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General Market Environment

Monthly Return Table

Notable & Quotable

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Dec 1987 to May 1990

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General Market Environment

This period, number six for our firm, has been called the Post-Crash Recovery.   During this 30 month period our trend-following indicators were so negative after the Crash that a significant amount of momentum was required to even get close to new buy signals.  This short-coming in our approach cost us some opportunity.  It also lead to a surge of new tools and indicators.  Notable during this period for us was the development of three major enhancements.  First, we moved from a strictly stock fund to money market fund strategy to embrace what we termed our triple-option system of stocks, bonds and money market.  In fact, we merged our Bond Fund Timing Service into our stock program and upgrade the name to Equity Managed Account Service (EMAS).  We also developed our Blue Chip Indicator (BCI) and a new Macro-Market Indicator or MMI to better define overall market risk.  These improvements were all fully functional when this bull market ended in May 1990.  They helped us once again in late 1990 to successfully position early the subsequent bull market which would start in October 1990.   The table below illustrates our willingness to make full disclosure and to demonstrate our ongoing efforts to improve of management skills.  Despite short-term setback, our long-term focus brought us back onto the track of superior performance.


Monthly Return Table

Following are returns, in percentage, by month:

Month ISI* CDA 3 month T-Bills
Dec 1987 0.4 11.7 0.5
Jan 1988 0.4 0.0 0.5
Feb 1988 0.4 7.2 0.4
Mar 1988 0.3 0.2 0.5
Apr 1988 0.4 1.4 0.5
May 1988 0.3 -1.9 0.5
Jun 1988 0.4 6.9 0.5
Jul 1988 0.5 -3.0 0.5
Aug 1988 0.4 -4.2 0.6
Sep 1988 0.5 3.6 0.6
Oct 1988 0.5 -0.7 0.6
Nov 1988 0.5 -2.4 0.6
Dec 1988 0.5 4.2 0.6
Jan 1989 0.6 6.1 0.7
Feb 1989 0.5 -0.8 0.7
Mar 1989 0.6 2.5 0.7
Apr 1989 0.6 5.7 0.7
May 1989 0.7 5.1 0.7
Jun 1989 0.6 -3.2 0.7
Jul 1989 0.6 4.5 0.6
Aug 1989 -0.2 0.9 0.6
Sep 1989 0.2 -0.6 0.6
Oct 1989 0.9 -1.3 0.6
Nov 1989 0.5 1.2 0.6
Dec 1989 0.4 1.0 0.6
Jan 1990 -0.5 -4.1 0.6
Feb 1990 0.5 0.6 0.6
Mar 1990 0.4 1.0 0.6
Apr 1990 0.5 -2.1 0.6
May 1990 0.5 5.3 0.6
Cumulative Return 13.9 53.1 19.2
Management Ratio 0.74
Column Explanations:

* These figures represent average net after all cost return for all clients (excluding partial months) of our SFTS which was changed during this period, as described above, to Equity Managed Account Service (EMAS).

† Figures are for various CDA fund indexes that best match our GSA. From May 1982 through June 1989 the figures are for aggressive stock funds. From July 1989 to September 1996 balanced funds best compare to our triple option strategy (which employed stock, bond and money market funds). Starting October 1996 an unweighted index of 5 groups (International, Aggressive Growth, Growth & Income, Bond and Precious Metals) is used. This best matches our global asset allocation approach. CDA's figures do not include acquisition or redemption costs, but do factor internal expenses.

‡ Management Ratio (M/R) measures our ability to out-perform a buy & hold strategy (using the above described CDA Fund Index) for each market type and cumulatively for the various full market cycles listed above. It compares the ending value of $1.00 invested at the beginning of each period. The Management Ratio is determined by dividing GSA's performance by the CDA. A ratio above 1.00 indicates superior performance (and vice versa). Our goal is +1.00 over any full market cycle combination.

 

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Notable & Quotable

This period also saw the collapse of junk bonds, an S&L crisis, an unpredicted bear market in real estate and disinflation.  In our Client Report 89-12, dated December 21, 1989 we had a special section titled, The 1980's - The Forecasters Miscue.  We quoted from a November 27, 1989 issue of USA TODAY.   Here are some examples:  "Real estate, gold and oil were the places to put your money as the 1980s began, according to Wall Street's top tealeaf readers.   Stocks and bonds would languish, they said.  They were wrong, of course, but that hasn't stopped market experts from forecasting. Stocks and bonds were in the doghouse in 1979, at least in the financial press.  Business Week ran an article on August 13, 1979, with the headline 'The Death of Equities'.  ...  Forecasters in 1979 said high inflation and interest rates were likely to continue, which would fuel the boom in commodities, particularly gold, real estate and oil.  According to Business Week and others, money would pour into hard assets and related investments such as limited partnerships.  Predictably, no one foresaw that OPEC would collapse, that Texas real estate would go belly up or that Congress would give the kiss of death to most tax-shelter-oriented limited partnerships." 

Editor's Note:  To a student of history, the above quote is not a surprise.  In fact, this is the historical norm.  Seldom have markets performed according to long-range forecasts, which largely take the prevailing trend and project them into the ongoing future.   Something to think about as this decade comes to an end.

 

 

 

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Copyright © 1997 Investment Strategies, Inc.
Last modified: January 11, 2003