Wait For It... Wait For It...
By Quint Tatro Mar 18, 2008 12:15 pm
Read the tape, act accordingly.
Over the weekend policy makers scrambled and executives scurried. Bear Stearns (BSC) was bought by JP Morgan Chase (JPM) for a $28.00 discount to its closing price on Friday or $2.00 per share and the Federal Reserve cut the discount rate another quarter percent. Yesterday overseas markets reacted poorly with sharp declines and US futures opened lower by almost 2%.
I'm sick to think of the fortunes that were lost overnight by those holding Bear Stearns stock in the same manner as I have been sick for those holding Thornburg Mortgage (TMA) or even E-Trade Financial (ETFC).
Unfortunately, on days like this, most investors can't separate the decision to sell from trying to know what will take place in the future.
When deciding to sell or not, most people will immediately ponder the future possibilities. If stocks continue to decline, selling could be the right call. On the other hand, selling at the bottom is a painful exercise.
This conventional thought process typically leads to no action, as investors hope for the best. There is, however, an alternative thought process: simply react to the broader movements, both good and bad. While not easy to put into practice, focusing on the present is more useful than the impossible task of predicting the future.
On days like today, the smartest position is usually on the sidelines. Lightening up is not necessarily wrong, but it should simply be a movement to protect capital.
Ironically, while the media pronounces doom and gloom some very wise investors are taking a different position.
I'm not taking either side of the debate, looking instead to prices as my guide. Watch for technical breaks to lighten up, while regrouping names may deserve new capital.
Its not our job as traders to predict the future. We react, read the tape and must remain flexible enough to do it over and over again, regardless of the direction.
FOLLOW QUINT'S TRADING WITH OUR ALERT BASED PORTFOLIO PRODUCT, FLEXFOLIO. RECEIVE EMAIL ANALYSIS AND ALERTS WITH EACH TRADE.
No positions in stocks mentioned.
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