J Lyons Fund Management, Inc.
Jonathan G. Katz, Secretary
Dear Mr. Katz:
I am writing this letter on behalf of my investment adviser firm, a Registered Investment Advisers, who distinguish ourselves by the fact that we are active managers or risk managers rather than passive, buy-and hold managers. This month marks my 35th year as an investment professional. Having this experience myself as well as being quite familiar with many of my peers through professional trade associations, etc., I feel that perhaps I can articulate at least some concerns that many of us currently have regarding the legislation and rule changes that are being proposed to put a halt to some of the misdeeds that have characterized the mutual fund industry.
By way of defining who we are and where we are coming from with our comments, I would like to offer the following. Many of us evolved to our current style of money management (which pre-Spitzer was, without reservation, called market timing) due to disillusionment with guidance that we were receiving either as employees of the main stream Wall Street establishment or as clients of it. I, for example, started in this business in 1969 as a broker with Merrill Lynch. After suffering through the bear markets of 1970 and 1973-74 without any real money management tutelage from my employer, I realized that were I to have a meaningful, fulfilling career assisting people with their investments, I would have to learn to defend against adverse market conditions. The instructions I received from management to simply trust in the company's security analysts and to sell enough secondary issues of utility stocks in order to win a trip to Bermuda failed to accomplish my anticipated fiduciary responsibilities.
As a result, I began to research on my own methods of determining when the risks of equity investing were high and when they were low. My quest, quite simply, was to accumulate tools to determine when to be out of equities in the former environment and when to be in them in the latter. The true definition of market timing, if indeed, it is to be equated with risk or active management as it conventionally has been, would simply be - "to avoid risk in declining markets and to be invested in rising markets", a goal shared by any objective, serious investor. It need not involve frequent trading and, indeed, our own methodology is not that active.
Without such guidance, one is subject to the fear and greed characteristics that motivate most investor and adviser alike or to the self-serving, gather-assets-at-any-cost approach of much of the Wall Street establishment. The fact that a record $94 billion was put into equity funds during the buying frenzy of January and February of 2000, the precise top of the recent stock market bubble, is but one bit of evidence that investors buy high and sell low thus subverting any chance of implementing a successful buy-and-hold investment program. That $94 billion eclipsed the previous January and February's total of somewhere around $18 billion, by the way.
I have taken the time to give you this background for the following reasons:
In closing, I will say that reform is certainly appropriate and I am for it. The ambiguous requirements and the arbitrary enforcement and alterations to such fund rules make dealing with them very difficult. However, without benefit of the facts, the government will once again simply be guilty of burdensome, costly over-regulation. Moreover, without the true facts, your guidance to the many legislators who will vote for anything that gives the appearance of championing the cause of their constituency will fall far short of being objectively beneficial. Let's hope that the small investor, whether they be our clients or independent investors is not disadvantaged further.
John S. Lyons, President