Okay, I can’t quite put my finger on why the market goes up every single day. But I do know a few things that can help you immensely.
1. Don’t buy laggards. Only donut holes makers buy stocks that no one else wants.
2. Short stocks that are laggards, because betting against donut hole makers is a high probability bet.
I just know the market will top out when I least expect it. Typically, the market tops out when I am at my bravest, leveraged into low quality offal securities. The reason for that is simple: near tops, quality stocks are richly valued, leaving only the piker stocks, value traps, left to be bargained for. In the past, I’d eat them up whole, laughing all the way to the bank like a deranged idiot.
When the market tops, those stocks will fall 10% in a day, leaving you exposed to destruction. This is not likely to happen, it will happen. I can guarantee that.
Your question must be: “Dear Fly, so then what should a small pleb, such as myself, partake in if the markets go up everyday?”
Very good question.
You should practice discretion and asset allocation.
Here is what my holdings looks like, from a skeletal standpoint.
Position A: 20%
Position B: 20%
Position C: 15%
Position D: 15%
Position E: 10%
Position F: 10%
Position G: 5%
Position H: 5%
That is 8 positions totaling 100% of assets. You don’t need to follow this allocation to the tee. But I’ve found having fewer positions, smartly placed, is better than having 20 5% positions. Most large companies trade in a convoy, all up, all down. It’s your job to exploit valuations and outperform the peer group through smart picks. Most of the time, I edge into a 20% position 5% at a time, giving me a margin of error to average in.
When it comes time to go to cash, you will find an allocation like this to be extremely accommodative to your needs.
I don’t know how long this rally is going to last. My guess it ends in mid- April, trades around violently until September, then resumes upward into the new year. Right now I’m a giant elephant stomping out tigers and lions, but afraid of the mice running about.
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Diversification is for the indolent. I have laser focus on my few positions.
Ditto, the fewer selections, the easier it is to manage. I try not to go over 10 since I’ve only ten fingers…
Le Fly – If you build up to a 20% position do you also scale out 5% at a time or just sell it outright? I’m sure it depends on the situation…
Typically I sell it all at once.
Well this confirms it. The wise and all knowing 0ne has confirmed with his own lips that there is no crisis of debt. We can clearly proceed to run the Dow up to 20,000 and the S&P up to 2500 with all due haste.
Damn the torpedo’s, Full Speed ahead!!
http://news.yahoo.com/president-obama-no-debt-crisis-135606679–abc-news-politics.html
Seems like new SPX highs are inevitable, and there has to be at least a dozen or 2 points of stop running after that.
At some point the USD strength and its impact on the big multinational estimates – frankly I’m surprised this has not been brought up yet.
Also while the yen weakness is being perceived as a good thing, if it reaches some kind of escape velocity over 100 or so I suspect it might be viewed as an indication that their whole debt situation is unraveling out of control.
Other then these issues, it seems like blue sky sailing to this normally nervous-Nellie.
since jan. ive been watching trafic here. its been up considerately, i would say 30% more than last year. most businesses report increases in sales yoy @ 25-30%(here) more…going to bimini, many of my friends r there waiting 4 me.
What, is it spring break? Are you talking about the cafeteria and book store?
Fly- EXK reported very good numbers yesterday, does the stock look cheap here?
Does CALL fit the profile? Are you still in it?
Very useful. Thx.