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Author: TMFRichDad Big gold star, 5000 posts Old School Fool Coverage Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 21148  
Subject: The Wheel of Fortune - Not Date: 9/20/2012 8:06 PM
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Interesting way to look at market sentiment:

http://www.marketfolly.com/2012/09/investor-sentiment-wheel....

Rich
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Author: loveoldcars Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 11624 of 21148
Subject: Re: The Wheel of Fortune - Not Date: 9/20/2012 8:51 PM
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Hi Rich,

Here's another interesting 'sentiment' indicator I check from time to time!

http://money.cnn.com/data/fear-and-greed/

rk

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Author: EthylMercaptan Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 11625 of 21148
Subject: Re: The Wheel of Fortune - Not Date: 9/20/2012 9:05 PM
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I must be between panic and capitulation. It's not so much the market, but rather the politics. I just don't have much faith that they will extend the long term capital gains rates among other things like running the economy straight off the cliff this time.

At the start of the year I was about 99% equities. Last week at this time, I was 90% equities and 10% cash. Today I am about 50% equities and 50% cash. I am planning to go to 20% equities and 80% cash by the end of the month.

Stocks sold this year:
Amerigroup (Thanks to Wellpoint)
AT&T (Thanks to Apple)
Costco ($100 a share really?)
Valspar
Pentair
Thermo Fisher
McCormick

Stocks on the chopping block:
VF Corp
IBM
pfizer
Xcel Energy

Stocks that I am keeping for now (maybe)
Aeropostale
Eaton Vance
Bank of America
Cree
Brooks Automation
Occidental Petroleum
Berkshire
Rockwell Collins

C2H5SH

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Author: kelbon Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 11626 of 21148
Subject: Re: The Wheel of Fortune - Not Date: 9/20/2012 11:40 PM
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I am planning to go to 20% equities and 80% cash by the end of the month.


This is a very pessimistic view of things to come. Especially as you are dumping some good dividend stocks.

I can see going to cash in a higher interest-rate environment, but almost the best you can do with cash these days is stash it under the mattress, where invariably it will lose value in real terms.

Although there's lots that can go wrong in the next year, big market declines almost always take pretty much everyone by surprise. I don't think anyone would be surprised to see one over the next year, so ironically, it probably won't happen.

Presumably, you'll have tax implications too in fleeing the market. Yes, I would say that going to 80% cash is somewhere between panic and capitulation; perhaps closer to panic?

And then there's the problem of when to get back in again. Almost no one has the stomach to buy when equities are crashing and everyone around is panic selling.

I would sleep on it…

kelbon

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Author: TMFRichDad Big gold star, 5000 posts Old School Fool Coverage Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 11627 of 21148
Subject: Re: The Wheel of Fortune - Not Date: 9/21/2012 5:58 AM
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Hi rk,


Investors in low quality junk bonds are demanding 2.85 percentage points in additional yield over safer investment grade corporate bonds. This spread is much lower than what has been typical during the last two years and indicates that investors are pursuing higher risk strategies.


Wow, that's an interesting statistic for junk bonds. Less than 3% risk premium. Not very much compared to historical norms which, iirc, is around 6 to 8%.

Distortions abound.

Rich

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Author: TMFRichDad Big gold star, 5000 posts Old School Fool Coverage Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 11628 of 21148
Subject: Re: The Wheel of Fortune - Not Date: 9/21/2012 5:59 AM
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Hi C2,

Why?

Rich

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Author: rjf53 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 11629 of 21148
Subject: Re: The Wheel of Fortune - Not Date: 9/21/2012 6:47 AM
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Almost no one has the stomach to buy when equities are crashing and everyone around is panic selling.

Except perhaps for the people who avoided the crash and subsequent panic to begin with. Speaking for myself I'd be down right giddy if I managed to go to 80% cash and the market then went on to crash. Besides by definition in order to have a sale you need a buyer and who better to buy than someone with lots of cash. So someone does have the "stomach"; no? :<)

Although personalty, I have never gone to the extreme of 80% cash, I do regularly fluctuate between near fully invested and 50% cash and can bear witness to how much easier it is to be "buy on fear" if I was fortunate enough to "sell on greed" shortly preceding the fear.

While I agree that losing out to inflation and tax implications are legitimate risks, positioning yourself where you are frozen by your emotions ("no one has the stomach") is a risk as well and the degree to which you are invested would certainly have a strong correlation with your emotional swings.

I'll concede that your viewpoint is likely conventional wisdom among investment advisers but I have my own views on that as well.

