Wednesday, January 2, 2013

Sell Into This Rally

The sharp gains in stock prices on Monday and so far today will lift the spirits of investors.  After months of tedium following the deadlocked fiscal negotiations in Washington, it was encouraging that the two parties were able to reach an agreement (despite having to pass it on a holiday).

Yet, I wouldn't get carried away.  I think this might be a case of the adage, "Buy on the Rumor, Sell on the News."  Last year was a solid year for investors, with mid teens returns from many stocks.  Any further rebound early this year would seem to offer a prudent opportunity for profit taking and to rebuild cash reserves for better entry points later.  

After all, one of the most important lessons in investing is, "Starting Price Matters."  And for a growing number of stocks today, the starting price facing investors is not low enough to provide a sufficient margin for error, or "margin of safety."

Steve Lehman

S & P 500:  1449  

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