Ignore the Extremes
Research for Online Investors

by John Dalt

2/28/11

Last week was a real roller coaster ride!  The market was overbought and needed a correction.  When we get that overextended, investors and traders look for reasons to sell.  The unrest in Libya gave us that reason.  The doomsayers always exploit any situation to hype fear.  This is natural and to be expected.  It is also dangerous to “buy in” on all the doom and gloom.  It is just as dangerous to “buy in” on all the gaiety and excitement of a bull market.

At different times, I have been guilty of both.  Last summer we sold stocks on trailing stops that have now doubled.  Last month, we sold silver only to watch it take off on what sounds like a short squeeze as traders scramble to get out before delivery dates.

I don’t regret any of our actions, because we still beat the market.  I just tell you these experiences to demonstrate “You can’t be right all the time” and to quote a lesson from Warren Buffett, “Sometimes the best action is to sit on your hands.”  Most of us have a tendency to overtrade, and extreme moves in the market caused by doom and gloomers or cheerleaders give us reason.

Perhaps the lesson we can all take is to be careful not to buy in on the extreme views propagated by many in the financial press.  The market is not going to double this year, and it most likely will not fall by 50%!  The best money is made by slow steady progress, watch your trailing stops, and turn off the TV and do more reading.

This week will be interesting to see where the market goes.  Will we climb back aboard the “Bull Train?”  My natural contrarian side thinks we have more selling to get through.  A three or four percent correction didn’t scare anyone off.  This creates an environment where traders and investors start to minimize risk and become complacent.

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Gosh, I love hi-tech stuff, but it sure can be frustrating!

Quote:
When everything is coming your way, you're in the wrong lane.---Larry the Cable Guy

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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