By Al Thomas
Joe doesn’t remember 1929 much less the rally in 1929 into 1930. Joe, you better look it up,
Don’t worry, he won’t. 99% of those who receive this warning (including their brokers and financial advisors) will not. They will go broke.
What am I talking about?
Every day you hear or read about references to the Great Depression. Of course, that is not us. We are in the Great Recession and the government is going to get us out of it. Right!? Give them a little time. It has only been 4 years.
From the high in 1929 the stock market lost 89% of its value. That top in 1929 of 381 hit the bottom in 1932 at 41. That can never happen again. Ask any broker.
What happened between those dates? Did the market go straight down without ever looking up?
Did you know the big loss was NOT in 1929?
About the end of 1929 the market began a nice rally of almost 100 points, just about 50%. Joe, who may have sold out, now jumped back in with both feet. He was going to “get even”. There was not a major rally after that as the Buy N Holders watched their portfolios disappear from the rally high. The bottom was finally hit in1932.
Joe did not have an exit strategy and Joe’s broker never heard of one. A simple 10% open stop loss order on each of his positions would have made Joe a rich man during the Great Depression.
Why am I sharing this history lesson? Because, Joe, the next great market crash is ready to steal your money again. That is, unless you have an exit strategy in place today.
No, I don’t know exactly where the top of this current stock market will be. What I do know is none of us will recognize it when it hits. Markets always look best at the top.That is why a trailing stop loss is critical. 10% is the most I would ever use, but you have to decide how much you are willing to give back before you get out. Your broker will never tell you, “CASH IS A POSITION”.
It is the job of the talking heads to be bullish (and you aren’t going to hear anything negative from Washington). They always ask their guests, “What are you buying now?” Be careful as you don’t know if the guest is a long term or short term investor. As a professional he has a stop loss some place. He never talks about it.
The psychology of the investor today is very similar to those in 1929 -1930. The fundamentals of Washington can only lead to financial disaster.
Any fool can buy. It is the wise man who knows how to sell.
Al Thomas' new book, "If It Doesn't Go Up, Don't Buy It!", 3rd edition, Chapter Two shows in detail a method that made 400% during the 2000-2010 period with only 7 trades, no losses and paid no commission Read the first chapter at http://www.mutualfundmagic.com and Discover why he's the man that Wall Street does not want you to know. Copyright 2013 Williamsburg Investment Co. All rights reserved. Copyright 2013 Williamsburg Investment Co. All rights reserved.