roni, Be careful - as I said on aapltalk, I'm selling into this rally. I've been selling my equity funds at about 10%/week for a month, now. My current portfolio is 15% cash, 15% stocks and 70% fixed income. Except for AAPL most of my stocks are old economy types with good dividends.
Gretchen Morganson has a good article supporting my case;
Small Investors, Once Burned, Lead New Bull By GRETCHEN MORGENSON
Internet stocks are racing, even those with more promise than profits. Unsolicited pitches for obscure penny stocks inch out of fax machines, and stockbrokers are prospecting for customers. Mutual fund managers who have been in the doghouse for years are basking once again in the favorable publicity that shines on hot performers.
There is no denying it: the bull is back. The Standard & Poor's 500-stock index has risen 13 percent this year, while the Nasdaq composite is up 23 percent. Individual investors are leading the charge back into the stock market, according to some brokerage firm executives who look closely at trading behavior.
"What we're seeing is the retail investor has been getting back into the market since the last couple weeks of March in a pretty broad manner," said R. Jarrett Lilien, the president and chief operating officer of the E*Trade Group, an online financial services business, who added that he was surprised by the shift. "There was a big question: When will broad-based retail come back to this market? All of us thought it would take years of healing time."
Instead, investors appear to be returning to equities with their wounds barely healed. Three years of stock market torment seem not to have shaken the long-held view that stocks are best for the long haul.
Lyle E. Greenman, 55, a lawyer in Boston, has recently taken a much more active position in the stock market for the first time since the collapse of 2000. "I was one of those people who got caught up in the bubble ? I lost my shirt, boxers and briefs, all of it," he said in a telephone interview last week. "I've tried to use these last few years to figure out what I did wrong."
Mr. Greenman said he thought that individual investors ? and he includes himself in this group ? had learned a great deal since the stock bubble burst and were alert for hype and for advisers with conflicts of interest. "I think the public is a lot wiser about what the investment banks were up to in the 90's," he said. "The public is much more Internet savvy than they were a few years ago. They know people go on CNBC because they need people to sell their winners to. People are sensitive to what they should look for or not."
But to some Wall Street veterans, the market's recent action has a familiar and troubling feel, one that harks back to heady days of 1999. In their zeal to recover some of the losses in their portfolios, have investors become too willing to forgive and forget the lessons of the torturous bear market?
"The rally makes me nervous," said Jonathan H. Cohen, a portfolio manager at JHC Capital in Greenwich, Conn., and former head of Internet strategy at Merrill Lynch. "The Nasdaq is now up almost 25 percent, which is way ahead of the fundamentals. Sure, the market looks into the future and tries to discern the state of the world next year, but I'm not sure we've seen any meaningful indication that technology companies are doing better than they were six months ago. It's just that they're not doing worse."
Portfolio managers point to several pockets in the market where stocks are behaving a lot as they did in 1999. For example, the most speculative securities ? like biotechnology stocks, Chinese Internet shares and low-priced stocks ? are among the hottest today. Sohu.com Inc., the operator of an Internet portal in China, has risen more than 300 percent in 2003 and has jumped to $27.83 a share from $1.15 in the last 12 months. The Sina Corporation, an Internet company that operates Chinese-language Web sites, is up 160 percent in 2003 and has risen 900 percent in the last 12 months.
Biotechnology stocks, by their nature another high-risk group, are also up smartly. The American Stock Exchange's biotechnology index has gained 33 percent so far this year. And in the technology sector, semiconductor stocks are soaring, in spite of little change in consumer demand for computers. According to a recent analysis by Fred Hickey, the editor of The High-Tech Strategist, an investment newsletter based in Nashua, N.H., only one of the 17 stocks in the Philadelphia Stock Exchange Semiconductor index had a price-to-earnings ratio below 40.
"I can almost understand why people were dopey about this stuff in the mania," said William Fleckenstein, the president of Fleckenstein Capital in Seattle. "Nothing had gone wrong. Everything was coming up roses. But now we know things can go wrong; we have seen Enron and WorldCom; we know most states and local municipalities are bust; and there are lots of problems. To act the same way you did then?"
The stock market is famous, of course, for spotting economic rebounds before the data confirm it and for shaking off bad news when it is in the mood to rally. But in the last three years, the market has made several leaps that some professional investors saw as evidence of a new bull run. All turned out to have been false starts or so-called suckers' rallies.
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