Conventional wisdom is often simply inertia with a candy coating of conformity.


B (Around 30% cash and climbing)

PS Notwithstanding the above comments, I have never viewed you as a conformist which in my book is a good thing. :<)

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Author: EthylMercaptan Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 11630 of 21148
Subject: Re: The Wheel of Fortune - Not Date: 9/21/2012 8:13 AM
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Hi C2,

Why?

Rich


Reason number one is that I have a large amount of unrealized long term capital gains. Of the stocks that I have sold and will sell it is about half of the value (100% return over multiple years). My longest holding is McCormick, which I purchased eleven years ago. I don't know if a lame duck congress is going to extend the capital gains tax into next year and I don't like the idea of waiting until December to see. If they take it up to the edge of the cliff again, I don't want to be riding in that car. ;-)

Reason number two is that I am house hunting and have no credit score because I have no debt and only one credit card. Not having to work with a lender in the purchase of the house should make the process quicker and easier for me, plus I should have added leverage in negotiations if I can hammer out a deal on my terms. Once I have the house, then I might shop around for a mortgage and then use those funds to buy stock.

C2H5SH

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Author: putnid Big gold star, 5000 posts Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 11631 of 21148
Subject: Re: The Wheel of Fortune - Not Date: 9/21/2012 9:16 AM
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Almost no one has the stomach to buy when equities are crashing and everyone around is panic selling.

Except perhaps for the people who avoided the crash and subsequent panic to begin with. Speaking for myself I'd be down right giddy if I managed to go to 80% cash and the market then went on to crash. Besides by definition in order to have a sale you need a buyer and who better to buy than someone with lots of cash. So someone does have the "stomach"; no? :<)
- rjf53

You and I have a similar approach to "investing". I, too, fluctuate between 100% invested in equities and, at times, up to 50% cash.

Selling shares to harvest profits isn't difficult. As the saying goes: "No one ever went broke booking profits". Oh, sure, one might suffer pangs of unrequited greed if the stock continues to climb higher (at times, quite a bit higher). Yep, it happens. Not all that often in my narrow stock universe.

It's the buying back part that poses the biggest challenge for me. I'm always committed to buying back sold shares in order to have my holdings grow over time. Buy-book profits-buy more-lather-rinse-repeat.

But I never feel good clicking the "Place Order" button. When stocks are falling, loud voices cite failure, downgrade, predict doom. No matter how deeply I pondercate the matter, I've never been able to predict the severity of the fall from grace, or the length of time it will take for a stock to rebound. I tend to buy back too soon. That's why I trade in increments. Some might claim that I'm grabbing for "falling knives". True enough. I've been bloodied often. Even so, I end up owning more shares of companies I believe have good long-term prospects than I would have had had I never booked profits. It makes the temporary stomach-aches bearable.

I still get queasy clicking the "Place Order" button, though.

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Author: rjf53 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 11632 of 21148
Subject: Re: The Wheel of Fortune - Not Date: 9/21/2012 9:38 AM
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Interesting article and in a roundabout way validates my belief that cash can be an extremely safe investment tool.

http://www.marketwatch.com/story/rich-hedge-fund-investors-l...

First a comment…Jesus Christ could walk across a lake and pitch me on investing in his 2 & 20 hedge fund and I would likely tell him to take a hike. :<)

Back to cash and its connection to the views expressed in the article.

Most importantly, the truly passive investor soon goes to rebalance — perhaps quarterly, perhaps annually, it can vary according to age and risk tolerance — and notices that the 16.5% run higher for stocks has distorted the equities portion of his or her portfolio.

Here's where the passive investing portfolio kicks into high gear.
At this point, quite unconcerned about problems abroad, the tide of money in and out of the markets and other, equally irrelevant factors, the passive investor liquidates part of that gain, using the cash from selling high to buy low into some other, temporarily cheap asset class in his or her portfolio — then happily plods on.


Ok, so can anyone explain to me how rotating to bonds, based largely on a relying on the principle of reversion to the mean and balancing risk (equities went on a 16% run) is any different than raising cash after a similar run of out performance? I’d ask the same question if you took a similar mechanical (somewhat) approach to rotation within equity sectors. The only real distinction I see is that “cash” provides me with the option of attempting to take advantage of all of the volatility between the larger/longer swings in market sentiment that rebalancing attempts to take advantage of.

In fact, the less you "know" about the markets, the more likely that your long-term gains will be rock solid, come what may in the headlines.

