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Author: Timbit Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 63934  
Subject: Interest rate fears Date: 1/28/2000 12:28 PM
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Hi guys,

With all the recent talk about the fed raising interest rates by a quarter or a half point next week, and the way the market seems to be getting ready for a correction, I'm interested in knowing what other fools are doing to prepare.

Sure, sure, reduce holdings in tech stocks and increase in bonds, but what about all these high flying stocks that have had great run ups last year - JDU,NT,CSCO, etc. I'd love to hang on, but I think they are in for the biggest correction. Even though they've had great earnings, don't you think it would be wise to reduce holdings in them seeing as they will probably correct the most if interest rates rise? And then add more to them after the fallout and shares begin to rise again?

I truly believe in being a LTBH investor of good companies, but is it really smart to hang on and face the chance of losing most of the gains made last year?

Timbit

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Author: palsan Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 11143 of 63934
Subject: Re: Interest rate fears Date: 1/28/2000 2:24 PM
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I truly believe in being a LTBH investor of good companies, but is it really smart to hang on and face the chance of losing most of the gains made last year?

Timbit,

If you are truly a LTBH investor AND have confidence in your DD on the companies you've bought, it only makes sense to attempt market timing if you are clairvoyant.

As far as I know, NO ONE knows exactly what will happen in the future - the market might or might not crash/correct today/tommorow/next month and even if it does crash who knows if good stocks will drop more/less than the market? However, it is known with a fair degree of certainty that good stocks will be more valuable in 5, 10, or 20 years than they are today. Furthermore, the historical uptrend in the market has resulted in more up than down days.

Therefore, if you own those "good stocks", why would you incur transaction costs (by selling now and buying back later) AND risk being out of the market when the stocks jump up?

A risk/reward analysis would suggest that you are more likely to be better off by staying put with the stocks you own unless:
1. you need the money for something else, or
2. you have found another investment that has a high probability of outperforming the one you have now, or
3. you have some higher power and can predict the future.

Just my opinion of course - and as such, I would never make any money as a stock broker or analyst.

palsan

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Author: Timbit Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 11146 of 63934
Subject: Re: Interest rate fears Date: 1/28/2000 4:02 PM
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Palsan,

On a long term basis, you are no doubt correct. Good companies will prevail.

However, the market is taking a drubbing right now, and most likely will continue to slide until Tues/Wed of next week. On that basis, I believe a wise person should reduce holdings short term. The transaction costs incurred to sell and buy back in later are minimal compared with a 10-30% loss as the market continues to slide (depending on the size of your holdings of course).

Just my opinion....no one can predict the market.


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Author: marmit Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 11152 of 63934
Subject: Re: Interest rate fears Date: 1/28/2000 4:14 PM
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Timbit...

In the states sector rotation (moving from one sector like high tech to another sector like resource companies) is already taking place. I guess the question is ...who will lose if interest rates go up? and how much? and who will win if Interest rates go down? and how much? the old risk reward thing....

Currently my bet is on the banks.....these have been beaten down on the fears that increased interest rates will lessen demand for loans (fat chance in North America) and reduce spreads and henceforth profits..possibly. The fact is since I bought Laurentian and National (400 of each) at yields of 5% and p.e.'s of 8 they have since dropped pe's of 7 and yields of 6% on dividends....try and get that rate at the bank on your savings account. Historically, at their lows, banks trade at around pe.s of 6 now it's true profits may get lower (no sign of that yet) and the pe's may rise and the price fall. But if that's the case the risk in a bank stock is substantially less than in a resource or tech stock .....Now for tech and resource stocks to continue their price rise they need a reversal of interest rates, which will trigger an increase in bank stock prices. Personally I don't think this is more than a 6month upward blip in rates and as soon as the market corrects back below 10000 we'll see the fed back off. But if I'm wrong my bank stocks will pay me 5to6% while I'm waiting...not bad I'd say....While I don't own t.d. bank you might want to pick some up (if you don't mind the lower yield of 3-4%)as, in my opinion, they will soon return to their old highs after the takeover of canada trust and their profits are more diversified with brokerage fees and personal wealth management and such....

god i can babble

marmit

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Author: palsan Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 11154 of 63934
Subject: Re: Interest rate fears Date: 1/28/2000 4:29 PM
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But if I'm wrong my bank stocks will pay me 5to6% while I'm waiting...not bad I'd say....

marmit,

For the benefit of any "newbies" to these boards it may be worth to point out that dividend payouts are NOT guaranteed. The big 5 banks are among the most stable companies in Canada and not likely to reduce dividend payouts. On the other, as we've seen recently with TransCanada Pipe., there is always the chance that if profits take a big hit, even the banks may not be imune from reducing their dividends.

