From: cs6@TorreyPinesCA.ncr.com (Eric Sit 3611)
Subject: Re: Is this a bad time to invest?  a beginner's question.
Organization: NCR (Torrey Pines Development Center)
Disclaimer: This posting does not neccessarily reflect the opinions of NCR.
Date: Fri, 21 Aug 92 21:17:53 GMT

In article <1992Aug20.173927.22147@tamsun.tamu.edu> tpradeep@cs.tamu.edu (Pradeep K Tapadiya) writes:
>Howdy netters,
>
>I am planning to invest in an aggresive type of mutual fund. However,
>I am not sure if this is the right time to invest.
>
>From the discussions on the net, what I have understood is
>
>   1. the stocks are overpriced right now.
>   2. eventually (very soon) they will take a nose dive.

Just some thoughts:

No doubt, DJIA is at historical high.  But the current environment 
favors the stock and bond markets heavily, which is probably why stock 
market is still at such a high level.  Inflation is not a issue.
Alternate investments are yielding very meager returns and, more 
important, their prospects don't look good.  Short term interest 
rate is extremely low.  Real estate demand remains weak and there 
is little chance for house value to appreciate.  Returns from most 
commodities have been discouraging.  European stock markets have 
dropped in response to high interest rate and poor prospect of 
interest rate reduction in the near future.  Asian stock markets 
seem to have run out of steam.  Japanese market's prospect for 
rebound is highly uncertain.  US mutual funds have 9% of their 
portfolio in cash that they can invest in the market.

However, foreign bonds, especially European ones, provide high yield
because of their high interest rates.  But there is the currency risk
and the German central bank may raise its interest rate yet one more 
time.  The second risk can be mitigated by buying short term bond.  The 
first risk may actually turn into a blessing.

If you want to take a contrarian approach, you can certainly
invest in European stock markets and wait for German central bank
to cut its interest rate.  Inflation is generally under control in many
countries in the European continent.  Actually, Germany's inflation 
rate, at about 4%, is not that terrible.

>
>   Therefore I assume that
>
>   1. Any aggresive mutual fund's shares are over priced.
>   2. Presently one should invest his/her money in
>      either short-term CDs or money-market funds (or US Savings bond).
>   3. When the stocks take the dive (therefore, the mf's price go down),
>      then its time to get into the desired mf.
>

If you look at different segments of the stock market, some of them
have undergone significant adjustment in price.  Biotech, technology,
and aerospace stocks are some examples.  That is why the Fidelity 
biotech sector fund has performed poorly this year.  DJIA may be high, 
but many stocks have come down in price significantly.  This lessens 
the prospect of an abrupt and across-the-board decline in stock price, 
no?  Actually, I am guessing that part of the high P/E ratio may be 
caused by big losses experienced by some large companies.  Those losses
overshow the earnings of other companies in P/E calculation.  Would
more knowlegeable netters comment on this? 

>Can someone tell me if these assumptions are correct (especially the
>assumption about overpriced mutual fund)?

I only have opinions and speculations to offer.

Eric
Newsgroups: misc.invest