I’ve come to agree with this as well. The only thing certain is how my portfolio(s) has performed as compared to my goals. That being the case, and because making money is my goal, taking money off the table after a decent run of out performance is the only thing that makes sense to me. Beyond that, with the funds that remain invested, I simply try to spread them around in a manner that assumes anything can happen on any given day.

Hey maybe I’m more conventional than I previously thought. (Not sure I like that.)

B

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Author: tamhas Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 11633 of 21148
Subject: Re: The Wheel of Fortune - Not Date: 9/21/2012 9:57 AM
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Maybe the low premium for junk is a reflection that even the good stuff is junk? :)

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Author: rjf53 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 11634 of 21148
Subject: Re: The Wheel of Fortune - Not Date: 9/21/2012 9:59 AM
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Selling shares to harvest profits isn't difficult. As the saying goes: "No one ever went broke booking profits". Oh, sure, one might suffer pangs of unrequited greed if the stock continues to climb higher (at times, quite a bit higher). Yep, it happens. Not all that often in my narrow stock universe.

Well it's difficult for me that's why I wrote my own little version of Wall street wisdom to help remind me why I need to do it anyway.

B’s paradox: The safest point to make buy/sell decisions is where the likelihood of experiencing pain seems to be the greatest.

Simply stated if my alter ego isn't shouting in my ear "You're gonna regret this" when I'm selling at approximately the same volume as he does when I attempt to catch a falling knife then I figure I've been distracted from my game plan.

I'm always committed to buying back sold shares in order to have my holdings grow over time. Buy-book profits-buy more-lather-rinse-repeat.

Me too, I think of it as my risk, risk, de-risk game plan.

I still get queasy clicking the "Place Order" button, though.

It's a relative thing. Try looking at the place order button only to realize you have no cash to put to work and then get back to me. :<)

B

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Author: kelbon Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 11635 of 21148
Subject: Re: The Wheel of Fortune - Not Date: 9/21/2012 11:07 AM
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Speaking for myself I'd be down right giddy if I managed to go to 80% cash and the market then went on to crash.


So would I.

It's worth remembering that, over time, the direction of the market is up, not down, even though there is turbulence along the way. Predicting a big decline in the market is hard to do, though, sooner or later, it will happen. A stopped clock is right every twelve hours. History shows you can wait a decade, or more, for a meaningful and severe downdraft.

What I'm most comfortable with is to have a meaningful amount of cash at all times for when bargains present themselves and to replenish when an individual stock becomes more than a little overvalued. Call this traditional and balancing if you like, but it's nothing to do with having x % in bonds, x % in cash, x % in stocks, etc.

Also around 30% cash.

kelbon

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Author: rjf53 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 11636 of 21148
Subject: Re: The Wheel of Fortune - Not Date: 9/21/2012 11:35 AM
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It's worth remembering that, over time, the direction of the market is up, not down, even though there is turbulence along the way.

Agreed.

Predicting a big decline in the market is hard to do, though, sooner or later, it will happen. A stopped clock is right every twelve hours. History shows you can wait a decade, or more, for a meaningful and severe downdraft.

I agree with this as well. But since my strategy is based on what has happened within my portfolio (which may or may not mirror the broader market)in reality it has nothing to do with "predicting" and everything to do with positioning myself for what can happen or to borrow a phrase from Don Rumsfeld the "known unknowns". Meanwhile, "meaningful" is a matter of perspective where often times even a 5% correction in indices can create much more "meaningful" opportunities with individual equities.

Also around 30% cash.

As I said I never viewed you as being conventional, :<)

B

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Author: EthylMercaptan Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 13926 of 21148
Subject: Re: The Wheel of Fortune - Not Date: 3/14/2013 10:17 PM
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I dug up this post I made from about 6 months ago.


I must be between panic and capitulation. It's not so much the market, but rather the politics. I just don't have much faith that they will extend the long term capital gains rates among other things like running the economy straight off the cliff this time.

At the start of the year I was about 99% equities. Last week at this time, I was 90% equities and 10% cash. Today I am about 50% equities and 50% cash. I am planning to go to 20% equities and 80% cash by the end of the month.

