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THE MOUNTAIN-Perhaps the start of a series, perhaps not

Please be advised that this article, which may or may not be the first of a series of continuing articles, is written by one who may well be able to claim the title:
WORLD'S WORST MARKET TIMER.

Some may argue that I also fully deserve some title for at least being a strong runner-up for the title:
WRITER OF THE WORLD'S LONGEST RUN-ON SENTENCE.

Because of my past poor performance as a market timer, sometimes I don't feel as if I could even time a clock, and have, through necessity, been therefore forced to discover some philosophy which might enable me to find and maintain that level of comfort, conviction, and courage which would permit me to go forward and continue to go forward, for, as many of my readers must by now realise, I am somewhat like unto a shy, shrinking, and conservative violet whose roots must cling firmly to secure and firm soil in order to survive the storms.

Probably many will remember from various mutual fund brochures that interesting long-term chart which showed how much some particular fund should have grown over a great number of years and how it seemed to be scaled as if one had been climbing a great mountain, with a few ripples, but always going higher and higher until it reached the end of the chart.

Well, let me tell you that, short-term, those "ripples" often turned out to be real dips, valleys, and even crevices.

The dips could be real exciting, the valleys could be disappointing on the way down, but those crevices could kill any investor who was over-leveraged or over-margined at the time of any such occurrance.

There are many potentially successful paths up such a mountain for the investor who merely needs the cash, knowledge, patience, conviction, and courage to stay on the path chosen with knowledge.

The important thing is to stay on the properly chosen path.

The current irrational and overreactive behavior of the market, the number of consecutive days down which we have recently experienced, the present disappointing returns in many conservative portfolios, and the looming uncertainties of the year 2000 may tempt, lure, or even somehow cause some to temporarily forget their knowledge, abandon their conviction, lose their courage, and to stray from the path previously chosen.

Oh, it's grand to speak of being 100% invested and having the best return on capital when the sky is blue, the sun is shining, and not a cloud is in sight. It is really fun and exciting to envision and calculate what we might have achieved historically if we had been 10%, 20%, 30%, 40%, or even 50% leveraged or margined, particularly if we had been blessed with foresight or method to select even a few stocks such as Microsoft at anything close to the right time. However, it is not quite so much fun when the sky darkens, the wind rises sharply, and we do not have a clue about what will actually happen next except that we have an eerie feeling that it's not going to be a real good and happy time for anyone, except, perhaps for the scavengers.

AND NOW COMES THE HERESY!

Cash may well be the conservative investor's very best friend and it is suggested that a reasonable amount of cash in the form of money market funds or money market funds and short-term treasuries should be an integral part of every conservative investor's portfolio.

Envision, if you would, if reasonable cash were held, how the results might vary and what the scenario might be if the market were to remain as strong as has been the case historically. Let us assume a stock portfolio with only 24% gross return in one year and a cash portion with only 4% gross return in one year and let us vary the amount of cash held and see what could happen.

all stock & no% cash = 24% return

90% stock & 10% cash = 22% return

75% stock & 25% cash = 19% return

50% stock & 50% cash = 14% return

25% stock & 75% cash = 09% return

Perhaps a wealthy conservative 40 year old investor might find a reasonable comfort level with 25% cash and be well satisified with a 19% return.

Perhaps a wealthy conservative 80 year old investor might find a reasonable comfort level with 50% cash and be will satisified with a 14% return.

In the two foregoing situations, both wealthy conservative investors would be at whatever level seems comfortable and earning an appropriate return and yet be able to ride out almost any foreseeable storm without being overly concerned and each should be able to stay the course indefinitely come anything including high water. Neither would be giving up more in the way of potential return than that investor would be willing to forego in order to be comfortable over the long-term.

What is your comfort level? With what are you reasonably satisified? How do you balance your fear of loss against your fear of losing out on a greater gain? You must decide these questions for yourself.

In is most strongly suggested and recommended, at least by this writer, that each conservative investor should determine the amount of cash appropriate to that individual's situation and that all conservative investors should have at least a reasonable amount of cash.

It seems that the younger investor, who may have the time, may often not have the patience, whereas the older investor, who often may have the patience, may not have the time.

I have often been told that I should have known better, so:

PLEASE AGREE WITH ME, BECAUSE,

I SHOULD HAVE KNOWN BETTER!

DHatch :)

P.S. Try to become educated, amused, and enriched. :))

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