Pride comes before the fall

I was going to save this essay for Sunday but a few of my friends had called and wanted some answers on the volatile market we have had recently.

When markets sell off it is a common fact that they rally as well. It is not the time to play games and try to buy stock in the hopes of picking a point or two, figuring it will pay for losses in the other stocks one owns. If you are down in your stock and not feeling comfortable, sell. Even if it's painful, because stocks can go up or down farther then one expects. Sometimes it is predictable and sometime it's surprising. That is why before one buys, he must know his expectations and the time frame he is looking at and not stray from what got you into the stocks in the first place.

If one invests more actively, he can have a set stop of 8% and never look back. This is the Investors Business Daily outlook of things. And find it the best solution for money management in a the buying and selling of stocks game.

Warren Buffet has the saying , "Be greedy when others are fearful, and fearful when others are greedy." The market OVERALL for the past 4 months worked on greed. You have to realize that the companies are making the money while you, the investor, are holding the companies for appreciation which they have done in spades the past 4 years without a significant selloff. And one has to remember that if a stock has gone up 20% that is better than putting it in the bank and maybe one might want to lighten up if those gains were immediate. For example, if the company's market value is 1 billion dollars then the value of the company is now 1.2 bln so the company has to grow earnings to make that 20% worthwhile. It's tough making a million dollars let alone 200 million of them. Fear is pervading the market and the easy gains have been lifted from the majority of stocks. What is one to do?

Reassess each and every one of his investments and see if the reasons are still valid. Do you need the money? Can it be better placed somewhere else? If that is the answer then stick with it and do not have any regrets about selling. Never look back! Go for a walk and enjoy the day because each day is precious and it is not worth being stressed over something philosophic as 'will it go up or will it go down.' Let Newton worry about that. You did your job and made the right decision just sometimes it takes awhile for the market to come around.

For a history lesson. Look at 1998 when the Nasdaq tanked. It was a buy of a lifetime if you sold in 2000.