February 2010 COP Report 3/10/2010

Investment Gang

Here is a great quote from Michael Santoli of Barron’s :”The stock market is essentially an argument over the future, staged … each weekday among people who can’t even agree on what’s the most important to be arguing about at any given moment”.

An interesting note from India. India has totally outlawed the charging of front end loads on mutual funds. Their rationale is quite good. It seems that, at least in India, the total front load was paid as a commission to the investment adviser/broker and that this was not disclosed to the buyer. Now the investment advisor/broker must impose the charge on their own and tell the buyer. Guess what happened? The sale of mutual funds has gone to almost nothing. They are going more to ETFs where the sales charge is expected. Sounds like the US should follow India.

The momentum numbers are a little better this month than last, however, it is still clear that the market is not showing any strong trend in any direction. The most important message readers can take from this month and last month’s report is “momentum is not providing any information” about where to invest. Sorry, this web site can tell you nothing right now. Other web sites still have recommendations. Be careful, most investment forecasting systems use momentum in some form or another. For example, moving averages and other technical indicators are measuring momentum in a different way.

It is interesting to me that Small Cap Value (and Micro Cap Value) has been doing quite well in recent months. If you had invested exclusively in Small Cap Value in 2000, 2001, and 2002 you would have broken even while all else were losing money. I learned this when I saw what the COP Research Model invested in during that period. I am also aware of a Private Equity investment company that invests exclusively in Micro Cap Value companies and they turned in 12% to 13% returns each and every year during 2007, 2008, and early 2009, again when others we losing their shirts. Does this mean that we should invest in Small Value this year? I will tell you --- next year.

Best, Mal