Stocks sold this year:
Amerigroup (Thanks to Wellpoint)
AT&T (Thanks to Apple)
Costco ($100 a share really?)
Valspar
Pentair
Thermo Fisher
McCormick

Stocks on the chopping block:
VF Corp
IBM
pfizer
Xcel Energy

Stocks that I am keeping for now (maybe)
Aeropostale
Eaton Vance
Bank of America
Cree
Brooks Automation
Occidental Petroleum
Berkshire
Rockwell Collins

C2H5SH



I pretty much sold everything before year end except for Brooks Automation. I don't think anyone will ever claim that I have impeccable market timing. Not one of them is lower today than when I sold it although AT&T is a off a little if you don't consider the dividend. Overall it looks like I left about 13 - 15% on the table, so far.

C2H5SH <- eaten Crow

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Author: captainccs Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 13928 of 21148
Subject: Re: The Wheel of Fortune - Not Date: 3/15/2013 6:47 AM
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C2H5SH, I'm finding that the less I trade the less I lose! The future is simply not predictable. If it were it would be the past! History tells us that some "signs" work fairy well, a going concern is likely continue. A fluctuating price is likely revert to the mean. But predicting punctual events (the next recession) is an exercise in futility.

It does not mean one cannot take a flyer on some new technology (I do) but one has to do so in the full knowledge that it is a uncertain bet with a high reward in compensation for the high risk. Sort of like double or nothing. You are as likely to wind up with nothing as with double. But with nothing you are out of the game meaning it really wasn't an even bet after all.

Got any good crow recipes for Software Times? http://softwaretimes.com/recipes.php

Denny Schlesinger

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Author: LeKitKat Big gold star, 5000 posts Top Favorite Fools Feste Award Nominee! Feste Award Winner! Old School Fool Global Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 13930 of 21148
Subject: Re: The Wheel of Fortune - Not Date: 3/15/2013 10:51 AM
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crow supposedly is not especially tasty--a meal of last resort

The temptation to sell at every new high is nearly irresistible.
It's almost as scary here as it was at the lows 4 or 5 years ago.
Never would have guessed the market was going to set new highs before a major correction magnitude 25% or more. Kept waiting for the big one and it has never come. It still feels imminent

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Author: captainccs Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 13931 of 21148
Subject: Re: The Wheel of Fortune - Not Date: 3/15/2013 11:26 AM
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Kept waiting for the big one and it has never come. It still feels imminent

LeKitKat, the other day I checked the S&P 500 vs. the VIX worry meter because it is at historic lows. My conclusion was: "The 2007 VIX low was about 8 or 9 months before the market top. The 1995 VIX low was about 5 yeas before the market top."

Who knows, we might be looking at a 5 year bull run! LOL

http://finance.yahoo.com/q/bc?s=%5EVIX&t=my&l=on&...

Denny Schlesinger

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Author: NozRydr Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 13932 of 21148
Subject: Re: The Wheel of Fortune - Not Date: 3/15/2013 12:33 PM
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@ C2H5SH,
Thanks for that post. This sort of anecdote has great educational value.

I too, like Denny, find that the less I go 'in and out' and try to call highs/lows in the market cycle the better I do.

I bailed in 2000 and took a bath. I rode out 2004 and '08 lows (with eyes closed not even peeking at accounts for months at a time) and came out smelling like a rose (mostly). O' course to fair my holdings in '04 and '08 were on balance a bit stodgier picks than in 2000.

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Author: EthylMercaptan Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 18119 of 21148
Subject: Re: The Wheel of Fortune - Not Date: 3/25/2014 8:42 AM
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I dug this post up from a year ago, which in turn was reply to a post made in September 2012 where I had decided to liquidate my entire stock position in my open account.

My reasoning at the time were:

1. The low long term capital gains were sun setting at the end of the year and I was carrying a significant amount of unrealized capital gains in my account.

2. I was house shopping and have a low or non existent credit score because I have one credit card to my name and no other debt. The theory was to jump on some distressed property with an all cash offer and then shop for a mortgage and ease myself back into the market.

3. Political gridlock and brinksmanship.

4. My year over year gains on my portfolio were +37% from 9/11 to 9/12. I could guarantee that would never happen in back to back years.


The whole thread is here: http://boards.fool.com/the-wheel-of-fortune-not-30274486.asp...

The post of reference is this:

I dug up this post I made from about 6 months ago.


I must be between panic and capitulation. It's not so much the market, but rather the politics. I just don't have much faith that they will extend the long term capital gains rates among other things like running the economy straight off the cliff this time.

At the start of the year I was about 99% equities. Last week at this time, I was 90% equities and 10% cash. Today I am about 50% equities and 50% cash. I am planning to go to 20% equities and 80% cash by the end of the month.

