Time to take profits?

[Cliff Rohrabacher]

Hurricane season is expected to be very severe
Oil has started to climb
The Housing depression is worsening
The Dow just passed 13000

I think it’s time to sell some of the Financials and insurance companies I have been riding up and get out.

[Anthony Anderson]

I could see an argument both ways. I would not use the DOW as an indicator/barometer to when to sell, but the housing market and hurricane season could make an argument though. Just remember that this is all cyclical (sp?). Don't get nervous, make intelligent, informed decisions and you will be fine. So many other factors to consider rather than the immediate and obvious. Regards, Bill

[Cliff Rohrabacher]

I could see an argument both ways. I would not use the DOW as an indicator/barometer to when to sell,

Indeed. However he market enthusiasm that lead to the new high will wane dragging things with it. The guys who seem to influence the market the most are the big fund managers and they, as a group, are pretty easily frightened.


but the housing market and hurricane season could make an argument though.

Yup. The financials and insurance stocks are most vulnerable here I think.


Don't get nervous, make intelligent, informed decisions and you will be fine.
Aren't you setting the bar a tad high here? ;<)

[Steve Schoene]

No portfolio manager ever got fired for taking profits. That said, it is extraordinarily hard to time the markets correctly--so say both Warren Buffet and Peter Lynch, for example. What is important is understanding the particular securities, how the companies make their money and what factors are influencing the earnings potential over the long term.

I don't think individual investors can out-think the market as far as news trends that are in the papers or on the cable news. New economic developments are "in the price" long before the news appears in available sources, except for periodic scheduled releases. Newspapers provide yesterday's news, and the TV is usually hours behind.

(The professionals get press releases and breaking news within minutes of the initial reports. But they pay roughly $15K a year for a single terminal with it and more for real time price quotations.)

[Joe Pelonio]

I now several business owners (customers) that lost a lot of money in 2000-02 when they were heavily invested in high-tech stocks. One in particular was planning to retire in 2002 and ended up having to get a mortgage on his paid-off home to keep going, and is still working.

If there was a way to sell and somehow hold onto that money for a few years
in a safer place without severe tax penalties, this could be a good time to do it. It's the same kind of situation now, where things are doing really well but not likely to stay that way much longer. With my little IRA in slow growth, less volatile investments I'm just going to have to ride it out.

[Scott Donley]

Cliff, ya got it all wrong ! Buy HIGH and sell LOW, That is what I do :(

[Jim Becker]

One of the regular financial pundants I saw on the morning news a few days ago suggested that taking some profits wasn't a horrible idea, especially on stocks that one has had a pretty good ride on. I did a bit of that last year...some of which to fund part of our addition, but some to reinvest in different areas. I'm on the fence right now, but am considering doing some more in the very recent future.

[Dick Latshaw]

Cliff, ya got it all wrong ! Buy HIGH and sell LOW, That is what I do :(

Scott, just to let you know. I have a patent on that investing methodology.:D
My lawyers will be contacting you real soon.

[Cliff Rohrabacher]

Cliff, ya got it all wrong ! Buy HIGH and sell LOW, That is what I do :(

Been there done that.

[Cliff Rohrabacher]

No portfolio manager ever got fired for taking profits.

True enough.

I don't think individual investors can out-think the market as far as news trends that are in the papers or on the cable news.

I only gotta be right less then 50% of the time. Way less actually. I like to buy companies about which I know a lot as it regards the base market and the product, then looking at the P-E ration I can pretty much tell whether I want to be in it and whether the time is right to buy or whether it's over priced.

It's the selling part that is where I'm a tad sketchy. I wanna take more profits and learning leave some money on the table and get out before things go sour is a tricky call.

[Stuart Johnson]

If you are worried about your stock going down while the market is going up figure out how much you are willing to risk on the downside. Place a stop loss order at that price. If the price drops your order becomes a market order and the stock sold. If your timing is off and it continues to go up you can move your stop loss price up.

The stop loss needs to be low enough so daily market swings don't trigger it. You also run the risk of one of these 200 point days with a large bounce hitting you. But, you took your profit and can buy back with only the loss of commissions.

[Dan Mages]

If you don't miind taking the tax charge, then you are more than welcome to sell. But i recommend selling some and hedge your bet on long term gains. Keep in mind that you are dealing with natural resources here. There is a very finite amount of land, money and oil in this world and over time they will become more precious and valuable. Don't get too caught up in what will happen in the next 6 months, worry about what may happen in the next 6 years. Also keep in mind that weather forecasters are almost as worse of liars as politicians, but can get away with it much easier. They said last year was going to be a bad year too, but very few hit the US.

That being said, I have money in natural resources and financial IShaes and they are going quite well for me and I have no plans on selling any of them.

[Steve Schoene]

You have hit on the single thing where individuals might have an edge. That is dealing with companies where they have intimate knowledge of the market and the company. Even then it is difficult to "out know" the pro's, who after all can speak to management--both of the potential investment, and of their competitors and customers. Who can read the same trade journals, and who can actually read and understand the financial statements, including the footnotes where so much of the meaningful info is to be found. They can also access industry consultants--the same guys the companies call on for advice on trends and potentials.

By the way, P/E ratios are only one, relatively unimportant in my opinion, measure of whether a security is cheap or dear. Siince anyone can screen all the companies in a sector for P/E ratios on a hourly basis if they want, there isn't much un-acted upon information to be found there. I believe cashflow is more meaningful, though it is still necessary to understand the various "adjustments" that accounting rules require, and that can have the effect of distorting the effects of the numbers.

