Wednesday, May 23, 2007

Memorial Day Cometh - Time to Selleth...

Memorial Day is upon us. The sole Survivor has been selected. Jack Bauer has saved the world yet again on 24. The winning couple has had their last dance on Dancing with the Stars. The top singer was selected on American Idol. The plot has thickened on Lost. And while the networks have been bombarding us with a wide assortment of new pseudo-reality shows for the summer (more dancing, car racing, amateur film-makers, and all kinds of trashy boyfriend/girlfriend choosing, wife swapping, and other mindless pabulum), the looming question has still not been answered. Will the market pull back?

Damn right it will. Besides the investor’s cliché of “sell in May and go away”, all the other signs are there. The housing market continues to drop in most parts of the country. Oil prices are still high with no relief in sight. Government spending is out of control. The sub-prime mess. Greenspan stating that a recession will most likely happen. The US dollar getting creamed. The stock marketing reaching all time highs. The longest bull run in. Investing pundits raising the warning flags to get out now. Of course, people like Doug Fabian are always raising the flag, but this time he’s on the money.

So what I’m going to do? I’m taking some chips off of the table with my equities. Not worth getting out of my covered-call positions, but in my other holdings, I’m going to do one of two things. First, where I’m overexposed (and most people are whether they admit it or not), I’m selling some shares and raising some cash for when the pullback comes. Second, on some of my winners, I’m going to let them keep on running, but put stop losses on them so I don’t get walloped. I wish I could do the same with the mutual funds in my 401k plan, but alas, the rules are screwed up and don’t allow me to do that.

The hardest part about selling in May and going away is having the discipline to do so. At every market pull-back, I’ve always wished that I sold when I was seriously thinking about it. But then I wavered because I was either greedy, or let the emotions get the best of me. Do I really want to sell my Starbucks stock? Even though I don’t drink coffee, I like the company. And reasoning like that has got me in trouble. And days like today, where the market is going up and I feel good about it, I know in my head that the market is going to pull back and I’ll kick myself if I didn’t pull the trigger.

So here I go. I’m pulling some money out, putting some stop losses in place, and getting ready for Memorial Day, the gateway to the summer season. I’ll still be in the market and doing some of my option trading, but I’m protecting m nest egg so I don’t have to worry about it over the summer. Memorial Day for me has changed over the years, and the meaning of it today is to remember the fundamentals and protect my money today so that I can have a better future tomorrow.

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