-term (18-month) version of this RSI has proven a valuable tool in helping to identify potential market bottoms –or the best buying opportunities for investors. </p><p>Basically, the Relative Strength Index compares the cumulative <strong>upward </strong>price changes over a defined period relative to the cumulative <strong>downward </strong>price changes. Here, once again, extremes in oversold conditions on Wall Street inevitably create the best buying opportunities. <strong>And the most oversold conditions can sometimes create a buying opportunity of a lifetime – at market levels that are never seen again!</strong></p><cite>InvesTech Market Analyst – March 13, 2009</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p>Since then, this Relative Strength Index has turned decisively upward in response to the latest rally. <em>Notice that no upturn of this magnitude from this level has proven to be a false signal in the past 109 years!</em> It’s just one more cumulative piece of evidence that the stock market low eight weeks ago may have been an important bottom.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"id\":5429,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/rsiv09i05-1024x627.png\" alt=\"Relative Strength Index turns decisively upward\" class=\"wp-image-5429\"/></figure>\n<!-- /wp:image -->\n\n<!-- wp:heading -->\n<h2>PERSONAL PERSPECTIVE</h2>\n<!-- /wp:heading -->\n\n<!-- wp:heading {\"textAlign\":\"center\"} -->\n<h2 class=\"has-text-align-center\">Housing – Light at the end of the tunnel</h2>\n<!-- /wp:heading -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":5432,\"width\":402,\"height\":377,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-large is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/bubblev09i05.png\" alt=\"InvesTech\'s housing bubble bellwether index overlaid on the internet index.  They appear to be mirror images.\" class=\"wp-image-5432\" width=\"402\" height=\"377\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>Don’t count us among the raging bulls. If anything, we might be called a<em> “cautious bull with some residual concerns about systemic mortgage risk.” </em>But there, too, the outlook seems to be improving… </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>First, our Housing Bubble Bellwether Index –which forewarned us in 2005 of the housing debacle ahead– is coming off a double-bottom, in which the March 9 low was <strong>not significantly lower</strong> than the low late last year. Even to this day, the parallel path of these housing-related stocks to the bursting of the 1990s Internet Bubble has been amazing!</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>In addition, much of the excess price inflation in housing appears to have been resolved. Nationally, the median family home price has fallen an unprecedented -29% since mid-2005, as shown in this graphic:</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"id\":5433,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/pricingv09i05.png\" alt=\"Housing prices versus inflation showing median family homes dropping almost as low as the consumer price index\" class=\"wp-image-5433\"/></figure>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>That does not mean that home prices won’t continue lower or overshoot the long-term inflation trend before hitting bottom in 2010. However, it suggests to us that the majority of damage is over. [And we reserve judgment on those areas of the country that peaked late, like Whitefish, Montana : )]</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>It is also encouraging to see an upturn in the NAHB (National Association of Home Builders) surveys on both Builder Confidence and the traffic of prospective buyers. With inventories now down to pre-bubble levels, we believe this upturn will have more staying ability than the temporary rebound in 2006.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":5435,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/nahbv09i05.png\" alt=\"NAHB Builder Confidence Survey, reading of 14\" class=\"wp-image-5435\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:heading {\"textAlign\":\"center\"} -->\n<h2 class=\"has-text-align-center\">Battling the Bears</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Frankly, we can come up with all sorts of reasons to remain a bit cautious about the market. Yet our objectivity compels us to gradually move our allocation in the direction of the evidence – and right now that is to the bullish side. Here’s what is <strong>not influencing our decisions,</strong> and why…</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Volume is too light for this to be a new bull market!</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>This is an argument that we’ve heard more than once, and has some historical validity. Volume on this rally, and particularly on big “up” days has been disappointingly average. But one of the reasons for this is that most bear market bottoms are accompanied by a dramatic shift in Fed policy, accompanied by interest rate cuts. This time around, the Fed has no interest rate cards left to play. So regardless of when this bear market bottom occurs (or if it has already occurred), we expect volume to lag.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Sentiment never shifts bullish this fast – except on bear market rallies.</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>We’re heard this statement from several noted analysts, however, we don’t see any factual basis for it. In fact, we continue to see a lot of skepticism and doubt (see “Wall of Worry” headlines on page 2). And currently at 8 weeks after the March bottom, the AAII survey shows only 36% of individual investors are bullish – compared to 49% bullish at the same time after the last bear market’s double-bottom in March 2003.