I would also bet that if things turn ugly the big 5 are more likely to sustain their dividends than Laurentian and/or National.

palsan

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Author: marmit Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 11155 of 63934
Subject: Re: Interest rate fears Date: 1/28/2000 4:35 PM
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Timbit...

I'm kinda with you....what's the point in doing dd and following a stock and it's relative strengths and weaknesses if your not prepared to back up your work and sell when the stock looks overvalued...I have had a pretty good record when selling stocks I believed were overvalued and repurchasing them later and just a while ago I sold my 600 shares of ATI at 20 and they now trade at 17...if I believed this was the low I could repurchase the same shares for 1800 less than I sold them for....but I think they'll hit somewhere in the 15s and am waiting. My downfall is not selling when stocks are correcting on changed perceptions (like Cinram..in at 15 now at 8.5) or occasionally listening to those ass.... analysts babble (like the old supposed takeover of trans pipe and the guaranteed dividend...yeah right!!..in at 23 now at 11..ouch). This year I have sold edper,laurentian,agf,aty (several times)and a few others...not one has returned above my sell price...i have repurchased edper,laurentian,and am waiting on agf and aty, mostly at a 20% discount to sell price...my only regrets is not selling some stocks when things started turning bad in the belief there would be a quick turnaround...companies are like ships...they take a while to get em going back in the right direction...

marmit



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Author: BorisDavids Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 11157 of 63934
Subject: Re: Interest rate fears Date: 1/28/2000 5:09 PM
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Hi guys,

I am not that experienced, so I kind of trust what I read and hear. And here is my dilemma: in one of the books (I believe it was one of the Fool books but I am not sure) it says that those people who were fully (not foolishly) invested at the time when the Great Depression started didn't get back to their level until the early fifties. So, if this is true and in 1929 John Smith was holding stocks of a few good quality companies, the fact that these companies survived and then grew bigger didn't help John - about 20 years were lost.
Intel, Cisco, Microsoft, JDSU - great companies, no doubts here. The problem is that their current valuations account for years and years of double-digit growth (correct me if I am wrong). And today, realistically speaking, the chances that we will have a major correction or recession are a little bit greater than the chances that Dow/S&P/NASDAQ will keep posting double-digit returns for a few more years. It's not a market-timing (I don't believe that it can be done), it's just a common sense. I wouldn't be surprised if some time in the nearest future we will say, "Shoot, did I pay $300 for JDSU? Did I pay $600 US for QUALCOMM?" Do you guys really believe that ANY stock priced so that it'll take years and years of double-digit growth to justify the price is worth buying?
Yeah, I know, Microsoft... Who else? Here is challenge: price ANY other stock (INTEL, CISCO, Coca-Cola, IBM, any one) in 1980 the way it's priced today and justify buying it.
I really hope that I am wrong, that we will have years and years of growth with only a few corrections (not recessions), and that we all will make truckloads of money. Please show me that I am wrong, but please use numbers and common sense, not just this unlimited optimism based on this great 1990-1999 market run. Assume that we might have DEPRESSION, not jsut a 10% one month correction. If you are sure there is no way we may have a depression - please explain why.

Thanks to all who can prove me wrong and sorry for such a long posting,

Davidsbo.



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Author: sushi833 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 11160 of 63934
Subject: Re: Interest rate fears Date: 1/28/2000 8:12 PM
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Sure, sure, reduce holdings in tech stocks and increase in bonds, but what about all these high flying stocks that have had great run ups last year - JDU,NT,CSCO, etc. I'd love to hang on, but I think they are in for the biggest correction. Even though they've had great earnings, don't you think it would be wise to reduce holdings in them seeing as they will probably correct the most if interest rates rise? And then add more to them after the fallout and shares begin to rise again?



I wonder. JDU dropped about $20 today, CLS has tanked about 20% in the last week or so; I'm wondering if the market is anticipating the Fed and a lot of the "correction" is going to be accounted for before the Fed makes its rate move.

