What a day. This was a disaster beyond my expectations. I think it was beyond that of most people, or they sure would have unloaded on Friday.

I don't think the small investor had much to do with the decline, although some of their selling would have to deal with margin calls. Today was an ugly example of what a double-edged sword institutional ownership is. On the way up, it's great to have "sponsorship." But on the way down, it can kill a stock. I understand that one of the very largest funds, whose holdings of the highest capitalized stocks is (was) around the 4 - 10% range, did some serious unloading. If so, you can understand the 5-10-20 point drops in the heretofore market favorites.

Many fund managers are too damn young. I'm sure they had a great GPA when they graduated from Harvard or wherever, and no doubt there were a healthy number of cum laude's among them. But you can't teach experience, and you can't teach fortitude. There probably was a lot of self-interest at work, as many of them tried to preserve whatever might be left of their year-end bonuses, by nailing down whatever profits they could. Self-interest and panic are a deadly combination. Their suspenders might be brightly colored, but you can bet their pampers are strictly brown. That goes for the ladies too. Now let the geniuses who hired them go back to the drawing boards.

On Friday I was looking for some type of rally over the next three days, perhaps as soon as Monday. Well, Monday sure came and went, but I still believe that is the most likely case, perhaps as soon as mid-morning tomorrow. As always, accumulate cash, and sell into strength if you are satisfied that your stocks have done as well as they could in any rally; that goes for either winners or losers.

Don't be discouraged if you have taken a beating, because almost no one has escaped. The good old USA is not going out of business. We're just going to have a tough couple of months, so be emotionally prepared for the roller- coaster. Also, be prepared for year-end tax selling where there should be bargains galore. CASH IS KING! Stay tuned.

The Market Pro - August 31, 1998