Stocks sold this year:
Amerigroup (Thanks to Wellpoint)
AT&T (Thanks to Apple)
Costco ($100 a share really?)
Valspar
Pentair
Thermo Fisher
McCormick

Stocks on the chopping block:
VF Corp
IBM
pfizer
Xcel Energy

Stocks that I am keeping for now (maybe)
Aeropostale
Eaton Vance
Bank of America
Cree
Brooks Automation
Occidental Petroleum
Berkshire
Rockwell Collins

C2H5SH


I pretty much sold everything before year end except for Brooks Automation. I don't think anyone will ever claim that I have impeccable market timing. Not one of them is lower today than when I sold it although AT&T is a off a little if you don't consider the dividend. Overall it looks like I left about 13 - 15% on the table, so far.

C2H5SH <- eaten Crow



After 19 months this is my experience:

1. My understanding is that LT capital gains rate didn't change for my tax bracket. In hindsight it was not an issue, but at least it didn't go lower. I don't know if it was in effect in 2012, but now if you are in the lower two tax brackets(<$36,250 annual income), the capital gains tax goes to 0%. I also failed to calculate in state tax and since I live in Minnesota I got a rather rude awakening last year about this time.

2. My experience in house shopping is this. There were few real good buys at the bottom. If a house sold for $350K in 2007 and was being put on the market by a bank at $200K last year, you could look at sticking $50K back into it just to get it back to a like new condition. There are no pristine foreclosed on properties. If house was being sold by the owner and the house was in good shape, they still wanted a fair price for it. I looked at close to 30 different houses, I was out bid on two(one was $5000 cash price less than what they were asking for) and the one I did get was a lengthy negotiation where I finally capitulated and gave them what they wanted. :-(

3. I think the market has grown accustomed to antics in Washington.

4. At least I was right that I wouldn't be able to repeat a 37% increase yoy. Excluding Amerigroup since it was purchased and excluding dividends the return would have only been 31% since I sold. I could roundly figure another 3% return due to dividends. May be slightly higher since I missed the mega Costco dividend in 12/12.

If I would have rolled my Amergoup stock money into Wellpoint, that would have juiced my returns by another 3%. So theoretically I could have 37% return over a 19 month period which is a lot longer than 12 months. Alright its not that much longer. It will never happen three years in a row. Really! Never!

Of the individual stocks that I sold:

Aeropostale: -59% Good riddance
IBM: -9% I am smarter than Buffett for once!
VF Corp: +55% I don't understand all the hype behind UA. This is the company to have in the apparel.
Bank of America: +60% Not a big surprise if they started sorting out their Countrywide and Merill acquisitions.
Wellpoint: +63% Obamacare schmomacare! Woulda coulda shoulda!
CREE: +73% Not a huge surprise here since the stock gyrates all over the map.
Pentair: +78% This a bit of a head scratcher. An industrial stock with an impressive dividend record with these kind of gains. Who would have predicted that?
Thermo Fischer: +101% You have to be kidding me. This was one of my stalwart fire and forget stocks. What makes it more impressive is that my first shares purchased were in Apogent back about 12 years ago and they were bought out by Fisher who was bought out by Thermo Electron. My cost basis on those shares were $17.05 in July of 02 and today those shares are worth $120.65. Of course I sold at $60.10 which is a difference of $60.55 that I missed out on which is also 3.55X what I paid for my first shares.

I continue to hold my Brooks Automation which is up 44% since my last transaction in 12/12 and it pays a nice little dividend of 2.8% for tech stock.

C2H5SH <- Crow connoisseur

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Author: leaderoftheback Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 18131 of 21148
Subject: Re: The Wheel of Fortune - Not Date: 3/26/2014 6:32 PM
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And here we have one of the biggest mistakes that humans make...

C2, compared to where all of those stocks are at this moment, you can consider yourself some sort of doofus, but you ain't necessarily. By many measures, this is an overheated market. On balance, the upside rewards are lower than the downside risks...if, as is apparent, your risk tolerance is too low to hang in.

So your house idea didn't work out. But you still have more money than you started with...and you still have your money. Sure, not as much as you could have if you'd hung on, but maybe, just maybe more than you'd have if you had not sold and hung on until the market corrects 20%. And then you wouldn't be a doofus either.

If you become convinced that you really made a mistake, cost average back in. You'll be fine (probably). We all leave money on the table at times, we all leave the table just in the nick of time (see "CLOSED UNTIL FURTHER NOTICE"...where he may regret his decision, too).

-Randy

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