Sunday, 1 August, 2010

Listen to the "Shoe-shine boys"

Listen to the "Shoe-shine boys"
(to know when the market reaches the top!)
Here's an anecdoctal piece from the famous Bernard Baruch.
No, markets reach their top when "shoe-shine boys start asking for stock tips" - Bernard Baruch

There's this famous story about how the US markets had soared very high-up when Baruch had gone for a shoe-shine. The shoe-shiner upon learning that Baruch was an investor, asked him questions about the markets with unbridled enthusiasm. Baruch got a very uncomfortable feeling over this enthusiasm, that was indicative of a mass-hysteria (which I am sure he had discerned in other places as well), so later during the day he exited all his positions.

The next day the market crashed !!!

I had a personal encounter with the "Baruch Indicator" shortly before the Jan 2008 crash, when waiters at this restaurant I used to frequent, came up to me and started asking for stock tips and what mutual funds they could invest in. They knew for a long time that I played the markets because usually I'd go to the restaurant with a copy of the DSJ magazine or some trading-related books. But that was the very first time when a large group of them cornered me for advice !

Well in a few days time the market tanked !!!

The Baruch Indicator is timeless I think - you can't go wrong with it   :)
Everybody and his brother is sounding cautious about "overheating markets around the world" and an impending correction.
  • There's talk of the European crisis - Am not mentioning any individual nation, because a different nation grabs the attention every other day.
  • Folks are worried about the recurring danger of deflation in US.
  • And the China scare
  • And the wars of Gulf, Kashmir, South China sea, etc.
  • And the potential spike in Oil
As long as enough people are freaking out buying puts, writing calls, shorting high beta stocks, etc., we can have a reasonable degree of confidence about not being at a new peak.
Enjoy the run while it lasts.
But buy puts to hedge yourself. And keep booking profits whenever you can, as regularly as you can.
Irrespective of what experts, self-proclaimed experts, business journalists, blog writers, etc. tell you.



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