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GROWING RICH WITH GROWTH STOCKS<br />
That makes it difficult for him to even guess what will happen as we<br />
enter the new millennium. “Several veteran <strong>com</strong>mentators/strategists<br />
from the financial press and major investment houses have been<br />
loudly negative and wrong for a long time,” he observes.<br />
In mid-1997, Stovall prepared a report for his clients detailing more<br />
than a dozen reasons why a major bear may be on the horizon. Although<br />
he wasn’t advising them to sell out, he cited a number of<br />
reasons why the bearish pundits might have a point. Among the<br />
warning signs: a high price-dividend ratio for stocks, <strong>com</strong>placent investor<br />
psychology, a rash of mergers and stock splits, heavy trading<br />
volume on the major exchanges, record-high seat sales on the New<br />
York Stock Exchange, and media glamorization of investment managers.<br />
In all fairness, Stovall mentioned that these negatives have<br />
been present for some time, yet have done little to faze the relentless<br />
bull. The market’s enormous momentum, which has confounded almost<br />
every stock market historian, makes predicting what the early twentyfirst<br />
century holds for investors all the more difficult.<br />
“Obviously much of the huge inflow of money into retirement plans<br />
right now is going into equities,” Stovall observes. “Whether that<br />
continues is anyone’s guess. Much of this money is invested in mutual<br />
funds. The growth of the fund industry holds significant implications<br />
for the future of the financial markets. Instead of being very narrow,<br />
ownership of mutual funds has broadened during the 1990s. Since<br />
there are so many equity fund investors (63 million as of 1998), many<br />
of whom have never experienced a major bear market, the real question<br />
is how they will behave when and if the market corrects. About<br />
two-thirds of all shareholders bought their funds after October 1990,<br />
when the most recent bull market began. The Dow Jones Industrial<br />
Average stood at 2365. Consequently, most people are pretty sanguine<br />
about the continuing cash flow into funds, believing that investors<br />
won’t panic during the next downturn, especially since they are getting<br />
older and are long-term investors saving for retirement through<br />
401(k) plans.”<br />
In the same breath, however, Stovall cites an August 1996 article<br />
in the Financial Times noting that at the start of 1990, equity mutual<br />
fund assets in Japan were $250 billion, slightly more than the $249<br />
billion held in U.S. funds at the time. “Japan’s total today has plunged<br />
to about $30 billion, or less than 1 percent of the current U.S. total<br />
of $4.3 trillion,” Stovall notes. “More than six years of negative<br />
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