The Alchemist: New Bull Market

Posted in Money Matters on October 21, 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, “New Bull Market.”

The Alchemist: New Bull Market

by Al Thomas


I heard it on the news and on TV. The bull market is back.
Get on your buying clothes and rush down to your broker with a handful
of money and buy something! The broker doesn’t care what. In a bull
market everything goes up and you are not only missing out, but you are
unpatriotic if you are not a buyer.


I hate to bring this up, but do you remember back in 2000
when the market was headed for the moon, the NASDAQ was 5,000 and the
DOW was 11,000? Everyone was an investment genius. All you did was buy
something and it went up – forever. Well, not quite. The NASDAQ lost
more than 75% and the DOW 40%. YUK!


If you had been told there was a way to protect those
fantastic profits I bet you would have done it, but your broker sure
didn’t tell you. He didn’t even call you to tell you to sell before
your profits disappeared.


Does this mini-bull of the last 6 months feel something
like it did in 2000? If you have even a faint recollection of 2000
don’t you think that this time you will want to protect your
investments? There is a way, but don’t ask your broker. The best he will
do is say he will watch your account. Mr. Broker has an average of 300
accounts to “watch”. Ask him how many. Do you wonder where you are on
his list?


The valuations today are about where they were in 2000.
Margin debt is even higher. The bullish feeling by Wall Street brokers
and analysts is more positive than it was then – that’s bearish. The
Volatility Index (VIX) is at lows I can’t ever remember seeing
indicating complacency. There are many other technical and fundamental
reasons why this market may be getting close to a top, BUT the market
does what it wants to when it wants to. We just don’t know the what and
when and timing is everything.


Don’t try to guess. Let the market tell you. You don’t
have to be an expert. Whatever stocks or mutual funds you own put in a
loss limit order about 10% below the highest closing price. Never mind
what you paid for it. Tell your broker you want an Open Stop Loss Order.
As your stock goes up move the stop up and never down. For mutual funds
you will have to watch the price change every day or at least weekly as
stop orders are not allowed; you will have to call in your sell order.
Don’t let your broker talk you out of it.


The great “secret” of success in the stock market is not
buying; it is selling. Every wealthy investor has an exit strategy. Do you?


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.