Heyer Capital, LLC

investment management and timely advice from a local CPA (Fox Valley, Wisc.)

1) Believing the rally? 2) Always review your mistakes

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There is an ebb and flow to the market. I won’t get into the Investor’s Business Daily concept of a Follow Through Day, but suffice to say, each rally is confirmed with a Follow Through Day. Think of it as a signal that larger investors are committing dollars to the market.

It does NOT mean dive right in and start buying willy nilly. Selection rules always apply. Instead of a green light, think of it as a blinking red: proceed with caution.

I’ll admit it. I didn’t believe the start of the rally last summer was genuine. The Follow Through Day was very late after the bottom (most successfully it should come on Day 4-7 after a market bottom.) It was on Day 21 or so, almost a month later. Why didn’t I believe?

Always research your mistakes. Go back and look them over. What were you thinking? What was your analysis? Was your reasoning wrong, or just the market?

When this recent correction started, I built up my watch list and started going over my mistakes. Foremost was WHY I didn’t believe the August ’06 rally start was genuine. Know what I realized? The front page of the papers at the time were covered with the pictures of the Lebanon-Israeli war. Remember that one? No wonder I couldn’t bullishly commit—there was a war going on, at least in one corner of the globe. (Well there’s always a war and rumor of war somewhere; it’s just a matter of whether it appears in the newspaper.)

An axiom on Wall Street is “Bulls markets climb a wall of worry.” What does this mean? What I want you to tuck away in the fertile crevices of your brain is this point: When the markets are going up and you think it’s impossible because of all the bad news: trust the market.

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Written by heyercapital

April 4, 2007 at 7:14 am

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