So let me share a dirty little secret with you. I’ve had it with Dow-milepost articles, as have many of us who write about financial markets for a living. We had to say something smart for the 5000 Dow in November of 1995, and then for the 6000 Dow last October. There’s not a whole lot left to be smart about at 7000. And I figure that if I got out my correction fluid and changed the 6000 in my last article to 7000, the people who run this place would probably catch on.
So let’s forgo the typical whither-the-stock-market stuff and move on to the next topic: when, if ever, is it going to be time to take your money off the table?
Since none of the normal rules about stock prices’ relationships to dividend levels, balance sheets and corporations’ profits seem to apply to this stock market, we need some new rules. And because stock prices now seem to be driven more by psychology than by economics, we need rules based on psychology, not on numbers.
To be serious, if only briefly, don’t expect stock prices to keep going up forever. Someday they will drop, possibly rather sharply, for reasons that we don’t yet know. Or stocks may sit and go nowhere for a few years. The fact that stocks have been going up like crazy the past two years doesn’t mean they always will. Remember 1994? That year, bonds got killed because interest rates rose, and stocks returned only about 1 percent.
We have already seen what would normally be very dangerous signs that the market has peaked. Most notably, the federal government, a clas- sic contrary indicator, is thinking seriously about putting Social Security money into stocks.
My No. 1 rule has always been that you should sell when I’m buying. But that’s now failed twice in a row: in late November I put $15,000 of a rollover pension payment I received from one of my many former employers into stocks, and they promptly rose. I put an additional $10,000 into the market on Monday, Feb. 10, and stocks started rising like mad.
So herewith is my own Top 12 list of when to sell stocks. I’m going for 12 because Top 10 lists are almost as hackneyed as thousand-point-milestone stories.
The Top 12 signs that it’s time to sell are when:
You can’t get any work done because you’re turning on CNBC every 15 minutes to check out the market.
Your mother calls to tell you she’s got a crush on Louis Rukeyser.
You start dreaming about hot mutual funds instead of sex.
You feel the urge to ditch your day job and become a financial planner.
Canadian gold-mining shares suddenly seem too tame for you.
Your eyes don’t glaze over when you read about the capital-gains-tax debate in Washington.
More than half the time at any party you attend is spent talking about mutual funds.
Your kids start bringing home stock tips from school.
You seriously consider putting next month’s rent into stocks to make some quick bucks.
Your best friend says, ““I’m not greedy; I just want to make 25 percent a year.''
You feel inadequate because you made only 15 percent last year.
You see a bull on the cover of NEWSWEEK.
