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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