LOS ANGELES, Dec. 21 (UPI) -- After rebounding in October from yet another year-long swoon, the stock market appears to be regaining much of its lost vigor in the closing days of 2002, leaving investors to decide whether the market is poised for another lucrative surge upward or if the bottom is still to be reached.
With plenty of retirement nest eggs at stake, one hedge fund manager who is about to actually close out the dismal year in the black warned that there could be a long way to go before the stock market's true bottom is found.
"One mistake many investors are making today is believing that we have hit bottom simply because we are down so much from the peak of early 2000," said Max Rebelo, chief investment officer of Custodiet Capital, a Manhattan Beach, Calif., investment firm that is up 57 percent since the market peaked on March 24, 2000. "We're still very much at bull market peak valuations of the past. We're nowhere near the low valuation levels we saw at the 1974 stock market nadir or even average historical valuation levels."
Since hitting the low for the year of 7,197.49 in October, the Dow Jones Industrial Average clawed its way back to 9,000 in late November and was maintaining what appeared to be a tenuous hold last week at around 8,500.
Studying the daily charts, it appears that the market is becoming more bullish and is steadily gaining ground. Rebelo, whose firm's Web site is custodiet.com, warns that such daily rallies can be deceiving when plotting a long-term investment strategy.
"Each time the market rallies, we have market pundits and neophyte investors exclaiming that the bottom has been hit," Rebelo told United Press International.
Rebelo said that looking back to the granddaddy of all stock market disasters, the stock market crash of 1929 that launched the Great Depression in the United States, the Dow Jones Industrial Average actually showed a significant number of up days even as the national economy crumbled.
"During the horrific bear market that lasted from the market peak on Sept. 3, 1929 until the bottom on July 8, 1932, the Dow Jones Industrial Average fell a whopping 89 percent from its peak," Rebelo explained. "Yet, the Dow finished up on 46 percent of the trading days and even though nearly half of the trading sessions finished in the black, the overall market declined 89 percent."
A graduate of the University of California, Berkeley business school, the 28-year-old Rebelo has been following the path of conservative icons such as "The Oracle of Omaha" Warren Buffett and Tiger Fund legend Julian Robertson, who stay above the fray of day-trading and jumping on the first bandwagon to roll into town. He said that researching investments can and should be a lonely undertaking rather than a storming of the Bastille with the rest of the mob, which can turn into a lemming stampede in unpleasant short order.
"Investment opinions aren't even a dime a dozen: they're everywhere we look, and they're free," he said. "The one piece of advice that never goes out of style -- no matter what the overall market is doing -- is to seek value."
The coming year will be a rebuilding period for many investors who saw their portfolios in shambles as they drowned their sorrows at the office Christmas party.
Rebelo said that generating positive investment returns going forward would be a much slower and more demanding process. More will be required than taking a tip at a cocktail party or chat room and running with it.
"As simple as it sounds, investors merely need to be rational," he reminded. "It's not rational to believe that an Internet start-up can grow revenues at 100 percent per year for the next 30 years. It's also not rational to believe that solid businesses that are on firm ground will go out of business. Pay attention to valuation, and check your emotions at the door."
"When I met Julian (Robertson), he said something that I'll never forget," Rebelo recalled. "He told me that managing money is all about two things: avoiding disastrous mistakes and always being properly hedged against any potential outcome."
While legendary investors such as Jeff Vinik, Julian Robertson and George Soros are effectively out of the investment game and with Buffett steering his investment vehicle down the road of slow growth, it is up to a younger generation of investment managers to follow in their cautious footsteps while blazing new trails for investors.
(Custodiet Capital's Max Rebelo is the stepson of UPI writer Hil Anderson)