The Investment U E-Letter: Issue # 249
Thursday, June 19, 2003 Ned Davis Research… What The Best Analyst Is Saying Now
By Dr. Steve Sjuggerud, Advisory Panelist, Investment U Ned Davis is my favorite investment analyst. Nobody crunches more numbers to listen to the message of the markets than the folks at Ned Davis Research (NDR). Ned Davis Research is an independent analysis firm, so Ned doesn't have any conflicts of interest. And his track record over a few decades, as I've mentioned in the past in this e-letter, has been excellent. He rarely misses a market call. He was interviewed in Monday's issue of Barron's. Whether you agree or disagree with his opinions, you really ought to consider them carefully, as there is little doubt in my mind that he has done more homework than you… or me… or your broker… or your favorite analyst. So whenever he offers advice-particularly if it's free advice-you'd be wise to listen. It could help you toward much greater investing success, and it could also save you from making unnecessary mistakes. Let's take a look… Ned Davis Research: Preferred Asset Allocation For the short term at least, Ned likes stocks. He's 65% stocks, 30% bonds, and 5% cash. The Stock Market Ned says, "This is a cyclical bull market within a secular bear market." The translation there is that stocks could continue higher in the short run, but don't look so great over the very long run. So how far can this little bull run go? Up a total of 50% from the lows is a good guess. Ned says, "We looked at the secular bear that started in 1989 in Japan and found four rallies of 48%, 34%, 56%, 62% that also lasted many, many months. That gives you an average of 50%." At the time of the interview, the S&P 500 was "only" up 28% from the lows, so that would imply the stock market could still rise, based on history. What About Tech Stocks? They could finish this thing twice as high as where they started. Says Ned: "…We looked at all the rallies in this secular bear market since the 2000 high and we also looked at the rallies in Japan, and we found, in almost every case, speculative growth stocks tend to lead these rallies. For whatever reason… the leadership is very speculative, so even if the S&P 500 goes up by 50% or so, the Nasdaq could double." Ned Davis Research on Bonds Any types of bonds are "not a good hiding place right now." Ned says, "My guess is they are going to have a pretty big correction in the third quarter, and that may end up being a good time to buy them again." On Housing "There are pockets of bubble. But it's not like the stock market bubble. It's not even close." In sum, Ned Davis is worried about the future. Stocks and bonds don't particularly look good over the long run. The bonds may bust in the third quarter, and they may drag stocks with them. Housing, in comparison, doesn't look nearly as bad as stocks and bonds. In the short run, he's riding this bull run in stocks, as he's seen bull runs like this before in bear markets. It's hard to argue with the success of Ned Davis Research. I recommend checking out the whole interview, in the current issue of Barron's, on your newsstand now. Good Investing, Steve
Today's Investment U Cribsheet - As I said, Ned Davis is my favorite investment analyst. When I ran my hedge fund, I relied on Ned's research more than any other's. We can learn a lot from him. To learn more about his research firm, Ned Davis Research, log onto www.ndr.com and check out Ned's well-designed site.
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