Asheville, NC – February 2003 – The last three years have exposed the fatal flaw of buy-and-hold investing. It leaves investors completely vulnerable to bear market declines at a point in their life when they may not have the time to wait for the market to recover, says Warren Wall, president of Wall & Company Investment Advisory Services, located in Asheville, North Carolina.

“Three years ago, two of the top ranked mutual funds in the country were the Janus Fund and Fidelity Magellan,” said Wall. “Since the start of 2000, investors who bought and held Janus Fund have lost over 50% of their account’s value from its 2000 high. Fidelity Magellan investors have done somewhat better, dropping just 36% from the fund’s high so far. If they are retired and need to keep withdrawing money to live on, they may never recover from those losses.”

The results would have been considerably different if those investors had been able to implement a very simple timing strategy and moved to a money market fund every time the stock market dropped and moved back to the equity fund when the market moved up, explained Wall. “Instead of losing money, an investor would have actually made money during this bear market period.”

“Many ‘financial experts’ maintain you can’t time the market because you can’t predict where it is going, but this extremely simple approach shows that you don’t have to know the future. What you do need is a logical system that you follow consistently,” he said. “The system above exploits the fact that the market tends to develop short-term trends. If one day is up, the odds are very high that the next one will be as well.”

The catch, said Wall, is that that this is not really a trade-able system with most mutual funds because the investor would be moving on an average of 1.5 times a week or six times a month, in excess of the trading restrictions of many mutual funds. But with some of the new investment alternatives that have been developed over the last 10 years, timing strategies are making more and more sense for investors.

“Buy-and-hold is one of the worst investment strategies there is if you are retired or nearing retirement. Sure the market may bounce back, but statistics tell us it can take up to ten years to recover from a major bear market. If you need your money in the meanwhile, you’re out of luck,” explained Wall. “Retired investors often don’t have the time to wait until their account recovers. They need to make withdrawals now.”

Wall’s firm uses active investment strategies including timing to manage in excess of $50 million in client assets. His International Program has been ranked among the top international and dynamic asset allocation management strategies in the last two years by Money Manager Review* and MoniResearch**, independent performance tracking services. In 2002, the program returned in excess of 48% net of fees. Wall & Company domestic equities Growth Program was down -26.6% for 2002, but has two-year annualized returns of -9.1%, considerably better than the S&P 500 and Nasdaq Composite indices, which reported annualized losses of -17.1% and -26.5% respectively for the two-year period and considerably ahead of the majority of mutual funds.

“With both the Growth and International Programs, we have the ability to capitalize on bear market rallies that may move the market up for a month or so, only to fall back to earlier lows,” explained Wall. “If, as some market forecasters anticipate, the market spends the next year or so in this type of trading range pattern, active management strategies will be the only approaches that can make money.”

Wall’s recommendation to investors is heresy to mainstream financial advisors. “Time the market.”

“Timing the market is portrayed as this very dangerous strategy that individual investors are destined to fail at, but it can be as simple as a stop loss,” he explained. “Set a limit to how much you are willing to lose, 3%, 5%? When your mutual fund or stock drops that amount get out. It can’t be an emotional decision. You can’t read the headlines and then make your decision.”

Emotions also have to be removed from the decision making process when it’s time to get back into the market. “You have to let the facts make the decision. Moving back into the market is a contrarian decision. You don’t want to wait until every financial reporter is proclaiming a bull market because you will have already missed too much of the upswing.”

Moving average strategies abound, explained Wall. Some traders see a stock’s 50-day moving average passing its 200-day moving average as a buy signal. Moving average lines smooth out a stock’s daily fluctuations and show the stock’s general price trend. “If you want to manage your own account, there are a number of good references available. If you don’t have the time to methodically follow your accounts or the temperament to invest successfully, the number of investment advisers using active management strategies is definitely on the rise. Look for a proven track record and a strategy that makes sense to you,” he advised.

Investors also have some attractive alternatives to mutual funds to use when investing, he explained. Exchange traded funds are now available which can be traded throughout the day. Special index funds designed for active management by Rydex Funds and ProFunds allow daily trading. Investors can also trade baskets of stocks developed by firms such as Folio FN.

Wall & Company manages in excess of $50 million in client assets using market timing and sector rotation strategies. The firm is headquartered in Asheville, North Carolina at One Town Square Blvd., Suite 100.

See attached article on Janus Fund and Fidelity Magellan showing buy-and-hold vs. simple trend timing program results.

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* Now in its 15th year, Money Manager Review ranks hundreds of the Nation’s Leading Private Money Managers and provides detailed analysis on the managers to high net worth individuals, consultants, plan sponsors, foundations and charities.

**Begun in March 1986, MoniResearch Newsletter is an independent publication which tracks the performance of active investment managers based on actual account performance.

Stated returns are the results of actual accounts. These results reflect the reinvestment of dividends and other earnings and the deduction of costs and advisory fees charged by Wall & Company, Inc. The performance discussed herein reflects investment for a limited period of time. It does not reflect performance in different economic or market cycles. The information given is historic and should not be taken as any indication of future performance. The possibility of loss always exists.

The market indexes mentioned are unmanaged statistical composites of stock market performance. Direct investing in an index is not possible. Mentions of the Janus Fund and Fidelity Magellan are neither an offer nor a recommendation to buy or sell these funds.

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