A lesson about fundamentals and the strange ways of stock prices


HERE'S a surprise: "There's no consistent link between fundamentals and stock prices," says David Dreman, money manager, in Forbes, Oct. 4. "Investors overvalue prospects of stocks with good fundamentals and undervalue prospects of weak stocks.

"If there ever was a time to heed this lesson, it's now. Even if blue-chips like Cisco Systems Inc. and Clear Channel Communications Inc. show sharp earnings growth, their prices could revert to their 'mean,' meaning they would underperform. And even if unloved issues like Borders Group Inc. and Tenet Healthcare Corp. don't turn into big earnings growers, they could outperform -- as they revert toward their 'mean' going the other way."

TIME TO SELL? "Selling is most people's greatest weakness," says the American Association of Individual Investors Journal. "Wise investors use these 'sell' rules to keep emotion and ego out of investing: "Timely buying on strong fundamentals solves half your selling questions. Big price advances take time, so be patient. Always cut losses to around 8 percent. Sell when you're excited about all the money you're making."

WALL STREET WATCH: "Blue-chips will keep doing well. Although the recent focus was on small stocks, the strong economy bodes well for large firms, too. They're not mutually exclusive." (Karen McGrath, manager, Strong Blue Chip Fund)

"As the Fed flicks its finger to knock stocks down, it's a sure bet that Internet companies selling at 10 times sales will be hurt badly." (A. Gary Shilling, investment adviser)

"The best way to pick a bond fund is to decide when you'll need the money and then choose the maturity. Short- and intermediate-term funds are generally best." (Bill Gross, manager, Pacific Investment Co.)

"Rising interest rates are the latest challenge to battered real estate trusts, but many REITs are still attractive for rock-bottom valuations and sky-high yields." (Personal Finance)

Pub Date: 9/24/99

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