Selling: You Will Likely Never Get Out @ The Absolute Top
Investment Strategist Jeffrey Saut penned a really good piece earlier in the week about selling securities and following trends. It is important to remember her that Saut is talking about investment positions versus trading positions but the advice is still timely and a good read. I've excerpted it below with my own highlights. We are going to discuss selling more in the future as well.
"The absolute price of a stock is unimportant. It is the direction of price movement which counts.”
“During major sustained advances in stock prices......{an} investor can complacently hold a list of stocks which are currently unpredictable. He doesn’t worry about the top because he knows he is never going to sell at the top. He knows that the chances are overwhelming in favor of the assumption that he will get far better prices by waiting until after the top is passed and a probable reversal in trend can be identified than he will ever get by attempting to anticipate the top, and get out on the nose.
In my own experience the largest profits we have ever taken have come from stocks purchased while they were making a new high in a market which was also momentarily expecting the top. As I have already pointed out the absolute price of a stock is unimportant. It is the direction of the price movement that counts. It is always probable, but never certain, that the direction of the price movement will continue. Soon after it reverses is time enough to sell. You should sell when you wish you had sold sooner, never when you think the top has arrived. That way you will never get the very best price – by hindsight your individual transactions will never look daring. But some of your profits will be large; and your losses should be quite small........”
“Stock Profits Without Forecasting,” by Edgar S. Genstein
They are two of the most important paragraphs I have encountered in more than 40 years of studying markets. Do not read them just once. Go off to a quiet spot that invites contemplation and read them several times. Then reflect on all of the mistakes you have made in trading and investing.......My advice is to keep this quote handy, read it over, and study it every time you get ready to make an important buy or sell decision; especially if your emotions are reigning.
Ladies and gentlemen, Edgar Genstein’s comments are as cogent today as they were when first written in 1956! The most recent example would be the two-stage “melt up” that began on March 6th from the S&P 500’s (SPX/1071.49) demonic low of 666. The first stage took the SPX up 39.6% into its first intra-day reaction high of roughly 930. From there the index “flopped and chopped” around, but never gave back much ground. Stage two of said “melt up” began on July 13th and has extended every since. So far the second stage has tacked on 24.3% from the July 8th intra-day low of ~869 into the September 23rd intra-day high of ~1080.
While memories are short on the “Street of Dreams,” recall what many pundits were saying when stage one stuttered-stepped in May. The “cry” went out that the short-covering, bear market rally was over, and the March “lows” would be retested and broken. That mantra caused many investors to sell {many of } their investment positions and go to cash.....
Link: http://www.raymondjames.com/inv_strat.htm
“During major sustained advances in stock prices......{an} investor can complacently hold a list of stocks which are currently unpredictable. He doesn’t worry about the top because he knows he is never going to sell at the top. He knows that the chances are overwhelming in favor of the assumption that he will get far better prices by waiting until after the top is passed and a probable reversal in trend can be identified than he will ever get by attempting to anticipate the top, and get out on the nose.
In my own experience the largest profits we have ever taken have come from stocks purchased while they were making a new high in a market which was also momentarily expecting the top. As I have already pointed out the absolute price of a stock is unimportant. It is the direction of the price movement that counts. It is always probable, but never certain, that the direction of the price movement will continue. Soon after it reverses is time enough to sell. You should sell when you wish you had sold sooner, never when you think the top has arrived. That way you will never get the very best price – by hindsight your individual transactions will never look daring. But some of your profits will be large; and your losses should be quite small........”
“Stock Profits Without Forecasting,” by Edgar S. Genstein
They are two of the most important paragraphs I have encountered in more than 40 years of studying markets. Do not read them just once. Go off to a quiet spot that invites contemplation and read them several times. Then reflect on all of the mistakes you have made in trading and investing.......My advice is to keep this quote handy, read it over, and study it every time you get ready to make an important buy or sell decision; especially if your emotions are reigning.
Ladies and gentlemen, Edgar Genstein’s comments are as cogent today as they were when first written in 1956! The most recent example would be the two-stage “melt up” that began on March 6th from the S&P 500’s (SPX/1071.49) demonic low of 666. The first stage took the SPX up 39.6% into its first intra-day reaction high of roughly 930. From there the index “flopped and chopped” around, but never gave back much ground. Stage two of said “melt up” began on July 13th and has extended every since. So far the second stage has tacked on 24.3% from the July 8th intra-day low of ~869 into the September 23rd intra-day high of ~1080.
While memories are short on the “Street of Dreams,” recall what many pundits were saying when stage one stuttered-stepped in May. The “cry” went out that the short-covering, bear market rally was over, and the March “lows” would be retested and broken. That mantra caused many investors to sell {many of } their investment positions and go to cash.....
Link: http://www.raymondjames.com/inv_strat.htm
*Long ETFs related to the S*P 500 for client accounts.
posted by CR English at 6:52 AM
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