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p><br>Meanwhile, the Investors Intelligence survey shows only 40% of advisory services have turned bullish. That compares to 48% bullish at 8 weeks after the March 2003 low, 37% bullish at 8 weeks after the 1982 bottom, and 53% bullish at 8 weeks after the December 1974 bottom. Bottom line: there  seems to be more doubt than bullishness today.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Insiders are already selling – so it must be a bear market rally.</h3>\n<!-- /wp:heading -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>Insider Selling Hits Highest Levels Since Crisis Began</p><cite>Reuters - 4/27/09</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column -->\n\n<!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>As stocks rebound, corporate insiders ramp up selling</p><cite>Los Angeles - 4/27/09</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column -->\n\n<!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>Insider Selling Jumps to Highest Level Since 2007</p><cite>Bloomberg - 4/24/09</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p></p>\n<!-- /wp:paragraph --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:paragraph -->\n<p>To us, this is the <strong>worst argument </strong>to make, and history clearly supports us! As a group, corporate insiders usually make the worst investors. They often want to buy their stock when the market is falling (before a recession is recognized): i.e., 1973-74, and 1999-2000 at the dot-com peak. And even worse – their heaviest selling in history has occurred after early bull market run-ups in 1982 [1], 1985 [2], and 2003 [3]. <em>So if insiders are heavy sellers today, it’s not on our worry list.</em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":5441,\"width\":718,\"height\":617,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/insider-trading.png\" alt=\"Chart of Insider Trading sales versus buys over the DJIA\" class=\"wp-image-5441\" width=\"718\" height=\"617\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>This is only a cyclical bull within a long-term secular bear.</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Secular? Cyclical? Forget the semantics. And let’s just focus on the technical facts!</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:spacer {\"height\":24} -->\n<div style=\"height:24px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":6180,\"width\":381,\"height\":44,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/JBS.png\" alt=\"\" class=\"wp-image-6180\" width=\"381\" height=\"44\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:spacer {\"height\":39} -->\n<div style=\"height:39px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:separator -->\n<hr class=\"wp-block-separator\"/>\n<!-- /wp:separator -->\n\n<!-- wp:heading {\"level\":4} -->\n<h4><em>InvesTech Research</em> newsletter published May 8, 2009.</h4>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>  This newsletter is also available to read in PDF format.  <a href=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/06/V09I05-Unloved-Bull.pdf\" target=\"_blank\" rel=\"noreferrer noopener\">Download the PDF.</a></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p></p>\n<!-- /wp:paragraph -->','The Unloved Bull','Archived Issue from May 8, 2009 - Are we in a new bull market or is it a bear market rally? If it is a new bull market, will it be a cyclical bull that is destined to a short life span or fail to reach old highs? And is it too late to buy, with the market already rebounding over 25%. In this issue, we provide the historical answers to these questions... more.','inherit','closed','closed','','2478-revision-v1','','','2021-06-16 19:40:34','2021-06-16 19:40:34','',2478,'https://ns2020-investech.investech.com/?p=8527',0,'revision','',0);
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INSERT INTO `wp_posts` VALUES (8555,3,'2021-06-16 22:05:33','2021-06-16 22:05:33','<!-- wp:heading -->\n<h2>The Indexing Craze</h2>\n<!-- /wp:heading -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:66.66%\"><!-- wp:paragraph -->\n<p>The indexing craze… it’s sure to be remembered as a hallmark of the 1990s! What has made investing in the S&amp;P 500 so popular these days? If you buy into a recent Business Week article, <em>“Index funds are cheap, easy–and they’re changing the way Americans invest.”</em> A value investor might disagree, since index funds are holding a group of stocks which are at their most overvalued levels in history.  However, in a sense, they are “cheap”… you don’t have to pay a fund manager to search for attractive stocks, and there are few transaction fees when the portfolio doesn’t change much from year to year. As for “easy,” that’s a different story. Our October 23, 1998 issue of the InvesTech Mutual Fund Advisor devoted considerable space to dispelling some of the myths of easy profits and safety that enthusiasts claim for these funds.</p>\n<!-- /wp:paragraph --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>Saving for Retirement Index Fever</p><cite>Fortune, 11/9/98</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>Who Needs a Money Manager?</p><cite>Business Week, 2/22/99</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:66.66%\"><!-- wp:paragraph -->\n<p>The popularity of investing in a large-cap index is a phenomenon of long-running bull markets, especially in the latter stages like today. There are several reasons for this. After years of positive gains in the stock market, new investors latch on to the implied idea that making money is simple. It’s also assumed that index funds are safer than other mutual funds because many S&amp;P 500 stocks have widely recognized names. And finally, index funds are the obvious choice for novice investors who tend to be drawn in during late stage bull markets.