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"Slip-slidin' away."  No, not California, today's market.  Prices fell
-18pts, when 13.4 would have been significant.  Volume jumped to +12%
above average.  In my book that makes it a "Distribution Day".  Not only
that, but momentum (see below) fell to the negative side causing my
timing signal to switch to SELL, the Street certainly was.  Prices fell
below the widely followed 50-day Moving Average.  Both it and the 20-day
are about 1194.  Look at the Oscillator--it's very negative--it's a
wide-spread sell-off.  The Advance:Decline ratio was below 2:7.  And the
ratio of Up-Volume, trades made on an up-tick, to Down-Volume, trades
made on a down tick, was 2:11.  That means traders were selling even if
prices were falling, they just wanted OUT.  So what do you expect that
presages of the Street's attitudes?

If you follow my commentary, you may remember last month I included some
advice for my sister, and others in her situation, about reallocating
her retirement funds when she moved her account from Fidelity to
Vanguard.  She's got an allocation now, but is agonizing over picking
funds.  We chatted about selecing Small-Cap Growth funds on the phone.
I sent this email to her this morning.

First of all, I suggest you go to my website, click on the "Ask Paul"
tab, then scroll down to the link to my "Tracking the Market" page.
Look at the chart there for how the S&P500 did for the year, read my
analysis.  Even though this isn't specifically a growth fund, consider it
how "the Market" did during 2004, the right half of the chart.  Take the
time, don't just read what's next and ignore the comparison.

Now, to the fund selections.  I just received Vanguard's "Performance
Profile, Winter 2005", i.e. 2004 year-end.  In there Explorer Investor
shares did 13.75% for 1 year, 6.33% for 5 years (2000-2004, covering the
Bear Market).  Compared to Small-Cap Growth Index, 16.06% & 7.17%.  This
time the indexing proved better than the actively managed fund.  But not
by a lot, less than 1% over 5yrs, less than 3% last year.  But you're
going to have, what, 10-15% of your money there?  So the effect of
choosing one or the other is most likely to be marginal at best, a
fraction of 1%.  Is it something to worry over?

On the other hand, compare either Small-Cap Growth fund to Index-500
(10.74% & -2.38%), or Growth Index (7.20% & -6.94%), US Growth (7.03% &
-13.93%), or even the (closed) PRIMECAP (18.31% & 2.16%), and you will
see that this Small-Cap sector did rather well for the 5 years including
the second biggest Bear Market in history, (2000, 2001, 2002 down big,
2003 up big, 2004 up average).

Of course, during the same period Small-Cap Value Index, the "dumpster
divers", did 23.55% & 15.05%!  Gotta love them dumpster divers!  And
Small-Cap (blend) Index did a still respectable 19.90% & 6.98%.

I suggest you compare these numbers with the photocopies I made of the
Morningstar tables last spring, because that gives you a rather clearer
picture of the 1-year of the big 2003 recovery, and the 3-year Bear
Market.  This is the way you get perspective on asset allocation
choices.  You can do a similar analysis for your other choices.

The point here is that the nimble Small-Cap funds are providing
protection during difficult economic times.  Even though their results
have been outstanding, they shouldn't be the bulk of your asset
allocation though.

 Price    Vola-    Momen-   Volume   Oscil-   Summ.
 Change   tility   tum               lator    Index
 -__+     -__+     -__+     -__+     -__+     -__+

 __>_     __>_     __|_     _>__     __|_     ___>     02/15
 __>_     __>_     __|_     _>__     __|_     ___>     02/16
 _|__     __>_     __|_     __|_     _     02/17
 ___     __|_     __     02/18
 <___     __<_     _|__     __|_     <___     ___|     02/22

Timing Signals:  I don't use or recommend timing signals, but they're
fun to watch.  If I did though, well, I might use something like this.
(Be warned!!  It tends to whipsaw around signal points!)

Last Signal: SELL       Date:  02/22/05 S&P:    1184
Winner or Loser:  Loser                 By:     -5

See my market tracking charts for '03-'04 and my investment strategy
study at my website(s):
http://www.xprt.net/~pgrogers/Pers.html
http://www.angelfire.com/or/paulrogers/Pers.html
http://www.geocities.com/paulgrogers/Pers.html



Paul Rogers, paulgrogers{at}yahoo.com                       -o)
http://www.angelfire.com/or/paulrogers                   /\\
Rogers' Second Law: Everything you do communicates.     _\_V

... It did what? Well, it's not supposed to do that.
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