Investing in stocks is never as easy as it seems it should be – after all, buy low and sell high.
The problem is knowing when low is low and high is high.
The stock market often takes off on bull (or bear runs), but gives few signs as to when the runs will end and reverse.
Part of the reason investing in stocks is not easy is that the stock markets are seldom what they seem and often act in ways that confound investors.
From March of 2009 to October 2009 the stock market (the Dow, in particular) took off on a record-setting run advancing some 55 percent.
Logic and past experience tells investors that after a strong bull run a significant pullback is possible as investors take profits.
On the other hand, some investors said the same thing in June of 2009 after a solid three-month advance – the Dow was up some 2,000 points.
The market did dip in July, but came roaring back almost another 2,000 points into October.
If you cashed out in June and did not reinvest in July, you missed half of the historic run.
It is easy to see in hindsight when to get in and when to get out.
There is no perfect (or even very good) system that will tell you when to get in and when to get out.
Ultimately, you have to decide how much risk you can take and whether you will be more upset by missing another advance or will feel OK taking profits even if it means missing out on the advance.
In other words, are you more concerned with growth or protecting you investment capital by taking fewer risks?
There is no right or wrong answer, just the answer that lets you sleep at night – that’s the right answer for you.