How Do You Sell at the Top ?
According to Raymond James Strategist Jeff Saut, who channels Ed Genstein, you don’t:
“The absolute price of a stock is unimportant. It is the direction of price movement which counts.”
“During major sustained advances in stock prices, which usually occupy from five to seven years of each decade, the 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. That is all that is necessary for a satisfactory, enriching investment performance.”
-Stock Profits Without Forecasting, by Edgar S. Genstein
Good stuff — Thanks, Jeff!
October 13th, 2009 at 9:48 am
This is probably the single best buying/selling advance you could ever utilize as an amateur trader. I can’t tell you how many times over my “investing” career I have thought I was smarter than the market only to find out my sale was too soon. I have a ton more examples of where I bought way too soon (catch a falling knife anyone??).
I hold a decent amount of a gold ETF (IAU) but I am resigned to NOT sell at the high, but set a stop loss at around 101 and I’ll be content to get stopped out once (if) the trend is reversed. In the past I would sell now “guessing” the high was in place.
If I would have followed this advice on the buying side, the March 9th lows could have been bought around March 20th or so and I could have rode this up a nice 35+ percent. Woulda, coulda, shoulda….
October 13th, 2009 at 10:09 am
Or just listen to Meredith Whitney….
October 13th, 2009 at 10:33 am
Makes sense to me as a non-trader but “flexible” index holder. Don’t expect to see the top, just hope to see the trend change in reasoable time to react sufficiently.
BTW (A little OT… but), BR just saw your “cameo” appearance in Michael Moore’s “Capitalism” movie this weekend. My wife thought you looked good though confused by the CNBC (is that a 4-letter word?) host’s points.
October 13th, 2009 at 10:36 am
Catch a wave and you’re sittin’ on top of the world – THE BEACH BOYS
http://viewpointsofacommoditytrader.com/353/john-henry/
October 13th, 2009 at 10:39 am
Serious question: I wonder how well the above strategy worked last year, or in other periods/bubbles where everyone thought they could “get out in time” and then all headed for the exit simultaneously. I think that is the only benefit to trying to be early…most of the relative benefits come in a very very small window of time.
Given the performance of many Technical funds last year, it appears as though the “signals of a trend change” did not provide enough of an early warning to some.
October 13th, 2009 at 10:46 am
One should sell only upon witnessing a Head and Shoulders top, coupled with the 9.14 EMA crossing the 22.103 EMA whilst it is on a downward slope of no less than a 2/3 Fibonnaci retrace with a negative divergence on a 6/45 SMA pi squared MACD.
Anything else, and you’re just not getting it.
[Please Note: On months that begin with "M", it is best to change the rather mundane 9.14 EMA to a 8.3 weighted, yet smoothed Kauffman/Tgygersky exponential moving average.]
October 13th, 2009 at 10:51 am
Buy stocks that are going to triple in price and then it simply doesn’t matter.
Like GFA. http://www.google.com/finance?q=GFA
October 13th, 2009 at 10:53 am
So I shouldn’t be listening to this guy’s advice???
http://www.youtube.com/watch?v=gUkbdjetlY8
October 13th, 2009 at 11:31 am
This strategy, in my humble opinion, is at least half correct. The implication that one sells at a higher price that is acceptable, rather than trying to sell at the highest point attainable — “the top” — is prudent.
The setting of benchmarks is crucial and each benchmark is set by the individual investor. The benchmark, in simple terms, may be defined as “enough.”
This speaks to the anticipation of self-destructive behaviors and to the virtue of contentment, neither of which is commonly observed in the world of finance.
October 13th, 2009 at 11:33 am
Hmm.. but it would be nice to be sitting on a pile of cash when we have a 1987-ish thingy wouldn’t it?
October 13th, 2009 at 11:58 am
It’s actually very easy, as this rally has been. I look to add between 2-4% drops. Anything more than that, I sell. I’ve used this with amazing success this year. Sold the 1st of Oct since it dropped more than 4%. Drop had no follow through so I bought back in. We’re clear now to 11,500 EOY and beyond that settling around 12,500 before a larger pull back of 8-12%.
October 13th, 2009 at 12:22 pm
And then we will start our new mini-booms and a series of mini-booms at that. I have dubed this fase of our economic recovery the HOG recovery because it will sound like a Harley coming at you boom-Boom-BOom-BOOm-BOOM-BOOM!!!
Then we will test the breaks for a little while, then full throttle forward.
October 13th, 2009 at 12:22 pm
Generally good advice. But when the VIX is at 60, some modification to the strategy may be required.
October 13th, 2009 at 12:29 pm
Harry Wanger,
“It’s actually very easy, as this rally has been. I look to add between 2-4% drops. Anything more than that, I sell. I’ve used this with amazing success this year. Sold the 1st of Oct since it dropped more than 4%. Drop had no follow through so I bought back in.”
Interesting investing approach. Selling at low points and buy back in at a higher point. I believe you right away that you have practiced this very successfully.
“We’re clear now to 11,500 EOY and beyond that settling around 12,500 before a larger pull back of 8-12%.”
Are we? How do you know? Got a crystal ball that tells you the future?
rc
October 13th, 2009 at 12:33 pm
Harry Wagner,
How has your experience been with the second book? I have heard that the trend goes toward owning a second book.
rc
October 13th, 2009 at 12:59 pm
Rootless – OWN two at the same time?
Your CRAZY!
October 13th, 2009 at 1:01 pm
HARRY Wanger is at his desk. He puffs out his chest.
“You know, LEFT” he announced, pointing the air with his pen, “I am the most successful manager this office has ever seen this week. A colossus, a giant, a legend in my own lunchtime”.
LEFTBACK is silent. He continues looking at lingerie models on-line while watching the low volume HFT action in the SPX as the market meanders towards the start of another earnings season. He ponders the action in precious metals as gold and silver rise yet again as the economy superheats and inflation measures scream higher and higher, approaching the dizzy heights of…. 0.
HARRY gesticulates at his Bloomberg once again. “Look, LEFT, the indices are leading. AMERICA is BACK.”
LEFTBACK smiles. HARRY may be up on the day, but he will always be a momo.
October 13th, 2009 at 1:26 pm
You leftback are just afraid to get on the HOG and ride the wave of indices, well come on leftback, grab your leather jacket and jump on and RIIIDDDDEEEEEE. Just do not forget to slow down whe you see those 1-2% pot holes, just steer around them and you can pick up even more speed.
Hey I think I am going to take that 0 percent inflation and devide the GNP by it, I know only good things will happen, deviding by zero is a fun way to figure out the correct answer to many of life’s mysteries.
October 18th, 2009 at 9:56 am
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