Investors have often been counseled to have a long-term outlook when it comes to planning. In general that's probably sound thinking.
But between now and 2000 they may be well-advised to take TC shorter-term view, at least for the next couple of years.
Ignore the long view? No. But risks are rising and it will be increasingly important to be cautious and selective in order to find good long-term positions to take.
"We think about the downside first, and you're late in a major market cycle and in the middle of the economic cycle," said Rick Sunshine, a portfolio manager in Jupiter, Fla.
"You've got to be more flexible these days. Buying and holding isn't going to make you a lot of money in the next five years," he said.
Although Mr. Sunshine and others agree that there are pockets of value in the market, they say that bargains are generally hard to find these days. And some situations that look like bargains may not be.
Take Mexico. Prices have plunged since the government devalued the peso in December. A good time to make a long-term buy? "I wouldn't bet one penny," said Hector Megy, a Palm Beach, Fla., portfolio manager who specializes in Latin American stocks. "We're in the middle of the storm, and there are no buyers. Where is the bottom? I don't know," he said.
In a recent Forbes magazine article, veteran investor Sir John Templeton was asked where the bargains are now. His answer? Funds specializing in the Czech Republic, Russia and Australian real estate investment trusts.
But not in the United States, where prices have been going up for the better part of four years and where economic recovery is further along than other areas around the globe.
"You have to know where you are in the cycle," said Bill Geiger, a portfolio manager in Coral Gables, Fla. "You don't want to be buying the aluminums, the coppers, the papers at the tail end of the business cycle, for example. During a recession their earnings get killed."
Although it's impossible to call market tops and bottoms with precision, it's clear that investors face an economic recovery that's long in the tooth as 1995 gets under way.
On average, economic expansions in the United States since 1854 have lasted 35 months, according to the National Bureau of Economic Research. The current expansion, which officially started in March 1991, is almost 46 months old.
"We rule out the prospect of recession in 1995 because none of the policy-makers in the major countries believes that inflationary pressures are large enough to justify risking a recession," said economists at the Bank Credit Analyst, a Montreal-based investment and business forecast publication, in a recent report.
"However, pressures will build even more after 1995 if policies are not adopted to boost savings, stimulate investment and curtail budget deficits," the report said.
"The emphasis should be on near-term risks, and we continue to recommend minimal exposure to the market," the publication said. "High bond yields, rising short-term rates and an eventual slowdown in earnings imply that the outlook is still fraught with risk."
None of this implies that a stock market crash or recession is imminent. Indeed, the markets may do fairly well this year and next, particularly if the Fed stops raising interest rates, as many pros think will happen this year.
Some economists argue that it takes longer than in the past for Fed monetary policy to be felt in the real economy, and that loan demand remains strong, so the recovery should continue for some time.
"The peak rate of growth has passed, but business credit has only been readily available to businesses for the past year or so, and that will be a new infusion of blood into this recovery," First Union economist David Orr said.
Money managers said for 1995 they like such areas as utility stocks and such financial stocks as banks and brokerages, all of which have been beaten up as interest rates rose last year. They also like bonds, which would rally if the Fed changes its rate-raising policy later this year.
Some money managers said they advocate staying in the market no matter what.
"One of the riskiest asset allocations is to be 100 percent cash," said Robert Harrigan, senior investment officer at Chase Manhattan in Palm Beach.
That could well be. But Mr. Megy in Palm Beach has a different philosophy.
"It's better to lose an opportunity than to lose money," he said.