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Don't Go Chasing Waterfalls (or this rally)



January 24, 2013 – Comments (6) | RELATED TICKERS: H , O , LD

I hope you Fools enjoyed the shout out to TLC, wow that was a long time ago...

There are a many things that I've learned during my investing career but this point may be one of the most important and is worth repeating.

The recent rally has been great and I hope you all had some chips in the game, but if you didn't then DO NOT chase this rally. Way too often do people, myself included, feel like we are missing out on gains and our knee jerk reaction is to hop on the band wagon and join the market. This is never a good investment decision. Investments should be methodical and well thought out, not quick decisions because you are "missing the rally".

I'm not saying the market will crash/correct from here, but we have rallied significantly and quickly. The higher we go the less likely the rally is to continue.

instead of trying to join the late rally, plan some entry points for your favorite plays and sit back and wait.

Patience is key ininvesting, don't forget that.


6 Comments – Post Your Own

#1) On January 24, 2013 at 7:45 PM, awallejr (52.81) wrote:

One way I like to make plays on companies I feel got ahead of me is to sell puts as far out as I can.  I did that with CSX and XRX and so far so good.  At least I will make money if the stock keeps growing or I have the shares put to me at a discount.

Do be careful however in selling puts on companies with weak financial standing.  If the company goes BK you are taking a big loss.  Learned that lesson with ATPG;/

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#2) On January 24, 2013 at 9:58 PM, Option1307 (30.48) wrote:

That is definitely a decent option however I am personally not a huge fan of selling puts. But I do like your thinking!

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#3) On January 25, 2013 at 12:14 AM, awallejr (52.81) wrote:

Since 2009 I have almost always made money doing this.  ATPG was my one loser and that is because they went BK so I couldn't "string  out" the options.  If you like a stock at $20 wouldn't you be happy at say $17?  Right now I am eyeing DF Jan 2015 17s at $3.  Stock currently at $18.39.  Worse case I buy stock with a $14 basis.  Odds are this stock selling way over that.

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#4) On January 25, 2013 at 8:53 PM, awallejr (52.81) wrote:

Pulled the trigger on the DF trade.  Got my $3.

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#5) On January 26, 2013 at 1:59 PM, HarryCaraysGhost (56.25) wrote:

@ Option1307, I tend to agree. During this latest rally the line what goes up must come down keeps running through my head-

@ awallejr Dean Foods does look a bit overpriced right now.

btw- did you catch my response on the FF5C blog?

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#6) On January 27, 2013 at 1:06 AM, awallejr (52.81) wrote:

LOL yeah Harry looks like Genworth is saving you from wearing a dress heheh. 

As for DF that is why I sell the puts so I buy DF worse case at a lower price ($14).  It is the best way I know how to get into a stock without chasing it.

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