The Alchemist: The Fat Lady

Posted in Money Matters on March 6, 2003

The following is this week’s installment of The Alchemist, a column by Mensan Al Thomas, author of If It Doesn’t Go Up, Don’t Buy It. Click ‘Read More’ below for this week’s article, “The Fat Lady.”

The Alchemist: The Fat Lady

by Al Thomas


The operatic fat lady is singing and she has many choruses
to go. As you know an opera is a musical drama. Unfortunately the one we
are watching has terrible screeching with discordant sounds. This opera
is called The Market and the scene we are watching is called The Bear.


She started singing 3 years ago and is becoming worse and
worse. Will she ever stop?


This act has followed a very long and pleasant act called The Bull.
Everyone was beautifully dressed, lived in wonderful houses complete
with giant TVs and 2 cars in every garage. The singer was on key and had
a wonderful voice. From my experience with operas each Bull act is
followed by a Bear act of equal length. I hope the fat lady will quit
singing much sooner than that. Is there any way to escape that raucous
sound?


Does the stock market follow the opera? Let’s look at the facts. From
1920 to 2000 there were 3 major bull markets that lasted about 16 years
with each followed by a bear market that lasted about an equal length of
time. Does it mean we have about 13 more years before the next bull move
will occur? If you are a student of history and historic cycles the
answer must be “Yes”. When you look within the economic and political
machinations there doesn’t seem to be much hope for any kind of quick
recovery.


Is the fat lady singing in other countries too? It seems she is. Of 34
countries only 6 had positive results for their market indexes that are
similar to the New York Stock Exchange and none of these 6 were large
countries. Many of the other 27 had losses greater than the U.S. In the
chorus most of them were off key. In the stock market 96% of all stock
mutual funds lost money during 2002. The opera is bad enough, but the
stock market is worse because I am continuing to lose money. Is there
anything I can do?


During the opera I can stuff cotton in my ears to stop the noise. Can I
stop the losses in the market? Yes. And it is pretty easily done. On all
stock you own whether it has a profit or a loss place an open stop loss
order at the price you will sell it if it drops that low. Are you
willing to lose as much again as you have lost so far?


Brokers will discourage you from doing this, but it isn’t their money.
Ask them if they will guarantee it (in writing , of course). If they
won’t, you will know what to do.


You may not be able to stop the fat lady from singing, but you can stop
the noise (market losses) with a stop-loss order so you can sleep
soundly once again.



Copyright Albert W. Thomas. All rights reserved. Author of “If It Doesn’t Go Up, Don’t Buy It!” www.mutualfundmagic.com. Comments to al@mutualfundmagic.com.