From: leona@Happy-Man.com (Leona_Troese)
Subject: Solid Value #721 -- Irving Wolfe's Commentary of early November
Followup-To: sender
Keywords: solid value commentary wolfe
Reply-To: Leona_Troese@Happy-Man.com
Organization: Happy Man Corp., Vashon Island, WA 98070-7399
Date: Wed, 18 Nov 1992 16:18:19 GMT



Copyright 1992 Happy Man Corp., Vashon, WA 98070-7399, 1 206 463 9399
One hard copy may be made for individual, personal use only.

What follows is Irving Wolfe's column, Commentary, from the most
recent issue of _Solid Value._  

Permission to distribute it via Usenet is hereby granted.

Because Solid Value's heart is its tables of Best Buys and 
former-Buy followups, this free distribution of Irving Wolfe's 
Commentary should be interesting to some Usenet readers without 
making subscriptions less valuable to those who actually invest in 
stocks for profit.  

=====

One of the notable characteristics of the news media's daily 
stock-market commentaries is their attempt to explain the market's 
action in terms of current events.  This has never seemed 
particularly insightful to me, because it ignores the "internal" 
characteristics of the market: how the words and actions of 
investors influence other investors.  Many of the market's 
participants, perhaps a majority, would classify themselves as 
"technicians," at least partially; though I am not among this 
group, I recognize its size and its sway.  

Frequently, we can see the trend-followers in action.  A stock will 
decline gradually for a period, or drift along aimlessly, until a 
solitary buyer purchases a few hundred shares from one 
market-maker.  That small transaction causes all the lemmings who 
make a market in the shares to raise their bids and offers -- often 
increasing their bid-asked spread, too.  When this change in price 
reaches the world's investors, some of those who were watching the 
stock say to themselves, "Wow!  It's starting to move!" and 
immediately enter orders to buy it "at the market."  A second group 
is disappointed that the stock has started to move up; it was 
hoping to buy the shares a little cheaper.  Nonetheless, many of 
these people will give up and place buy orders, deciding that 
paying a higher price is better than getting left behind.  Of 
course, this stampede then justifies and rewards the market-makers' 
original over-reaction.  

The American Stock Exchange is particularly susceptible to this 
sort of chain reaction, not so much because its listings are 
relatively small companies, but rather because many of its 
specialists abuse their positions of trust, exacerbating and even 
staging these price movements to profit at the panicky public's 
expense.  An essential part of the abuse that differentiates the 
American Stock Exchange from the over-the-counter market is that 
the better o-t-c market-makers will honor their existing bids and 
offers for a reasonable number of shares, while on the American 
Stock Exchange there's only one market-maker, the specialist.  If 
he wants to provide just 200 shares of a $4 stock, that's all 
you'll get before he raises the price 5%, even if he'd been 
indicating that 2,000 shares were for sale when your broker came in 
with your order for 2,500. 

Over the past few months, there was much talk in the press about 
how the election would affect the markets.  I am not convinced that 
there will be much effect on stock prices, which, as I said, seem 
to relate more to intrinsic worth, changes in value, and public 
psychology than they do to current events 
-- 
 Leona_Troese@Happy-Man.com      Happy Man Corp. 206/463-9399 x109
 4410 SW Pt. Robinson Rd., Vashon Island, WA  98070-7399  fax x108
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