In short, index funds are likely to be the best investment vehicle for most individuals until portfolios approach the seven figure level. They are also generally more tax efficient, and have lower transaction costs.

[Steve Schoene]

Be very careful with stop orders on OTC stocks (those with 4 or more letters in the symbols). It's pretty easy to be whipsawed by the market makers. I think regulation is making that a little safer than it used to be, but....

[Jeff Heil]

I'm getting a bit nervous with the market going up as fast as it has been lately. It reminds me of 1999 before the bear market. I am adjusting a bit in my portfolio accordingly.

[Cliff Rohrabacher]

I'm getting a bit nervous with the market going up as fast as it has been lately. It reminds me of 1999 before the bear market. I am adjusting a bit in my portfolio accordingly.


Well ya know when they are in the streets fornicating and singing "Happy days are here again" that sooner rather than later the law of infinite probabilities kicks in.

Something always happens to wipe a few wallets clean when a market is being driven by emotion.

[Mike Weaver]

but am considering doing some more in the very recent future.

Hey Jim - just what is the definition of "recent future"? :eek:

Just joshin - I know what you recently meant to say. :p
You sound like me after two night maintenance windows back to back (the 1st was an all-nighter).

For the record, I'm thinking of taking some profits too. But, every time I've done that in the past, I've missed on a large upswing, so go figure.

-Mike

[Martin Braun]

My favorite is when the start talking about a 'goldilocks market'. They had Ben Stein and some other fund managers on PBS a few weeks back talking about how it appears to be a goldilocks market here in the US, and how there were still good opportunities in the Asian markets. That was right before the Chinese stock market took a hit.

[Andrew Williams]

So if you were going to short something now, what would it be?

[Cliff Rohrabacher]

So if you were going to short something now, what would it be?

I'd short financials and insurance companies. It's how I started this thread. I just dumped a boatload and moved to other investments. I don't want to be the last guy in the street singing "Happy days Are Here Again" in a sad lonely intoxicated off tune sort of way.

Oil and energy stocks are not peaking. A bad Hurricane season should make make energy futures climb.
Real Estate Investment Trusts are still good investments even with a crappy housing market - Commercial space especially in big cities is always at a premium.

[Allen Prell]

I completely agree with Steve Schoene's comments about index funds being the best investment for the typical individual investor or at least the investor who would rather spend time woodworking instead of stock research.

A few reasons why I like index funds or ETFs on some index:
1. I work for a very large hedge fund and see everyday the huge advantages these institutions have over the individual. Institutions will almost always have better research and way better transaction costs.
2. As Steve pointed out, index funds are some of the more tax efficient vehicles.
3. A number of professors teaching some finance courses I took for my MBA at University of Chicago agree that index funds are the way to go. These are very smart people who have done the research into ways to beat the market yet they still say they invest in index funds. I think that's a fairly convincing endorsement.

In answer to the original question "time to take profits?" A better question to ask might be "If I had the cash instead of the stock would I invest in the same stock today?" If the answer is yes then stay in the position. If the answer is no then get out of the position. (This concept of framing the problem differently comes from behavioral finance which is some interesting stuff).

[Martin Braun]

Allen, I have a conundrum that maybe you can shed some light on. They say that ETFs are good if you have a lump sum to invest, since they usually incur a transaction or broker fee. Index funds on the other hand are good for dollar cost averaging, because they don't have that fee. However, index funds are usually a little less cost efficient. So, does it make sense to cost average with an index mutual fund till the account value reaches a certain number, and then transfer over to an ETF? And if so what is that number? Or is the difference in cost so small, it doesn't matter?

The other thing that I heard is that some places are starting to offer free transactions (e.g. Banc of America investment services if the balance is greater than $25k). Maybe that makes all of this a moot point.

[David G Baker]

Martin
I have looked at ETFs and my impression is that if you are the type of investor that spends time monitoring his investments frequently and gets educated about the plus and minus of the funds you invest in ETFs are probably for you. I am not that type of investor so index funds and mutual funds are what I prefer. I am invested in what is called the "Coffee House Portfolio" and it has done quite well by me. If you are curious about the funds, do a Google. There are a couple of different Coffee House Portfolios listed on Google, I use the one that CBS Financial wrote about several years ago. 7 funds held by Vanguard

[Richard M. Wolfe]

Hey Cliff.....

Beat you to it. I took my profits at twelve-five. Boy, am I smart! :D

I just know that I wouldn't want to be anyone's money manager. You have to sell just at the peak or get lambasted for getting out too soon or too late.

This has become just about "the market" but there is another thing you mentioned that might affect woodworking. Expecting a severe hurricane season. If you have a need or are going to need construction materials soon and have storage and no worry about some things degrading in the meantime it might not be a bad time to check them out. A friend and I are going to be building some lumber racks and floor them with OSB. I got over twenty sheets of 7/16 OSB last weekend for a little over five bucks each. Let a hurricane hit anywhere and see where it goes.

[Dennis Peacock]

So if you were going to short something now, what would it be?

The top sheet on each of my kids beds. :p :p :D

[Cliff Rohrabacher]

The top sheet on each of my kids beds. :p :p :D

So long as they are old enough to fix it themselves.

[Cliff Rohrabacher]

Hey Jim - just what is the definition of "recent future"?

Recent Future is the Prior future perfect tense.

It is used primarily when less is not necessarily more and double negatives are not to be avoided based on some negative indicator that you don't wish to be not applying coupled with double speak are the order of the day.

[Jim Becker]

Hey Jim - just what is the definition of "recent future"?

Pursuant to Cliff's explanation...it's something you say when you're running around like a head with your chicken cut off... :D :D :D