It's Finally Time to Sell StocksRule No. 1: Never lose money.Steve
In my latest issue of True Wealth, out this past Friday, I'm selling several positions.
This is a new development...
You see, in the last half-year, while most people have been scared and playing defense, we've been aggressive, swinging for home runs in True Wealth.
We've been investing with leverage – buying risky speculations (by True Wealth standards) and double-long and even triple-long exchange-traded funds.
It's been full-steam ahead.
My instinct has been that the Bernanke Asset Bubble is so huge, it could steamroll through just about everything. But it may have met its match... temporarily.
You see... Investor sentiment is off-the-charts optimistic.
Today, "the Dumb Money is 79% confident in a rally," writes my friend Jason Goepfert. Jason tracks investor sentiment through his website, SentimenTrader.
The "Dumb Money" is "traders that have proven themselves over history to be terrible at market timing." Jason's too polite to say it, but that typically means individual investors.
The last time the "Dumb Money" was this optimistic was back in April, right before the Dow lost a quick 1,500 points in three months. That type of quick correction is typical...
After an extreme like this, "the subsequent corrections tend to be relatively swift and severe," Jason writes. "The median decline of the oncoming corrections was -6.2%, covering 34 trading days. All but one was deeper than -5%."
In short, over the next three months or so, the risk is not worth the potential reward. The smart play is to pull back your leverage and move to higher ground. So in True Wealth, we're selling a good number of positions.
We're not expecting the end of the world. We're just being prudent.
I do believe the Bernanke Asset Bubble will reassert itself. I do believe bigger gains are ahead. I do believe we could see dot-com-like bubbles in many assets, including stocks and commodities.
But the weight of the evidence says to take shelter for a couple months, before going out to play again.
What should you do?
First and foremost... Don't get too fancy. Stick to legendary investor Warren Buffett's top two rules about money:
Rule No. 2: Never forget Rule No. 1.
In True Wealth, we're selling a few of our more speculative positions. I suggest you consider doing the same...
Further Reading:"The coming year could be a horrible one for stocks," writes super-trader Jeff Clark. Get his forecast for 2011 here: The Early Warning Signal to Follow in 2011.
We're not preparing for the end of the world here at DailyWealth, but we have been hearing a lot about the "End of America." If you missed Porter Stansberry's latest warning on the country's currency crisis and massive government debt, find it here: Why the Debt Situation is Worse Than You Even Imagined.