Buy High – Sell Low

I have a little excersize for you – click on the following link:

• Shiller PE

Place a ruler across the graph with the right end if the ruler on the current end point.  Ask yourself this question – what other times in history did investors pay this much for stocks?

Answer – only two times.  Right before the Wall Street Crash of 1929 – which led to the Great Depression, and the Dot-Com Bubble.

So, if you are trying to buy low and sell high – what should be the takeaway from this exercise?

But, not many folks will listen with headlines like these:

• Bloomberg –  Markets Are Surging for the Second Day in a Row
• MarketWatch – Nasdaq hits 6,000 milestone as stock market rallies on upbeat earnings

Most investors buy high – and sell low when they panic during corrections:

Bottom Line?  Look at your risk today – could you handle a 50% correction?  If not, take some chips off the table.  If equity market valuations were simply to normalize, the market would need to decline by 50% or more.

Remember, Wealth is most effectively compounded by limiting losses – even at the expense of foregoing some gains.