'Stocks have reached what looks like a permanently high plateau'

Professor Irving Fisher - Economist, Yale University (1929!)

But timing relates to more than just the market in general. It is, of course, absolutely critical in picking individual stocks. Look at the 52 week range for practically any stock in the speculative sectors and you will find incredible variations in pricing. What's going on? Are all these companies oscillating wildly between near bankruptcy and a rosy future? Why are there so many fluctuations of hundreds of percent?

The answer generally lies less in the fluctuating fortunes of the companies (some are intrinsically worthless at any point in their range) than in the fluctuating sentiment of investors and in some cases, manipulation of the price by unscrupulous Sharks. It is very important for the spec punter to understand this point. The timing of the purchase is just as important, maybe more, than the selection of the stock.

How does one know when to purchase? There are no simple answers or we'd all be Warren Buffetts. Remember, as in all forms of gambling, your wins are to some extent dependent on someone else's losses. Gambling represents a redistribution of wealth, even in a positive sums game like the sharemarket. (Cynics have humorously dubbed casino gambling, lotto and poker machines as a 'stupidity tax'.) The key is to avoid as many obvious mistakes as possible.

1. Be very careful before buying into stocks that have already had a substantial rise. For maximum safety, try and look for stocks that have traded steadily around long term support levels, but are not short of cash.

2. Be very careful about buying into stocks that are consistently falling. Trying to pick the very bottom (or top) of either a market or an individual stock is fraught with danger. Wait for the stock to stabilise, even if this means having to watch it bounce off its bottom. Waiting for stability implies not buying it the moment it bounces either...there is such a thing as a 'dead cat' bounce. When timing the taking of a profit, that most difficult skill, remember that your greatest enemy is greed. As the famous saying goes,

'Always leave a little for the next person.'

3. Keep a weather eye on sentiment in the sector. It is very dangerous to buy into 'hot' sectors. In the 1987 crash for example, the previously hot entrepreneurial stocks like Ariadne were slaughtered and many disappeared, costing investors (read gamblers) billions.

Class of '87

Try and be ahead of the game...always ask yourself which sectors are due for their turn in the sun and see whether there are any reasons in the real world why that might occur. 

NEXT ... Cycles



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