The Daily Workshop Report
by Judi Soderberg (MF Shrimp)

CHICAGO, IL. (Mar. 17, 1997) -- As you all know by now, our esteemed leader, Robert "the Dowmeister" Sheard, is on a badly needed vacation. What this means for all of you is that you get the unique opportunity of gaining new and different perspectives from new and different writers. In that vein, I'd like to take a totally different direction today.

With all the various strategies outlined in the Foolish Workshop, there seems to be one common thread that's missing. It's the one thing that we, as Fools, try to ignore in the interest of the long-term perspective. I think it can be a very important part of today's equation, and I'm going to try to show why here.

The perspective I'm referring to is what is called "market sentiment." This is an indicator of investors' feelings. While we do try to keep the emotion out of our investing, the rest of the investing world is highly governed by it. Market sentiment, in the last few years, has proven to be a strong catalyst for market fluctuations.

In the early 1990s, the watchword of the day was recession. It was honestly believed that the economy was headed for a downslide. In late 1991, before the statistics were in to prove otherwise and with all the corporate layoffs that had been occurring, investors fully believed that we were in for a market crash. By 1992, after it was proven that inflation was still under control, investors decided that the market was the place to be. From there, we entered the strongest bull market this country has ever seen. Technology began growing by leaps and bounds, and investors just loved these technology stocks

Back then, the Dow was at 3300. Today, it's gone past 7000, before correcting a bit. If you look closely, there's a progression at work here. The fuel that drove this market was the new money coming in from new investors across the country. With these new investors came a lack of genuine knowledge and an overabundance of sentimentality. Where before a company had to stand or fall on its valuation, suddenly all it took was a likeable CEO to cause a stock to jump in price, or in the reverse, a news blip against the sector to cause a stock to plummet. And much as we, as Fools, prefer to look at the numbers and judge a company by its ability to make money quarter-after-quarter, it may be time to take a step back and allow sentimentality to enter some of the decisions. One important factor to come out of today's market is the realization that emotion has entered the equation. Sectors fall in and out of favor like last year's prom queen, the technology sector being a prime example.

Yet, in the end, the final question still has to be: where does this leave us in the long run? One of the things the Foolish Workshop does is attempt to formulate new valuation methods, and with the results of that attempt, begin new investment strategies. A common missing link in these strategies has been back-testing. This new equation would also lack this back-testing, so the question of the long run would be a hard one to answer. But we're in a new age of investing. A new factor has entered the time-honored equation. Perhaps it's time to take the blinders off and allow that old killer, sentiment, to enter our thinking.

Or, maybe not. What say you, fellow Fools?

Monthly Growth Screens
     (Jan. 3 to present)
   7.34%  Relative Strength  
   6.37%  S&P 500 Index  
   3.05%  Low Price/Sales  
   2.11%  YPEG Potential  
  -7.95%  Investing for Growth  
 -12.57%  EPS Plus RS  
 -19.46%  Formula 90  
 -22.50%  Unemotional Growth  


Annual Value Screens
     (Jan. 1 to present)
  7.87%  Dow Jones Ind Avg  
  7.31%  Dogs of the Dow  
  4.84%  Beating the S&P  
  2.42%  Dow Combo  
  2.04%  Unemotional Value  
  2.04%  Beating the Dow  
 -2.68%  Foolish Four