The brokerage industry as a whole is starting to question long-held beliefs. The following excerpt arrived today from a Legg Mason commentary:

For investors willing to engage in some insightful discussion of their core investment philosophy, the book will challenge long-held beliefs. Perhaps the most controversial argument is that Wall Street's great effort of analysis and projections of the future are of little or no use to the serious investor. According to Covel, if the objective is to have a defined strategy to put capital to work for a profit, then investors are traders and the difference is more than a parsing of semantics. Trend Following is not an endorsement of day-trading and technical analysis. The basic premise is that the most profit is gained when a trader is harmonized to an enduring trend. To do this, traders need to adopt a strict discipline that minimizes behavioral bias (i.e., intuitive or 'gut' feel), does not anticipate a trend beginning or end, and acts when the trend changes. This approach is diametrically opposed to long-term 'buy and hold', which is viewed as a strategy that is best suited for passive indexing...Investment books that have a lasting appeal offer insight that resonates with a large number of investors. We believe Michael Covel's Trend Following will be such a book. Importantly, Covel makes the case that investors are likely to benefit from having a portion of their portfolio invested in a non-traditional approach that adapts to whatever stock or asset class is exhibiting definable trends. While this 'trader' mentality may strike some as inappropriate, this approach is becoming modus operandi for some of the most sophisticated and successful long-term investors.
Richard E. Cripps, CFA
Chief Market Strategist
Legg Mason Market Commentary
October 11, 2004

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