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So when?

13 December 2004 Angelo Coppola

Given this, says Mark Seymour - Alphen Asset Management , Mr Joe's big question is "when is it time to pull out?"

From a fundamental perspective, and this I recently heard from a leading equity manager, "the party's not over, earnings are still strong and interest rates don't look set to turn around too soon".

This is a great comfort; we can now at least look forward to a relaxing year-end . famous last words.

To put matters into perspective, the run we are experiencing can be described as one of the highlights we have had over the last 30 years. If we look at the market's performance rather crudely in terms of runs, declines and flat patches, the recent run ranks as the second least impressive.

For example, the best has been a 48 month run starting November 1976 - the market promptly returning 363%, and least impressively an 8-month-run starting October 2001, with a return of 40%.

Most of the good upturns are followed by harsh declines, as was the case with the 363% gain, where the market reversed and lost 47% over a 20 month period (Oct 1980 to June 1982), or after the great run of 188% (Feb 1985 to Aug 1987), where the market lost 44% over a six month period.

Aug 1998 came as a shock with the market losing 30%. Outside of this the market is also prone to long flat periods. After the impressive seven month surge of 113% (June 1982 to Jan 1983), the market promptly moved sideways for two years and then amazingly went on another 30 month gaining spree of 188% (Feb 1985 to Aug 1987).

Another great patch in the market with intermittent flat patches started in Feb 1988 with a 115% return over 25 months, followed by two and a half years with no returns, then a solid 133% return over 42 months (Oct 1992 to Apr 1996) followed by a 27 month flat patch.

If we look at the declines in isolation, they measure up as follows (starting April 1974 over 31 months minus 49%, starting Nov 1980 over 20 months minus 47%, starting Sep 1987 over six months minus 44%, Aug 1998 one month minus 30%, starting June 2002 over 11 months minus 33%). Not a pretty sight.

In essence the equity story is a stormy one. Even with wild declines, given a long enough investment horizon, the returns from this asset class have totally out-striped those of other asset classes.

Getting back to the original point, the current returns have been great, but given the dramatic backdrop, this asset class could still have very long legs. To quote another industry leader "You've got to be in it, to win it".

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