Is this a lifetime selling opportunity? (page 1 of 3)

As a director of several funds often I - along with some other board members -am also responsible for the investment strategy of these funds.

Usually, board members and advisors have very little to say in terms of the how the funds invest because it is the investment manager's responsibility to perform and, therefore, it is very difficult for a board member to interfere in the investment decisions of the fund manager.

However, in the case of some funds the board members or the advisory board are responsible for a fund's asset allocation. In other words the board members will decide at periodic meetings - usually quarterly - how much of a fund is invested in equities, bonds and cash.

Of course, board members will seldom agree with each other, what percentages should be allocated to these different asset classes and so, a compromise will be reached, which will, therefore, neither turn out to be 'right' nor totally 'wrong'. However, the consensus decision will never be entirely satisfactory.

In addition, it has been my observation that board members and the funds' investment managers become very optimistic after an extended period of stock market strength and very pessimistic after a period of extended weakness. When the market has been strong for a while these 'experts' will find hundreds of fundamental reasons why the market is strong whereas when the markets has declined for a while they will list hundreds of reasons for caution and for reducing the exposure to the market.

In the 1970s, the most admired technical analyst was Joe Granville. As incredible as this may sound, Granville caught every stock market move of more than 10% up or down within a few days of the turning points from up to down or from down to up. The result was that at the end of the 1970s, the entire world was watching Granville's buy and sell signals.

In fact, for a brief period of time Granville's buy and sell signals would move the US stock market - at least temporary. Granville's demise as a market guru then followed. In 1982, he failed to realize that a secular bull market in bonds and stocks had begun and remained bearish.

So, in the early 1980s he totally lost his credibility and his following. Still, to Granville's credit, I must point out, that he turned extremely bullish on the stock market after it had collapsed by 40% between August and October 1987 culminating in the famous October 19th, 1987 crash during which the Dow dropped by over 21% in one day!

Markets stay ahead of news

Also, whereas Granville fell on hard times after the 1970s and is, today, hardly known among the investment community, his books on technical analysis are outstanding, in terms of his insights into what factors move markets. They are also entertaining, and easy to digest. In my opinion, one of his most important words of wisdom is that markets will always move ahead of the news.

When a stock or any market begins to act well, while the news is extremely bleak, the market may be indicating that some improvement is around the corner. Conversely, when a stock or a market begins act badly, while the news is still extremely bright, the market more often than not is telling you that the fundamentals may be about to deteriorate.

Basically, Granville's view is that 'news' is bunk and that the market will have responded to favorable or unfavorable news long before the news comes out into the open. In other words, you should invest when everything looks horrible and when nobody can see how fundamentals could improve, while selling is advisable when the sun is out and everything looks rosy.