When To Buy

Not now, but the question being posed to me by fully invested readers today is “When do we sell?” Answer, “I don’t know!”

Trying to decide when to sell based on what the market is doing is an exercise in futility. It’s a given that, if you sell, the market will go up big and leave you at the station. If you hold, it will crash. You know this. It’s a fearful time, But the biggest fear you have is FOMO: Fear Of Missing Out. So you think your only option is to hold and grit your teeth when stocks go down in a serious way like yesterday.

There are enough selloffs in a long-term bull market to make “It always comes back” an article of faith to anyone still in. And it’s true until it isn’t, but there are signals that should give you an inkling that you should head for the exits. One is the all-in bullish pronouncements by the banks and brokers. My firm’s weekly report had a gem last week. Analysts are maintaining that, because there have been so few recessions in the last few years, the market is entering a new phase in which the super-high valuations are not a cause for worry because they signal a new era in which the market is deserving of high valuations.

Also yesterday, one of the major banks reportedly begged clients to buy the dip, insisting that periods like these are always buying opportunities.

Harks back to September, 1929. The market had just reached a new high when Yale economist, Irving Fisher jubilantly stated, “Stock prices have reached what looks like a permanently high plateau.” Within two years the Dow Jones Industrial Average lost 89% of its value, and did not recover fully until 1956.

My approach is to sell when stocks are valued at levels that have historically marked peaks in future returns. Stocks have been in this condition for a while, so I’m not in stocks. My studies of Elliott Wave patterns argue that the next bear market will be a 1929-32 destruction of value, so I will hold 2 year Treasuries until valuations crash to 1932 levels and the all-in bullishness on the part of the financial advisory industry switches to all-out bearishness.

Then I will buy.

You wanna get rich? I’ll show you how to get rich.
First, get a million dollars.

—Steve Martin

Cheers,

Rod

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