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Stocks Go in Cycles

- Alan Lavine and Gail Liberman

What's next for the stock market?

Almost everyone thinks it will drop due to terrorism and a war with Iraq. But then again, it could rise if the war is over fast and the economy gets even stronger.

No one knows the secret to stock market success. If they did, why would they tell anyone? But some experts say the stock market does move up and down in some type of undefined cycle. The Society of Asset Allocators and Fund Timers Inc. (SAAFTI), Denver, suggests that the past proves that even in an underperforming market, there are opportunities for profit.

"Markets cycle," says Peter Mauthe, CEO of Spectrum Financial, Virginia Beach, Va. and spokesperson for SAAFTI. "There are periods of strength and times of underperformance."

He recommends that you take an active stance with a portion of your investments. The rest can be invested in stocks, bonds and cash. "History has repeatedly shown us periods of exceptional appreciation—times when returns exceeded 20 percent for periods of one to seven years," he says. "If you can avoid the majority of the down years and participate in the up years, your potential return increases and you minimize the risk of a bad year eating away your (holdings) at precisely the wrong time."

So when do you take an active stance in the market with some of your money? There are several market timing newsletters that will tell you when to buy and sell. As you probably know by now, the performance of the stock market was very different over the last five years than it was previously. Yet, one market timing newsletter, "No-Load Fund -X, San Francisco," was among the top five performers over both the last five years and the last 20 years ending Dec. 31, 2002, according to The Hulbert Financial Digest, Annandale, Va.

Over the last five years, the newsletter's recommended holdings gained 13.1 percent. Over the last 20 years, they gained 13.50 percent. That compares with the performance of all stocks in the Wilshire 5000 index which dropped -0.9 percent over the last five years and was up 12 percent over the last 20 years.

If you’d rather just hand your money over to someone else to do market timing, you might consider the market timing funds of the Merriman Group of Funds, Seattle. They include Merriman Growth and Income Fund, the Merriman Leveraged Growth and Merriman High-Yield Bond. Their funds have lost about half as much as the market over the last three to five years.


Alan Lavine and Gail Liberman are husband and wife columnist and authors of The Complete Idiot's Guide To Making Money With Mutual Funds, (Alpha Books).

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