Those who are in the market now may want to start selling, as the “common sense system,” or buy low, sell high strategy, dictates, writes financial journalist James Stewart in SmartMoney magazine.
“Many people equate a decision to sell with a prediction the market is going down,” writes Stewart.
“Who am I to dampen the festive atmosphere of a big rally? But I don’t try to predict short- or even medium-term moves in the market. All I’m trying to do is sell higher, buy lower, and thereby outperform a strict buy-and-hold approach. So far it has been working.”
Earlier this year, Stewart was suggesting that investors buy.
“As luck would have it, I bought on March 9, which turned out to be the bottom,” writes Stewart.
“My next selling target is 2,220 on the Nasdaq Composite, and the index has come close on several occasions.”
The tech-heavy index touched 2,203 on Nov. 17 before slipping back since.
There are other reasons to sell now, Stewart writes.
There is concern among analysts about continued deterioration in the commercial real estate market and its impact on bank earnings and balance sheets.
“This is a theme Federal Reserve Chairman Ben Bernanke addressed in his speech to the Economic Club of New York, when he noted that ‘Demand for commercial property has dropped as the economy has weakened,’” writes Stewart.
These problems are so well known that they should already be reflected in stock prices.
“But the efficient market theory was dealt a blow last year, when the well-known woes of residential real estate turned out not to have been reflected in bank stock prices. I expect something similar to happen again when there’s a big default in the commercial sector,” writes Stewart.
The sell now strategy may be apt for those holding foreign shares too.
Forbes is reporting emerging market shares have gained more than 70 percent this year, with the Istanbul stock exchange is up more than 80 percent.
Emerging market guru Mark Mobius, chairman of the Templeton Funds, now says that the so-called BRIC nations — Brazil, Russia, India, and China — could see market rises of up to 40 percent over the next few years.
But, even he suggests buying China, for instance, only on a serious pullback from current levels.
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