<em> [Just try to talk a non-investor into putting money into the stock market in the depths of a recession when bull markets are typically born!] </em>During the longest running bull markets, like today, index funds appear attractive even to more experienced investors, simply because that’s when they outperform other funds.</p>\n<!-- /wp:paragraph --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:heading -->\n<h2>Historical Perspective</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>They may be at the height of popularity now, but index funds aren’t just a phenomenon of the 1990’s. If you were investing in 1975 you would have seen this announcement in <em>U.S. News &amp; World Report:</em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>INVEST IN THE STOCK-MARKET AVERAGE?</p><p>A new investment vehicle -the \"index mutual fund\"- is making a big pitch for some of the billions that pension funds, college endowments and other institutions invest in the stock market.  </p><p>For most of the big institutional investors, just keeping up with the general stock-market averages would present a large improvement over their performances in past years</p><cite>U.S. News &amp; World Report, 12/29/75</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p>Index funds were a hot new concept in 1975, just in time to dramatically UNDERperform the majority of stocks. Over the next seven years, the smallest 20% of NYSE issues outperformed the S&amp;P 500 by more than 5-fold (752% versus 150%). After this less-than-spectacular start, the popularity of index funds came and went with the market cycles for the next decade. They really started to proliferate only when the current bull market turned into a large-cap bonanza beginning in 1994.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Last year, index funds attracted nearly 19% of all money invested in mutual funds. And Vanguard Index 500 with $74 billion is close to passing #1 Fidelity Magellan in net assets. But that’s just the tip of the iceberg, as the majority of mutual funds are now investing in the “big 50 ” –the 50 largest-cap stocks in the S&amp;P 500– simply to keep pace with that index’s momentum. This flow of money into a handful of large stocks affects not only the market averages, but it can have long-term repercussions for the market as well as your future investment strategy.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading -->\n<h2>The Impact</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Here’s the current, and potential, impact as we see it…<br></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Investor psychology is distorted. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Many novices view index funds as a type of variable rate CD. In Canada, one of our readers reports roadside billboards are promoting a guaranteed principle type of market index investment over GICs (the Canadian equivalent of a CD). What happens when index funds fail to return that expected 11%, or worse, when a major bear market wipes out 40-50%. Someone’s going to be left holding the bag.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3,\"className\":\"unclear\"} -->\n<h3 class=\"unclear\">More and more “non-index” funds are actually indexing a large part of their portfolios. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>As index funds have been the only ones to keep pace with market averages in recent years, the natural reaction is for fund managers to change strategy. The philosophy seems to be, <em>“If I can’t outperform the market, at least try to imitate it.”</em> The result is an increasing number of equity funds that look like mini-index fund clones as managers are dragged into the same stocks. Any fund wanting to match or beat the averages must hold at least some of the “big 50 ” of the S&amp;P 500. To make this point, we looked at the portfolios of the ten top performing “non-index” growth funds for the past 12 months. On  Average, 5 of the top 10 holdings in each portfolio are among the 20 largest stocks in the S&amp;P.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>As an example, take the Fidelity Dividend Growth fund which, by its very name, seems to imply conservative growth with a focus on dividends. But there’s nothing conservative about an annual portfolio turnover rate exceeding 105% for each of the last 5 years. And its dividend yield is only 0.4% – less than one-third the dismal yield of the S&amp;P 500.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3,\"className\":\"unclear\"} -->\n<h3 class=\"unclear\">Investments in momentum related funds are funneling into the most overvalued stocks in the market, driving them even higher. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Remember, the S&amp;P 500 is a capitalization weighted index, so money going into index funds is not evenly distributed in all 500 stocks. Only fifty stocks account for 55% of S&amp;P 500 capitalization and 55% of an index fund portfolio. That leaves the other 450 stocks to split the rest. Indexing contributes to explosive run-up and overvaluation in these top 50 stocks. Microsoft today is valued at 1.4 times the total capitalization of GE, Intel, Merck, Wal-Mart, Pfizer, Exxon, Coca-Cola, IBM, Cisco, <strong>AND </strong>Microsoft in December of 1990 at the start of this bull market. And America Online, which has yet to show any significant earnings, is now valued at more than ANY of the ten largest companies in the U.S. in 1990!