NetNews Usenet Archive 1992 #27/NN_1992_27.iso/spool/misc/invest/13905

Text File | 1992-11-18 | 3.9 KB | 82 lines

Newsgroups: misc.invest
Path: sparky!uunet!beauty!leona
From: [e-mail] (Leona_Troese)
Subject: Solid Value #721 -- Irving Wolfe's Commentary of early November
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Keywords: solid value commentary wolfe
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Organization: Happy Man Corp., Vashon Island, WA 98070-7399
Date: Wed, 18 Nov 1992 16:18:19 GMT
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Copyright 1992 Happy Man Corp., Vashon, WA 98070-7399, 1 206 463 9399
One hard copy may be made for individual, personal use only.

What follows is Irving Wolfe's column, Commentary, from the most
recent issue of _Solid Value._

Permission to distribute it via Usenet is hereby granted.

Because Solid Value's heart is its tables of Best Buys and
former-Buy followups, this free distribution of Irving Wolfe's
Commentary should be interesting to some Usenet readers without
making subscriptions less valuable to those who actually invest in
stocks for profit.

=====

One of the notable characteristics of the news media's daily
stock-market commentaries is their attempt to explain the market's
action in terms of current events.  This has never seemed
particularly insightful to me, because it ignores the "internal"
characteristics of the market: how the words and actions of
investors influence other investors.  Many of the market's
participants, perhaps a majority, would classify themselves as
"technicians," at least partially; though I am not among this
group, I recognize its size and its sway.

Frequently, we can see the trend-followers in action.  A stock will
decline gradually for a period, or drift along aimlessly, until a
solitary buyer purchases a few hundred shares from one
market-maker.  That small transaction causes all the lemmings who
make a market in the shares to raise their bids and offers -- often
increasing their bid-asked spread, too.  When this change in price
reaches the world's investors, some of those who were watching the
stock say to themselves, "Wow!  It's starting to move!" and
immediately enter orders to buy it "at the market."  A second group
is disappointed that the stock has started to move up; it was
hoping to buy the shares a little cheaper.  Nonetheless, many of
these people will give up and place buy orders, deciding that
paying a higher price is better than getting left behind.  Of
course, this stampede then justifies and rewards the market-makers'
original over-reaction.

The American Stock Exchange is particularly susceptible to this
sort of chain reaction, not so much because its listings are
relatively small companies, but rather because many of its
specialists abuse their positions of trust, exacerbating and even
staging these price movements to profit at the panicky public's
expense.  An essential part of the abuse that differentiates the
American Stock Exchange from the over-the-counter market is that
the better o-t-c market-makers will honor their existing bids and
offers for a reasonable number of shares, while on the American
Stock Exchange there's only one market-maker, the specialist.  If
he wants to provide just 200 shares of a $4 stock, that's all
you'll get before he raises the price 5%, even if he'd been
indicating that 2,000 shares were for sale when your broker came in
with your order for 2,500.

Over the past few months, there was much talk in the press about
how the election would affect the markets.  I am not convinced that
there will be much effect on stock prices, which, as I said, seem
to relate more to intrinsic worth, changes in value, and public
psychology than they do to current events
--
 [e-mail]      Happy Man Corp. 206/463-9399 x109
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