Generals Marching Without Soldiers

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Dear fellow investors,

In 1980, when I came into the investment business, investors were very conscious of trading ranges that had existed the prior 16 years:

Since the stock market was range-bound, technical analysis became very popular. The two most popular were the Zweig Forecast (Marty Zweig) and the Professional Tape Reader (Stan Weinstein). The opinions were available Friday afternoon via a phone service which provided a tape recording of their latest findings. One of their favorite sayings was, “Be nervous when the Generals are marching forward and the troops aren’t following.”

The breadth of the stock market narrows, but the index continues to climb or go sideways despite the fact that the majority of stocks are declining. This was true in 1980 and it preceded the 1981-1982 bear market, which hit a greater than 20% decline even though the index was historically cheap already.

This brings us to today’s circumstances. Some very large companies with an inordinately large market cap in the S&P 500 Index have held up quite admirably.

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