Sell some winners and most of your losers

On the possibility that the year end rally isn’t all that:

"On the wild assumption that those nearly universal bullish forecasts don’t prove on the money, you might try something different this year: Sell at least some of your winners and as many of your losers as you can without gushing tears. In short, we’re postulating an exit strategy of cut and run. Which may be shamefully deficient as a military solution, but could be just the ticket for a market with considerable potential for wicked whipsaw.

The disquieting overwhelming agreement among Street folk that we’re in a rally mode whose only real danger is that of missing out on the fun and profit that lie ahead is not the sole reason for our skepticism. The inevitable speculative excess that such an attitude begets is another tangible cause for unease. Speculation, of course, is always with us. And thank heavens it is, since it’s truly a vital investment ingredient, adding spice and whetting appetites. Heck, without speculation, Wall Street would be the epitome of dullness. But it’s the classic good thing that you can quickly and easily get too much of.

And whether you feel we’ve reached that state depends mostly, we reckon, on whether you own a stock that’s kicking up its speculative heels or not. What is clear, however, is that there’s no shortage of such stocks and their numbers do seem to be steadily rising. Here, we suspect the revived passion for momentum investing, the opportunistic approach of many hedge-fund managers, reminiscent of the day traders in the late ‘Nineties, to buy anything that moves, and the hyperventilating habitués of the online chat rooms are major stimulants. . .

Stepping back a ways to get a little broader perspective, it seems to us that we are witnessing the beginnings of the end of the fabled era of easy money. And anyway you slice it, that shapes up as not exactly good news for a lot of businesses that battened rich in that extraordinary era."

Dumping losers is always good advice. Never fall into the trap of subsidizing bad stocks dogs by selling your good ones . . .


Cut and Run
Barron’s, Monday, November 28, 2005

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