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Don’t Push Your Luck

Published on May 16, 2011

Don’t Push Your Luck

May 16, 2011

Recently I upped my cautious posts on this blog. I questioned if it was time to be bullish via three simple macro economic indicators i.e. S&P Dividend Yield, S&P Price to Earnings Ratio, 10 year treasuries yields. When we have an environments that is low dividend yield, high P/E ratio, rising bond yield and declining economic environment of a country that’s dependent on debt for its operating capital, that environment isn’t positive for stock market regardless of the stature. And to prepare/trade fear, I also shared some ideas on how one can prepare/trade upcoming fear.

Investors, usually retail traders, are known to enter/leave markets at the turns. While the gains might come due to sheer brilliance, at times, it might also be driven due to luck. And except in some exceptional cases, luck doesn’t strike all the time.

Let’s keep it simple and review current environment again.

All time high for Dow was 14,198.10, achieved on 11th Oct 2007; on Friday Dow closed at 12,595.75; The difference between the two is = 1,602.35 that’s only 12.7% away from Friday’s close. Think about it, an all time high is less than +13% away from here!!! A simple fast, furious correction can easily be greater that this ride.

Do you have any convincing reason to believe that US is in much better shape than it was in 2007?

If the answer to above question is YES, maybe then you have a reason to smile as Dow might be heading to 36,000 . But if your answer to the question is a plain “NO”, then I think it’s better you start protecting your capital.

After waiting for almost a decade, Mr Jeremy Grantham, made an absolutely amazing call when he publicly shared his views on buying stocks with a well prepared plan in Mar’09. That was at the time when few were willing to part with their money. He is concerned now; Read his latest letter or watch his video where he shares his concerns. You could actually find both bearish as well as bullish arguments pertaining to current market climate and for outlook going forward. Think logically on what makes more sense to you without being influenced by the mainstream media or your favorite analysts.

Investing, at the heart of it, is not a rocket science. Keep aside your “greed” and “fear”, find facts and use your rationale thinking to make an hypothesis/plan for “what’s important for you” going forward, both for short-term as well as “long term”?

If you have gone through the pains on 2007/09 declines, and have observed a lost decades on your investments, then I urge you to recall those experiences. That might help in reshaping your decisions, this point onward, for current market environment. Start paying attention to your investments as opposed to relying to someone else to tell you what to do with it because no one has as much interest in preserving your capital as you do. If you don’t know, maybe it’s time to pause and educate yourself.

At OptionPundit, preservation of capital has priority over missing a “potential” opportunity and that focus has been the key driver for most of its lifetime. If you would like to join OPNewsletter, pls sign-up for the waitlist as OPNewsletter is by invitation only.

Don’t push your luck.
Let’s make money AND preserve it, simple!

Profitable Trading, OP

One Comment

  • Many investors have gotten burnt in this latest round of market uncertainty EVEN while trying to preserve capital so to speak. The safest place right now is on the sidelines until AFTER we see what happens when QE2 ends. Thats just my opinion though. Great article btw.

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