</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Market volatility increases whenever interest narrows to just a few stocks. All eyes are on the same select group (the largest companies in the S&amp;P 500). Any news or earnings surprises can cause wild gyrations in price as funds scramble to dump or pile into hot movers. No wonder the intraday volatility in 1999 is running the highest for any bull market year since 1929!</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Finally, indexing amplifies the technical distortion in the markets. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>The current issue of the<em> InvesTech Market Analyst </em>takes an insightful look at what’s really happening in breadth and other technical divergences. With support from the “big-50\" stocks of the S&amp;P, the closely watched indexes like the DJIA and NASDAQ simply don’t reflect these divergences. For a broader view of the market, take a close look at the Russell 2000 Index (premier small cap index) or the Value-Line Composite Index (an equally weighted index of 1700 stocks).</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:media-text {\"mediaId\":5403,\"mediaType\":\"image\",\"mediaWidth\":40} -->\n<div class=\"wp-block-media-text alignwide is-stacked-on-mobile\" style=\"grid-template-columns:40% auto\"><figure class=\"wp-block-media-text__media\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/top-20.png\" alt=\"Top 20 stocks in the S&amp;P 500 Index as of 1999\" class=\"wp-image-5403 size-full\"/></figure><div class=\"wp-block-media-text__content\"><!-- wp:heading -->\n<h2>Investment Strategy</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>First, we advise that you examine the individual stock holdings in any mutual fund you own – especially for any funds that have “performed” well over the last couple years. Ask yourself,<em> “How ‘indexed’ is this fund?”</em> We’ve listed the 20 largest cap stocks of the S&amp;P 500 in the table shown at left. If you find more than 3 or 4 of these stocks in the top 20 portfolio holdings of your fund, then take heed – your fund is nibbling on indexing.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>In addition, avoid judging a future fund by its 1997-98 performance. If a fund was near the top of the performance list for these past two years, chances are it was momentum investing. Blue chip stocks are often the last to peak in a long-running bull market, benefiting from a “flight to safety” as other stocks falter. Unfortunately, when they fall from overvalued heights, they can be the last to recover from a recession.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>This past bull market illustrates our point. Index funds have enjoyed the run up in blue chip stocks, handily beating most actively managed funds over the last few years. Since 1994, the Vanguard 500 Index Fund has more than doubled the total return of the average small stock fund, and provided 1.6 times the return of the average value fund. This performance may seem unbeatable, but it’s only part of the story. </p>\n<!-- /wp:paragraph --></div></div>\n<!-- /wp:media-text -->\n\n<!-- wp:spacer {\"height\":10} -->\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":5406,\"width\":514,\"height\":530,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-large is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/mutualfundperf.png\" alt=\"\" class=\"wp-image-5406\" width=\"514\" height=\"530\"/><figcaption>\"Mutual Fund Performance\" graph from 1991-93</figcaption></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>This \"Mutual Fund Performance\" graph from 1991-93 reveals the comparative performance of the Vanguard 500 during the first three years of this bull market… the safest years to be invested. Note that the average “value” fund outperformed by a factor of 1.4… and the average small company fund literally doubled the return of the Vanguard 500 Index fund. </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>From the perspective of risk management now (and future profits later), it’s never been more critical to know your mutual fund or prospective mutual fund. We firmly believe the big-cap leaders of today will again become the laggards after the next bear market washout. If that is the case, then you don’t want to find your portfolio indexed to under-performance at what may become one of the best buying opportunities of our lifetime.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:spacer {\"height\":38} -->\n<div style=\"height:38px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:separator -->\n<hr class=\"wp-block-separator\"/>\n<!-- /wp:separator -->\n\n<!-- wp:spacer {\"height\":3} -->\n<div style=\"height:3px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:heading {\"level\":4} -->\n<h4><em>InvesTech Research</em> newsletter originally published March 12, 1999</h4>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>This newsletter is also available to read in PDF format.&nbsp;<a href=\"https://ns2020-investech.investech.com/wp-content/uploads/2020/08/InvesTech-V99I04-Indexing.pdf\" target=\"_blank\" rel=\"noreferrer noopener\">Download the PDF</a>.</p>\n<!-- /wp:paragraph -->','The Lemming Principle','Just as relevant today as in the Tech Bubble of the 1990s, this issue (originally published in March 1999) is particularly enlightening in view of today\'s infatuation with passive and index investing. Instead of falling off a cliff, these lemmings fell into the largest bear market since the 1930s!','inherit','closed','closed','','2470-revision-v1','','','2021-06-16 22:05:33','2021-06-16 22:05:33','',2470,'https://ns2020-investech.investech.com/?p=8555',0,'revision','',0);
