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WOULD YOU DO THIS ?. Definitely Marry your First Date Stick with your BetaMax! Live in One House for Life Keep that Old Car !! Never Switch Majors Stay in your Bad Relationship NEVER Change Jobs THEN WHY SWALLOW “BUY AND HOLD” ?. SELLING WELL: PROBLEMS AND SOLUTIONS. - PowerPoint PPT Presentation
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• Definitely Marry your First Date• Stick with your BetaMax!• Live in One House for Life• Keep that Old Car !!• Never Switch Majors• Stay in your Bad Relationship• NEVER Change Jobs
• THEN WHY SWALLOW “BUY AND HOLD” ?
WOULD YOU DO THIS ?
SELLING WELL:
PROBLEMS AND SOLUTIONS
Don Cassidy Senior Research Analyst Lipper, a Reuters Company
1-877-955-4773 1-303-537-0860
WHY SELLING WELL IS CRUCIAL
Things Change!
Limit Losses
Capture Unreasonable Gains
Perform in Range-Bound Market
WHAT WE DO
Trade In the Problem CarSell the House and Move
Quit the JobBurn/Donate the Leisure Suits
Change Majors/CollegesPull the Starting Pitcher
Separate/Divorce… but HOLD the bad stock!
LIKE A WINNING SPORTS TEAM
Good Defense First
Then Good Offense
“Time changes men, but it does not alter our opinions of them.”
- Marcel Proust
…LIKEWISE FOR STOCKS
-Don Cassidy
FALLACIES in B&H
Even zealots blink at the bottom!Pretends commissions/taxes are the
main problemAssumes BUY decision was perfect
Pretends no inflated price is too highHopes bad companies will mend
Ignores emotional extremes
DETERRENTS TO OVERCOME
Long-term Trend IS upFits non-judgmental culture
Pressure to avoid mistakes (closure ends hope)
Intuitive contradiction: selling on good news!
Scary market, or company factors?
“Control your emotions, or they will control you.”
– Sun Tzu, Chinese Military Scholar as
quoted by F.J. Chu, in The Mind of the Market
Behavioral Finance Integrates
Rational Theory:
Economics Finance Accounting Security Analysis
Human Realities:
Anthropology Psychology Sociology
BEHAVIORAL FINANCE’S INSIGHTS re SELLING
Endowment EffectCognitive DissonanceDisloyalty Avoidance
Decision Stress AvoidanceReinforcement
Comfort SeekingClosure Avoidance
PerfectionismVividness of Evidence/Social
Proof
BEHAVIORS NOT TO IGNORE
“It’s Different this time!”
Other Rationalizations
Celebration Behavior
Loud Media Drumbeat
Classic Rationalization: “It’s different THIS time.”
MORE NOT TO IGNORE
Widespread Self-Confidence
Advertising Playing to Aggressive Strategies
Watch the Crowd !
“Madness is the exception in individuals, but the rule in groups.” - Nietzsche
FOUR SIGNS TO WATCH…
* Mutual-Fund Net Flows * Humor* Advertising* Market Headlines off the Business Page
Current Flows and Recent Performance
-60
-40
-20
0
20
40
60
Jun
-98
Se
p-9
8
De
c-9
8
Ma
r-9
9
Jun
-99
Se
p-9
9
De
c-9
9
Ma
r-0
0
Jun
-00
Se
p-0
0
De
c-0
0
Ma
r-0
1
Jun
-01
Se
p-0
1
De
c-0
1
Ma
r-0
2
Jun
-02
Se
p-0
2
De
c-0
2
Ma
r-0
3
Jun
-03
Se
p-0
3
De
c-0
3
Ma
r-0
4
Jun
-04
Se
p-0
4
De
c-0
4
Flo
ws
in
$ B
illi
on
s
-40
-30
-20
-10
0
10
20
30
40
6-m
on
% c
hg
: S
&P
50
0
Month's Flows, $ Billion 6-mo % chg: SP 500
New Yorker Cartoon CountBullish Percent and
Total Number 1995: 100% (1)1996: 63% (8)
1997: 50% (14) 1998: 46% (13) 1999: 70% (33)
New Yorker (continued)
2000: 25% (16)2001: 4% (25)
2002: 0% (25)2003: 0% (7)
2004: nmf (n=0 !)
VERY Quick Tour:
1999-2003
Chart-Visible Reversal Clues
Unsustainable Slope +/-Acceleration +/-
Volume CrescendosVolume Spikes
(yes, technical analysis; sorry!)
SPIKES – the ‘inverted V’
”
BE CONTRARIAN AFTER A MOVE
Yes, It WILL Feel Uncomfortable…
(and that’s a good thing!)
ANOTHER KEY REVERSAL SIGN
•Calls for More
-gold @ $850-tech stocks will double
again-recently: oil price $100?
Good Selling: To-DOs
Have a sell plan when buyingSpend Equal Thinking Time
Use an A-A disciplineAssume change!
Give up on being perfectWatch Behavioral Signs of
HighsSell on first to speak:
fundamentals OR technical analysis
Selling: Operational Level
Date, don’t marry, your darlingsGraciously accept unreasonable
returns
Sell volume crescendosSell spikes immediately
(Internet compression effect!)
Believe the cockroach theory!Keep a notebook on yourself
STOP AND LIMIT ORDERS
* Enter target sells using P-S-T* Your cost not a valid factor
* Stops not at arbitrary percent down
* Use chart patterns to set stops* Avoid the bad odds of EPS time!
- admittedly, more practical for smaller portfolios
Good Selling: DON’Ts ListDon’t view sale as permanent
verdictDon’t confuse stock with
companyDon’t Fixate on meaningless
numbersDon’t Rationalize
Don’t reach for one more day or point
Don’t sell @ open unless the bad news is corporate cancer or
scandalDon’t lower or pull stops
Don’t let taxes rule thinking
Cassidy’s RULE OF 3-4-5-6STOCKS RARELY RISE, IN A ROW, MORE THAN…
3 Years4 Months5 Weeks
6 Trading Sessions
Don’t Over-stay!
Comfort is always greatest when danger of loss is largest.
We perceive risk180 degrees backwards.
The 3 Big Take-Aways
UN-Fixate on Fundamentals and on Being Perfect
Think ‘Human Behavior’! -- Watch Volume.
Play COUNTER to Crowds. -- good defense / good offense
THANK YOU !
Don Cassidy
Author: Trading on Volume