Grant


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Author: qcw Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 11165 of 63934
Subject: Re: Interest rate fears Date: 1/29/2000 12:50 AM
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I wonder. JDU dropped about $20 today, CLS has tanked about 20% in the last week or so; I'm wondering if the market is anticipating the Fed and a lot of the "correction" is going to be accounted for before the Fed makes its rate move.

Grant


I think the market was pricing in a 50pt hike today, with the TV personalities "pushing" for 75pt (as well as some hype and raitings boosts)

If we do not get the 50pts, and Greenie makes a logical case for a slow, and monitor approach, I think we could see a rebound.

Craig.

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Author: tecmo Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 11364 of 63934
Subject: Re: Interest rate fears Date: 2/5/2000 1:41 AM
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Davidsbo

I am not that experienced, so I kind of trust what I read and hear. And here is my dilemma: in one of the books (I believe it was one of the Fool books but I am not sure) it says that those people who were fully (not foolishly) invested at the time when the Great Depression started didn't get back to their level until the early fifties.


This is pretty much correct. The people who invested during the Great Depression did ok, it was the ones who purchased right before that got hurt the most.


So, if this is true and in 1929 John Smith was holding stocks of a few good quality companies, the fact that these companies survived and then grew bigger didn't help John - about 20 years were lost.

I you mean that it took 20 years for him to get back to even then this is sort of correct. If he had continued to invest regularly I suspect he would have been ok. The problem was that he probably had barely enough money to put food on the table let alone invest in the stock market that had just wiped out his life savings.

Intel, Cisco, Microsoft, JDSU - great companies, no doubts here. The problem is that their current valuations account for years and years of double-digit growth (correct me if I am wrong).

Yup, and most of these companies have been experiencing years of double digit growth for the last 5 to 10 years. Is growth in their industry likely to continue? Who knows. If there is a big market crash and it triggers a depression then maybe people will stop using the internet or buying computers. I for one wouldn't bet on it however.

I see what your main point is and I agree with it. I have always said that price does matter.

brant
...


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Author: tecmo Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 11368 of 63934
Subject: Re: Interest rate fears Date: 2/5/2000 1:48 AM
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Timbit

With all the recent talk about the fed raising interest rates by a quarter or a half point next week, and the way the market seems to be getting ready for a correction, I'm interested in knowing what other fools are doing to prepare.


Sometime the market acts in funny (unpredictable ways). Every one would have expected a correction with the Fed raising rates, so what does the NASDAQ do? It has its best week ever! Up nearly 10% This is why I have given up trying to time the market.

brant
...


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Author: davidsbo Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 11434 of 63934
Subject: Re: Interest rate fears Date: 2/7/2000 9:07 AM
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Thanks Brant, finally somebody answers... I don't really believe that everybody here have iron guts and, even being invested in good quality companies, don't care about recession. I am trying to come up with some kind of strategy to protect me from steep correction. I am trying to figure out this thing now: if John Smith bought NT at $80 and has it now at $170, wouldn't that be logical of him to place a conditional sell order (let's say at $130). Then, if next week, for example, NT moves up $10, he may consider changing his sell order to $135 (all the numbers here just to represent the strategy, they are not final ones). The point is this: if we suffer from the severe correction and (within a day or a couple of days) the stock prices move to where they were before NASDAQ went nuts, at least you sell half way down and still get a lion share of your gains. If the stock market slowly responds to Feds interest rate moves and NT (out example) just drops 10-15% and sleeps there for a while, John Smith is OK, keeping promising companies in his portfolio. Assuming that average John Smith has just a few stocks in his portfolio, the task should not be really time consuming.
Does it make any sense? I am trying to generate some kind of discussion (a friendly one, please) and anybody's point will be appreciated.

Thank you guys,

Davidsbo.

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Author: tecmo Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 11592 of 63934
Subject: Re: Interest rate fears Date: 2/11/2000 5:54 PM
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Davidsbo

. I am trying to come up with some kind of strategy to protect me from steep correction


If you come up with one that works let me know. My stragegy is to ignore the corrections mainly. If I invest quarterly (4 times per year) for the next 20 years I will be buying 80 times. Of those 80 purchases I will bet that roughly 40 will have good timing and 40 will have bad timing. I am willing to live with those odds.

brant
...


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