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Comstock Partners, Inc.
Public Participation 4
April 03, 2001
Historical Perspective
As we’ve said many times in the past, this was (and still is) the most overvalued, speculative market in history. Limbo, Limbo on the right side of our home page deals with overvaluation and we will continue stressing the unwinding of public participation in these daily comments. The archives of other comments regarding this subject are 3/15/01, 3/23/01, and 3/27/01. We have been trying to make the point that this market decline will not end until many, if not most of the public participants (as well as many professionals) sell their mutual funds and individual stock holdings and swear off the stock market for many years to come. In order to drive this point home, we would like to point out other examples in US stock market history as a guide to what we expect to take place today (before the market decline ends). In 1925 Edgar Laurence Smith wrote the book “Common Stocks as Long–Term Investments”, the first major work to achieve popularity for advocating common stocks as long-term investments. He founded “Investment Trust” in 1925 to carry out the concepts enunciated in his book and facilitate public ownership of common stocks. By 1931 the Fund’s asset value was down about 75% from the 1925 start despite the fact that the stock market soared from 1925 to 1929. Another example of the rise and fall of mutual fund assets and investor expectations came during the severe bear market of 1973-1974. Mutual fund equity assets rose from $35 billion in 1966 to peak at $57 billion in 1972 only to round trip back to below the ’66 level to $33 billion by the end of 1978. Net liquidation of equity funds continued for a full decade. More recently,equity mutual fund assets peaked at $4 trillion at the end of 1999, but we have had only 1 month of net redemptions so far (Feb 2001 of only $3 bil). We would expect March to be far greater, followed by years of net liquidation. After all we had an average of over $13 billion a month of inflows into equity mutual funds for 10 years.

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