It’s A Bull Market: Here’s How To Ride It For Profits – And How to Get Out On Time
By Dr. Steve Sjuggerud, President, Investment U
Monday, September 08, 2003: Issue #271
‘Millions come easier to a trader after he knows how to trade than hundreds did in the days of his ignorance.’ – Legendary trader Jesse Livermore, in the 1923 book Reminiscences of a Stock Operator.
‘Markets will rise higher than you think is possible and fall lower than you can possibly imagine.’ – attributed to legendary trader Jim Rogers, author of the bestseller Adventure Capitalist.
It’s a bull market out there, my friend. Every major stock market on every continent is up.
So what do you do? How do you trade it? Should you sell what you’ve got, since things are up so much and are now so expensive? Or should you try to ride it for a few more points? But then what? What’s the right thing to do and when should you do it?
I get asked these questions (and many other questions about your individual stocks or mutual funds) every day. And the best answer I can give at times like now is: ‘It’s a bull market!’
Now, this answer may seem like not enough information at first. But the following excerpt from one of the greatest investment books of all time, Reminiscences of a Stock Operator, should make the answer’s underlying meaning for your portfolio crystal clear…
The Wisdom of ‘Old Turkey’
‘The customers used to go into Old Turkey [a nickname, of course] and tell him what some friend of a friend had advised them to do in a certain stock. But whether the tip they had was to buy or sell, the old chap’s answer was always the same.
The customer would finish the tale of his perplexity and then ask: ‘What do you think I ought to do?’
Old Turkey would cock his head to one side, contemplate his fellow customer with a fatherly smile, and finally he would say very impressively, ‘You know, it’s a bull market!’
Time and again I heard him say, ‘Well, this is a bull market, you know!’ as though he were giving to you a priceless talisman wrapped up in a million-dollar accident-insurance policy. And of course I did not get his meaning
I think it was a long step forward in my trading education when I realized at last that when Old Turkey kept on telling the other customers, ‘Well you know this is a bull market!’ he really meant to tell them that the big money was not in the individual fluctuations but in the main movements – that is in sizing up the entire market and its trend.
After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It was never my thinking that made the big money for me. It always was my sitting.
Men who can both be right and sit tight are uncommon. I found it one of the hardest things to learn. But it is only after a stock operator has firmly grasped this that he can make big money. It is literally true that millions come easier to a trader after he knows how to trade than hundreds did in the days of his ignorance
Old Turkey was dead right in doing and saying what he did. He had not only the courage of his convictions, but the intelligent patience to sit tight.
Nobody can catch all the fluctuations. In a bull market your goal is to buy and hold until you believe that the bull market is near its end. To do this, you must study general conditions and not tips or special factors affecting individual stocks. You have to use your brains and your vision to do this; otherwise my advice would be as idiotic as to tell you to buy cheap and sell dear.’
Taking Old Turkey’s Advice On Today’s Bull Market
It’s a bull market, my friends. Stocks are going up. You can worry about valuations, trade deficits, corporate profits, unemployment, or whatever you want. There are plenty of excuses not to be in this bull market. But none of them can overcome the fact that it’s a bull market.
We are in a worldwide bull market. That’s all you need to know.
The point is to stay in the bull market as long as possible. But when will the bull market end? Who knows as Jim Rogers tells us: ‘The market will rise higher than [we] think is possible.’ Heck, it already has.
However, there is a general way to determine that a bull market has ended.
To put a number on it, I’d say a 9% fall in the overall market would cause me to start selling significantly. I like to study the very long-term trends. I’d consider this bull market over when the overall market closes below its 45-week moving average. So the overall market (as measured by the S&P 500 Index) would have to fall a full 9% from here before I would consider this bull market over. And I do believe we will see a significant fall in stock prices when this bull market finally does end.
But the big money is in sticking with the overall trend. And for now, it’s a bull market?
Good investing,Today’s Investment U Cribsheet
Steve
- The above story about ‘Old Turkey’ is from Jesse Livermore’s outstanding book Reminiscences of a Stock Operator. I highly recommend reading this book. It is a fun read for investors like you and me, and I guarantee it will make you a smarter investor. Click here to buy it, and help support our free Investment U E-Letter!
- You can track the 45-week moving average at www.bigcharts.com, at the ‘Interactive Charts’ section. The symbol for the S&P 500 is SP500. You’ll have to select a ‘weekly’ chart time period and select ‘indicators’ to input 45 weeks as your requested moving average.
- A Breadth of Fresh Air Amidst The Doom & Gloom
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- Selling Naked Put Options: How to Get Paid to Buy Stocks
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