The Alchemist: Just Say 'No'

Posted in Money Matters on May 19, 2003

The following is this week’s installment of The Alchemist, a column by Mensan Al Thomas, author of If It Doesn’t Go Up, Don’t Buy It. Click ‘Read More’ below for this week’s article, “Just Say ‘No’”

The Alchemist: Just Say ‘No’

by Al Thomas

We have all heard that slogan that started back when Nancy
Reagan was in Washington. It was all about drugs. Now I want to
remind you this can be your slogan when you get one of those telephone
solicitations from a strange broker or even your own stockbroker who is
acting a little strange. By that I mean he wants you to buy something.

Currently we are in an advancing stock market and we all
hope it is going to go higher and higher. None of us, definitely
including me, knows for sure where it will end up this year. Barron’s,
the weekly financial publication, has declared on their front page that
“THE BULL IS BACK”. They are also guessing. But it makes you feel good.

It makes me wonder when I study the fundamentals of the
economy how they have come to this conclusion. Unemployment just had an
uptick, most companies have yet to declare a dividend, the American
dollar is losing value against many foreign currencies, manufacturing
capacity utilization is still low and shows no signs of increasing,
balance of trade is way out of whack and on and on.

Yes, there is some good news. Many companies are “beating the
estimates”. That means they are showing greater sales and profits than
the brokers on Wall Street thought they would have. This is good press
and usually has the effect of pushing stock prices higher. Many of these
better profits are at the cost saving of laying off hundreds if not
thousands of workers. And worst of all we don’t know if these profits
are true. Many are profoma meaning management is guessing.

If you are one of those people who hopes the market will go back up so
you can get out “even” you are going to find that hope is the most
expensive word in the dictionary. But what can you do about it? You are
now being given the opportunity to save what is left of your retirement
account. On any stock or mutual funds you have it would be a guess to
say this is the place to sell. The smart thing is to listen to the
market and do what it tells you.

When any equity is advancing you want to set up a trailing stop-loss
order and move it up each week as your stock advances. Suppose you
bought a stock at $100/share and watched it drop to $15. Pretty
disheartening! It has now risen back up to $30 and your broker has
assured you it will continue to rise. Maybe. But what if it doesn’t?

Tell your broker to put in a stop-loss order about 10%
below its current price. He will say you don’t need to. This is where
you just say ‘NO’. Brokers don’t watch any but their biggest and most
active accounts. He must do as you ask according to regulations.

Put in a stop-loss order today. Protect your retirement
account with a simple ‘NO’.


Copyright Albert W. Thomas. All rights reserved. Author of “If It Doesn’t Go Up, Don’t Buy It!” www.mutualfundmagic.com. Comments to al@mutualfundmagic.com.