LT, more comments on your "Coming Bear" scenario:
I don't grasp all that "head and shoulders" stuff, but I concur 100% on point 4: Internet stocks continue to explode every day (these trash stocks are a sign of rampant speculation)...
What puzzles me is why stocks that are clearly good values languish, while trash stocks soar. I don't recall that as being the case during last year's stock market boom (which is when I began my independent investing career). Then, I got the sense that if one picked stocks wisely, one could expect, on the whole, a reasonable profit. (Of course, as a newbie, I could have been misjudging the situation.) Now, the trick seems to be to find the trashiest stock possible if one wants a wholly unreasonable profit!!
I get very uneasy when irrationality rules, and, like you, I tend to expect the worst in such cases.
Now, a couple of questions for you.
1) Do you think that the exploding derivatives market is affecting the situation? Rather, it is
affecting the situation, obviously. The question is, how much. All these puts, calls, etc. Would-be long-term novice investors like myself don't even understand how this stuff works, but we do understand that the system has a short-term horizon, and that the derivatives trade is a new factor in the market, which is liable to have an unpredictable effect on the coming crash/correction. (Excuse me if I have posed the question ignorantly; I freely confess to ignorance in this respect.)
2) What about the tax consequences of selling out? Recently, I finally lost patience with 3-Com, and sold my shares, although they had appreciated by about 500% since my former financial advisor bought them for me years ago. (I got tired of keeping what has been dead money for more than a year.) But I had to pay almost a full 20% of the money I got from the sale to the IRS! That is, of course, more than I would have lost in a 10-15% correction. And, generally, when people talk about "taking a profit," they always forget to mention the tax consequences, even when it is a short-term capital gain (35%!!). I would guess that it is the fear of getting whacked for taxes that keeps some people (like myself) in, even against their better judgment.
jbe |
